How to Apply R&D Expensing Under Rev Proc. 2025-28
The IRS has released long-awaited guidance on how to comply with one of the most impactful tax provisions of the One Big Beautiful Bill Act (OBBBA). Specifically, Section 70302 of the law revives immediate expensing for domestic research and experimental (R&E) expenditures and allows small businesses to apply this benefit retroactively. In this post we explain how R&D expensing under Rev Proc. 2025-28 gives small businesses new flexibility in maximizing their R&D tax benefit.
Key Takeaways from Rev. Proc. 2025-28
Automatic 6-Month Extension for Superseding Returns
Many small businesses are still evaluating whether to expense or amortize R&D costs on their 2024 return. The IRS now confirms that any return timely filed by the original deadline (9/15 or 10/15) will automatically be treated as a request for extension, allowing a superseding return to be filed within 6 months (no Form 7004 required).
This gives taxpayers time to evaluate their R&D position, gather documentation, and file a corrected return by March or April 2026 without triggering late filing penalties.
R&D Expensing Is Optional for Small Businesses in 2024
One of the most debated issues since OBBBA passed was whether R&D expensing was mandatory on 2024 returns for small businesses. Some firms argued that taxpayers must amortize R&D and amend later; others believed expensing was allowed immediately.
Rev. Proc. 2025-28 settles the issue. Eligible Small Businesses (defined as having less than $31 million in gross receipts) can fully expense R&D under Section 174A starting in 2024, without filing Form 3115. Instead they must attach a statement complying with § 3.03 of the Rev Proc.
Amended Returns
Small businesses that previously amortized R&D expenses in 2022 or 2023 may now amend those returns to fully deduct those costs under the early election. This can result in significant refunds of overpaid tax, especially for startups or tech-driven businesses with large development costs.
Tax preparers pursuing this option must attach a statement that the taxpayer is making an election under OBBBA § 70302(f)(1)(A) to Apply for § 70302(e)(1) early R&E expensing.
Recovering R&D Assets in 2025 Requires Form 3115
If a business does not amend prior years, they may still recover the unamortized portion of R&D costs from 2022/2023 on their 2025 return.
However, this is considered a change in accounting method under Section 446(e), and therefore:
- Form 3115 must be filed
- The change qualifies for automatic consent
- A § 481(a) adjustment is required to deduct the full remaining R&D asset
Next Steps for Businesses and CPAs
Every business affected by Section 174 amortization now has options. Whether to amend prior returns, expense in 2024, or recover R&D costs in 2025 depends on your facts, goals, and timing.
At ATS, we anticipate thousands of amended returns being filed this year, which may cause IRS refund processing delays. Careful planning is needed on how to leverage previously amortized R&D assets in combination with R&D tax credits to ensure maximum tax benefit.
We are actively working with CPAs, advisors, and business owners to:
- Prepare election statements for 2024 returns
- Model the tax impact of amending or deducting in 2025
- Coordinate R&D expensing and the R&D tax credit (§ 41) for maximum benefit
Need Help Navigating Rev. Proc. 2025-28?
If you’re unsure how to approach your R&D tax position under the new rules, the team at ATS is here to help. Contact us today for a complimentary consultation and discover how you can turn previously amortized R&D costs into real tax savings.
