When OBBBA was passed many CPAs asked, “May my client take advantage of the law change on their originally filed 2024 tax returns?” The short answer is yes; therefore, this short article focuses on Sect. 174A elections available to eligible small-business taxpayers and how to make the elections (Rev. Proc. 2025-28 sections 3 and 7).

Note that eligible small-business taxpayers are not required to apply Sect. 174A retroactively; they can follow large businesses and elect to deduct 100 percent in 2025 or 50/50 over 2025 and 2026. The focus of this article is applying Sect. 174A retroactively.

Eligible small-business taxpayers may elect to retroactively apply Sect. 174A to R&E for years beginning after Dec. 31, 2021, in one of two ways.

1. Election statement (or deemed election): File the statement in section 3 of Rev. Proc. 2025-28, providing all the required information and attach it to a partnership AAR, or original, amended or superseding federal income tax return, as applicable, for each applicable year (2022–2024). For 2024, a superseding return may be used if filed by the extended due date. Under the relief provision of section 8 any return filed by the original due date without extending is deemed to have a six-month extension. Alternatively, if the return is on extension, you can deduct R&E expenses with a deemed election on the original return. Under this option, if R&E expenditures were incurred in all three years, and the deemed election is made on the 2024 federal tax return then amended returns must be filed for 2022 and 2023, as applicable. Remember, when following this method, you must reverse any amortization deductions claimed on the original returns for 2022, 2023 and, if applicable 2024 for originally capitalized expenses.

2. Automatic change allowing a negative Sect. 481(a) adjustment with a statement in lieu of a Form 3115: File the 2024 superseding, amended or original tax return to request an automatic change in method of accounting under modified section 7.02(3)(c) of Rev. Proc. 2025-23[CL1] [MT2] , attaching a statement to the tax return with information required in section Rev. Proc. 2025-28 section 7.02(5)(a)(ii). Under this method, the deductions for 2022, 2023 and 2024 are all deducted on the 2024 return rather than filing amended returns for 2022 and 2023.

Additional considerations:

1. Choosing to file under section 3 includes the opportunity to make or revoke the election under IRC Sect. 280C(c)(2) to claim a reduced credit which is not available if those returns are not amended.

2. Amending earlier years may increase the total refund by spreading the deductions over multiple years, though you should weigh this against the additional compliance burden and the IRS’ long processing times for amended returns.

For questions regarding the revenue procedure, contact the Office of the Associate Chief Counsel (Income Tax and Accounting), Branch 7, at (202) 317-7005.

Revenue Procedure 2025-28

SECTION 1–Purpose

To provide procedures for making certain elections under OBBBA Sect. 70302(f) Transition Rules from the prior Sect. 174 after the amendment of TCJA passed Dec. 22, 2017, and prior to the amendment by OBBBA Sect. 70302(b)(1) and the affected procedures under Sect. 446. It also provides procedures for making elections under Sect. 174A(c) to amortize R&E paid or incurred in years beginning after Dec. 31, 24.

SECTION 2–Background

This section provides the history of Seb-section 174, 174A and other code sections related to R&E. Generally, an election is effective for the year of election and all subsequent years unless approval to change is granted by the secretary. However, OBBA provides that eligible taxpayers, qualified small-business taxpayers, will be granted automatic change in method of accounting for tax years 2022-2024 if the election to change is made in accordance with the guidance of Revenue Procedure 2025-28 no later than July 6, 2026.

It addresses the treatment of foreign R&E which is outside the scope of this article.

It identifies the type of taxpayer returns that qualify to file amended returns and the timing and requirements for each type of return. The focus of this article is partnerships, S corporations and LLCs taxed as partnerships or S corporations, and taxpayers receiving amended K-1s.

SECTION 3–Small Business Election to Retroactively apply Sect. 174A

.03 Small business OBBBA election. An election under OBBBA Sect. 70302(f)(1)(A) may be made on a small-business taxpayer’s timely filed (including any extension) original federal income tax return for an applicable taxable year, or on an AAR or amended federal income tax return, as applicable, for an applicable taxable year, by attaching a statement to suchAAR or federal income tax return, as provided in section 3.03(2) of this revenue procedure (small business OBBBA election). Once an election under this section 3.03 has been made by a small-business taxpayer for an applicable taxable year, such taxpayer must carry out theelection under this section 3.03 for all applicable taxable years in which the taxpayer paid orincurred domestic research or experimental expenditures.

1. Eligibility to make election. A small-business taxpayer may make the election to retroactively apply Sect. 174A to tax years beginning after Dec. 31, 2021 provided in thissection 3.03 if it has not made a change in method of accounting under section 7.02(3)(c) of Rev. Proc. 2025-23, as modified by this revenue procedure.

2. Manner of making election. A small-business taxpayer makes an election under this section 3.03 by attaching a statement to its AAR or original or amended federal incometax return, as applicable, for an applicable taxable year. Such a statement must be titled, “FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28,” and must be attached to the federal income tax return that is the AAR, or original or amended return, asapplicable, filed for each applicable taxable year, and must include:

   1. the name and taxpayer identification number of the small-business taxpayer that paid or incurred domestic research or experimental expenditures in taxable years beginning after Dec. 31, 2021, and before Jan. 1, 2025;

   2. a declaration that the taxpayer is not a tax shelter for its first taxable year beginning after Dec. 31, 2024 (taking into account the election provided in Sect. 1.448-2(b)(2)(iii)(B) if the declaration in section 3.03(2)(c) of this revenue procedure is made);

   3. if the taxpayer has not previously made the election provided in Sect. 1.448- 2(b)(2)(iii)(B) and the taxpayer intends to make such election for its first taxable year beginning after Dec. 31, 2024, a declaration that the taxpayer will make the election provided inSect. 1.448-2(b)(2)(iii)(B) for purposes of determining whether it is a tax shelter for its first taxable year beginning after Dec. 31, 2024, on the original federal income tax return (including extensions) filed for such taxable year;

   4. a declaration that the taxpayer meets the Sect. 448(c) gross receipts test, as providedin Sect. 448(c) and Sect. 1.448-2(c), for its first taxable year beginning after Dec. 31, 2024;

   5. a statement indicating whether the taxpayer is making the small business OBBBAelection to (i) deduct domestic research or experimental expenditures in the applicable taxable year in which they are paid or incurred or (ii) charge such expenditures to capital account and amortize such expenditures under Sect. 174A(c);

   6. if the taxpayer is making the small business OBBBA election to charge domesticresearch or experimental expenditures to capital account under Sect. 174A(c), a declaration that: (i) the taxpayer is charging such expenditures to a domestic research or experimental expenditures capital account in the applicable taxable year in which such expenditures are paid or incurred, and amortizing such amount over a period of notless than 60 months beginning with the month in which the taxpayer first realizes benefits from such expenditures; and (ii) the number of months (not less than 60) selected for the amortization period; and

   7. a declaration that the taxpayer will file an AAR or amended return, as applicable, toreflect the election provided in this section 3.03 for any applicable taxable year(s) for which the taxpayer previously filed a Federal income tax return prior to Sept. 15, 2025, that specifies such applicable taxable years, if the taxpayer paid or incurred domestic research or experimental expenditures in such applicable taxable year(s).

SECTION 4—Small Business Taxpayer Election Under Sect. 280C(c)(2)–Not discussed

SECTION 5— Small Business Taxpayer Revocation of Sect. 280C(c)(2) Election—Not discussed

SECTION 6—Election to Capitalize and Amortize Domestic Research or Experimental Expenditures (R&E) Under Sect. 174A(c)–Not discussed

SECTION 7—Modification of Section 7 of Rev. Proc. 2025-23

Section 7 of Rev. Proc. 2025-23 is modified to read as follows:

.01  Change for Domestic Research or Experimental Expenditures under TCJA Sect. 174.

1. Description of change.

   1. In general. This change applies to a taxpayer that wants to change its methodof accounting for domestic research or experimental expenditures paid or incurred in taxable years beginning before Jan. 1, 2025, to: (i) comply with TCJA Sect. 174; or (ii) rely on interim guidance provided in sections 3, 4, 5, 6, or 7 of Notice 2023-63, 2023-39 I.R.B. 919, as modified by Notice 2024-12, 2024-5 I.R.B. 616.

   2. References. Section 13206(e) of Public Law 115-97, 131 Stat. 2054 (12/22/17) commonly known as the Tax Cuts and Jobs Act (TCJA) provides that the amendmentsmade by Sect. 13206 of the TCJA apply to amounts paid or incurred in taxable years beginning after Dec. 31, 2021. Unless otherwise stated, references to “TCJA § 174” in this section 7 refer to Sect. 174 as amended by Sect. 13206(a) of TCJA, but prior to amendment by Sect. 70302 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), for amounts paid or incurred in taxable years beginning after Dec. 31, 2024. All references in this section 7 to “OBBBA § 70302” refer to provisions of Sect. 70302 of the OBBBA.

   3. Changes included in section 7.01(1)(a) of this revenue procedure. The changes described in section 7.01(1)(a) of this revenue procedure include, among other changes, a change: (i) from capitalizing domestic research or experimental expenditures that constitutespecified research or experimental (SRE) expenditures, as defined in TCJA Sect. 174(b) and Section 4.02(2) of Notice 2023-63, as applicable, to inventoriable property ordepreciable property and recovering such expenditures through cost of goods sold or depreciation, respectively, to capitalizing and amortizing such expenditures under TCJA Sect. 174(a) or Section 3.02 of Notice 2023-63, as applicable; and (ii) from treating a domestic research or experimental expenditure that does not meet the definition of an SRE expenditure as an SRE expenditure subject to capitalization and amortization under TCJA Sect. 174(a) or Section 3.02 of Notice 2023-63, as applicable, to treating that expenditure under the appropriate provision of the Code.