IRS Releases Rev. Proc. 2025-28: New Guidance on the R&D Tax Credit

On August 28, 2025, the IRS issued Rev. Proc. 2025-28, which provides procedures for making elections and changing accounting methods related to research and development (R&D) expenses under the OBBBA. This guidance is especially important for small businesses.

Key Highlights

1. Superseded 2024 Returns

  • Most taxpayers who filed timely 2024 returns (without extension) can file superseded returns to apply OBBBA provisions.

2. Deemed Elections for Small Businesses

  • Small businesses (gross receipts under IRC § 448(c) — $31M for 2025) filing timely returns on or before November 15, 2025, will be deemed to have elected OBBBA treatment if they deduct R&D expenses on the return.

3. Domestic vs. Foreign Expenses

  • Domestic R&D: Immediate deductions or capitalization available under OBBBA for tax years beginning in 2025.

  • Foreign R&D: Pre- and post-2025 tax year expenses must be capitalized under OBBBA, though method changes are available to align with compliance.

4. Retroactive Application (IRC § 174A) for Qualifying Small Businesses

  • Small businesses may apply OBBBA provisions retroactively to tax years beginning after December 31, 2021.

  • Elections may be made via timely filed returns, amended returns, or administrative adjustment requests (AARs).

  • Alternatively small businesses may retroactively apply the OBBBA provisions to tax years beginning after December 31, 2021, through a change in accounting method.

  • Once made, elections must be applied consistently across all applicable years.

  • Retroactive elections must be made by July 6, 2026, or the statute of limitations on refund claims.

5. IRC § 280C(c)(2) Elections

  • Late elections (or revocations) are permitted, adjusting the relationship between R&D deductions and credits.

  • Requires amended Form 6765 and a statement providing certain information declarations.

  • Retroactive elections must be made by July 6, 2026, or the statute of limitations on refund claims.

Automatic Method Changes (Rev. Proc. 2025-23 Updates)

  • #265: Pre-2025 domestic research under TCJA.

  • #273: Deduct/capitalize under OBBBA, including recovery of unamortized amounts over 1–2 years.

  •  #274: Pre-2026 foreign research expenses.

Planning Implications

  • Identify opportunities for refunds by reviewing 2022–2024 filings.

  • Revisit credit strategies including the overall assessment of R&D credits and any use of § 280C(c)(2) elections.

  • Prepare superseded or amended returns where applicable.

  • Mark critical deadlines.

Summary

The IRS has released new guidance that allows businesses to deduct R&D expenses immediately under the One, Big, Beautiful Bill Act. For small businesses (under $31M in gross receipts), this means you may retroactively apply these rules to prior years—potentially generating refunds.

If you filed a 2024 return without extension, you may also have the opportunity to supersede your return and claim additional deductions. These changes are complex, but they represent a significant tax planning opportunity. Reviewing your prior returns now could present significant planning opportunities. Deadlines are strict: retroactive elections must be made by July 6, 2026, or sooner if the statute of limitations applies.

Robert Martin