Breaking Down the OBBBA: The IRS Releases Guidance on Research Expenditures

On August 28, 2025, the Internal Revenue Service (IRS) released Revenue Procedure (Rev. Proc.) 2025-28, which provides guidance on elections for research expenditures under Section 70302 of the One Big Beautiful Bill Act (OBBBA). This revenue procedure updates the process for changing accounting methods with the IRS and, importantly, addresses how taxpayers can retroactively apply OBBBA’s Section 174A provisions for eligible small taxpayers.  

Rev. Proc. 2025-28 is 61 pages long and is highly technical. Below, we have summarized key takeaways for taxpayers impacted by the changes. 

Retroactive Relief for Small Businesses 

A central question since OBBBA’s passage has been whether small taxpayers must amend prior returns to apply Section 174A or whether they can act on their 2024 filings. Rev. Proc. 2025-28 clarifies the process for the following three scenarios: 

• Extended 2024 Returns: If a small business has filed for an extension on its 2024 return and has not yet filed its taxes, it can make the “small business OBBBA election” and deduct its 2024 research expenditures directly on its timely filed 2024 return. No amended return is required for 2024.  

• Superseded 2024 Returns: If a small business filed for an extension on its 2024 return but has already filed its 2024 taxes, it can file a superseded tax return by September 15, 2025 (or October 15, 2025, for C Corporations), to claim the 2024 deduction. 

• Deemed Extensions: If a small business filed its taxes in March or April without filing for an extension, it can still be “deemed” to have filed an extension. This allows the business to submit a superseded 2024 return and claim the deduction.   

In each case, the election must include a statement as outlined in Section 3 of Rev. Proc. 2025-28. 

Important note: If the taxpayer retroactively claims the “small business OBBBA election,” they must also amend their 2022 and 2023 returns. However, a Form 3115 is not required in these situations. 

Changes in Accounting Method  

Rev. Proc. 2025-28 also details how taxpayers can handle research expenditures through changes in accounting method: 

• For 2025 (and some 2024 cases): Section 7 primarily applies to large businesses or those not electing retroactive relief under Section 3.   

• Small Business Option for 2024: Section 7.02(3)(c) provides a path for eligible small businesses to (1) deduct all prior-year capitalized Section 174 expenses via a negative Section 481 adjustment, and (2) deduct 2024 Research and Experimental (R&E) expenses on their extended 2024 returns. Small businesses taking this option must attach a “Statement in Lieu of a Form 3115” to their timely filed 2024 tax return.    

• This option allows small businesses to avoid amending their 2022 and 2023 returns.  

• It is only available for extended returns that the business filed timely—not for amended or superseded returns. 

• The IRS has informally confirmed this treatment, and further guidance (possibly in the form of a Frequently Asked Question [FAQ] response) is expected soon.  

Section 163(j) Considerations 

Another open issue relates to how unamortized capitalized research expenditures will be treated under the new earnings before interest, taxes, depreciation, and amortization (EBITDA)-based limitation in Section 163(j). Rev. Proc. 2025-28 does not directly address this issue; however, Section 7 describes these deductions as “amortized the remaining unamortized amount.” 

This language suggests that taxpayers may treat unamortized capitalized research expenditures as amortization for adjusted taxable income (ATI) purposes under Section 163(j). As such, taxpayers would add these expenditures back when calculating ATI. Although this interpretation is not definitive, the language provides support for this position.  

Key Takeaway 

Rev. Proc. 2025-28 is a critical piece of IRS guidance for taxpayers impacted by OBBBA’s research expenditure provision. The rules are complex, especially with regard to retroactive elections and changes in accounting methods, and additional guidance is expected. 

This article is part of our continued analysis of the OBBBA. Find all of our coverage here. We also invite you to contact Sikich’s tax advisors if you have any questions on how these rules affect your business.

About Our Authors

Jenny Kramer, CPA, has been helping closely-held businesses and their owners with their tax planning and compliance needs since 2005. She specializes in taking the time to understand her clients’ overall business strategies so that she can provide a clear understanding of the tax implications of their goals and develop tax planning opportunities that will coincide with and enhance their objectives.

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.

Phil Rosloniec, CPA, supports the tax planning and strategies of business owners in industries such as construction, professional services and engineering. With nearly two decades of experience in public accounting and at publicly-traded companies, he brings a deep understanding of tax laws and compliance.