With the passage of the One Big Beautiful Bill Act (OBBBA), there have been several long-awaited changes to the tax treatment for companies, including the ability to fully deduct their research and experimental (R&E) expenses under Internal Revenue Code (IRC) Section 174. This change is set to take effect for tax years beginning after December 31, 2024. Additionally, companies that have amortized previous R&E expenses can accelerate any remaining unamortized amounts over a one- or two-year period starting in 2025.
Changes to Research and Experimental Expenses
Unamortized Domestic R&E Expenditures
Taxpayers generally have flexibility regarding the treatment of unamortized domestic R&E expenditures under the transition rules. For example, taxpayers may elect to accelerate the recovery of the unamortized amounts or may choose to continue amortizing such amounts over the remaining five-year period. Anticipated IRS procedural guidance could impact the analysis, and modeling is necessary for determining the approach that best aligns with overall tax planning strategies.
Foreign Research
Notably, foreign research was not given special treatment, and the 15-year amortization will still be required for these expenditures. Identifying R&E expenditures that are paid for foreign research will be an important part of certain companies’ overall tax planning strategy.
Section 280C
The OBBBA also reestablishes the Section 280C election for a reduced credit as a viable and more simplified method for claiming R&D credits under IRC Section 41. When the deduction for R&E expenditures sunset in 2022 under the Tax Cuts and Jobs Act (TCJA), claiming the gross credit amount became a viable strategy for most taxpayers.
The OBBBA reverts to pre-TCJA rules, allowing taxpayers to either claim the gross credit while offsetting their deduction of R&E expenses or elect 280C and reduce the credit amount by 21%. Small businesses seeking to retroactively elect to deduct their R&E expenditures via amended filings will be subject to the same rules and either need to offset their deductions or claim the reduced credit under 280C.
On August 28, 2025, the IRS issued guidance with Revenue Procedure 2025-28 that helped clarify these rule changes and provide procedural guidance for certain eligible small businesses seeking to retroactively apply. The guidance also clarified the interactions between certain credit elections such as 280C and whether taxable income adjustments would be necessary for taxpayers seeking to amend previous filings. The impact of this guidance depends on several factors, and our team of tax professionals can help you navigate the options and procedural guidance to determine the best approach for your tax position.
The changes brought by the OBBBA create a favorable environment with the guarantee of permanent IRC 174 deductions and reinforced IRC 41 credit rules. Documentation of eligible expenses remains a cornerstone for any taxpayer looking to claim value credits.
Changes for Small Businesses
In addition to being able to fully deduct any remaining unamortized expense, small businesses are able to retroactively elect to fully deduct their previously incurred R&E expenses through amended filings.
This flexibility allows for retroactive treatment reaching as far back as 2022 and allowing for immediate relief for numerous taxpayers. To be eligible for the retroactive treatment, a taxpayer must pass the “gross receipts test” under IRC section 448(c). A company will be eligible under this test if its average gross receipts do not exceed $31 million for the three years prior to the tax year beginning after December 31, 2024.
For most calendar year-end companies, this would mean reviewing their average gross receipts for tax years 2022–2024. For controlled groups, the gross receipts test will need to be determined at the group level, and gross receipts may need to be aggregated. Companies that do not qualify for the “small business” exception can deduct any remaining unamortized research expenses in all of their 2025 tax year or ratably over the next two years.
Contact your RKL advisor today to discuss the implications of the OBBBA on your research and experimental expenses.
