IRS Releases Rev. Proc. 2025-28: New Guidance on R&D Deductions Under OBBBA

Deb Roth, CPA on August 29, 2025

IRS Releases Rev. Proc. 2025-28: New Guidance on R&D Deductions Under OBBBA

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 One, Big, Beautiful Bill Act (OBBBA). This guidance is especially important for small businesses and creates immediate opportunities for CPAs to deliver value to clients.

Why Rev. Proc. 2025-28 Matters

For CPAs, this guidance is both compliance-driven and planning-focused. While it details how to apply OBBBA provisions to domestic and foreign R&D expenses, it also opens a short-term window to retroactively apply deductions, potentially generating refunds for eligible clients.

For clients, the takeaway is simple: if your business invests in R&D, these rules provide tax planning options that need to be considered in a defined time window.

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 Superseded 2024 Returns

Most taxpayers who filed timely 2024 returns (without extension) can file superseded returns to apply OBBBA provisions.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

Identify opportunities for refunds by reviewing 2022–2024 filings for clients with R&D activity.
Prioritize small business clients meeting the § 448(c) test — they have a time window for retroactive application.
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.

Rev. Proc. 2025-28 is more than just compliance guidance — it’s a planning tool. CPAs should act quickly to evaluate client eligibility, identify refund opportunities, and ensure method changes are properly applied. For small businesses in particular, this may be the most favorable R&D tax development in years.

Begin reviewing R&D expenses and prior filings for eligible clients. With deadlines approaching, early action is critical.

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IRS Issues New Guidance on Beginning of Construction Rules for Wind and Solar Tax Credits

Imran Syed on August 19, 2025

IRS Issues New Guidance on Beginning of Construction Rules for Wind and Solar Tax Credits

The Treasury Department and IRS have issued Notice 2025-42, providing updated guidance on the Beginning of Construction requirements for claiming Clean Electricity Production and Investment Tax Credits for wind and solar facilities. This update reflects changes from The One, Big, Beautiful Bill Act (OBBBA) and Executive Order 14315, which begin phasing out subsidies for certain energy sources.

Key Deadlines

End of Credit Availability:
Wind and solar projects placed in service after December 31, 2027, will not qualify for these credits.
Construction Start Deadline:
Projects must begin construction before July 5, 2026, to remain eligible. If construction begins before this date, the project may qualify under the four-year continuity safe harbor.

Beginning of Construction Tests

1. Large Projects (>1.5 MW AC Nameplate Capacity)

Must use the Physical Work Test to demonstrate construction has started.
Permitting, planning, and site clearing do not qualify.
Only physical work of a significant nature either on-site or off-site (e.g., manufacturing of custom components) counts.
Components held in stock or produced without a binding contract do not count toward the Physical Work Test.

2. Small Solar Projects (≤1.5 MW AC Nameplate Capacity)

Developers of smaller solar facilities have more flexibility; they can qualify by using either:

Option 1: Physical Work Test, or
Option 2: Five Percent Safe Harbor, where at least 5% of total project costs are incurred before the deadline.

This guidance applies to wind and solar projects that begin construction on or after September 2, 2025.

Continuity Requirement

To qualify for a tax credit, solar and wind projects must maintain a continuous program of construction. This means there must be an ongoing, significant amount of physical work. However, certain delays that are outside of the taxpayer’s control won’t be considered a failure to meet this requirement. These include a non-exhaustive list of excusable disruptions such as severe weather, natural disasters, delays in obtaining permits or licenses, labor stoppages, supply shortages, financing delays, and issues with grid interconnection.

Key Takeaways for CPAs and Developers

Developers must move quickly: Start project before July 5, 2026, to be eligible for the four-year continuity safe harbor deadline.
Projects greater than 1.5 MW AC net output must begin construction before September 2, 2025, to avoid the strict physical work test requirement under Notice 2025-42.
Smaller solar projects not greater than 1.5 MW AC benefit from dual qualification pathways, i.e., Physical work test and the Five Percent Safe Harbor.
CPAs should advise clients to maintain robust documentation of construction activity to defend credit claims.

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The One Big Beautiful Bill Passes Senate: What CPAs Need to Stay Ahead

Franklin Chow on July 3, 2025

The One Big Beautiful Bill is Ready for the President’s Signature: What CPAs Need to Stay Ahead

The One Big Beautiful Bill (OBBB) has passed both the House and Senate and is expected to be signed by President Trump. The tax law changes affect individuals, businesses, real estate developers, and investors starting in 2025.

While many provisions are effective for tax year 2025, others hinge on construction start dates, acquisition dates, or the date of enactment, making planning and timing especially critical. A view into some of the selected provisions is below.

I. Individual Taxpayer Changes

Tip & Overtime Income Deductions

Tips: Up to $25,000 deductible
Overtime: Up to $12,500 (single) / $25,000 (joint)
Phaseout Thresholds: $150K (single) / $300K (joint)

SALT Deduction Cap Increased and will be inflation adjusted

New cap: $40,000 for joint filers
Phaseout begins at $500,000 of AGI

II. Pass-Through Entity & Small Business Owners

Section 199A: QBI Deduction Made Permanent

20% deduction for qualified pass-through income

PTET Deduction Limits

The latest Senate version drops the limitations to the PTET deduction

III. Depreciation & Real Estate Provisions

For clients planning industrial facilities, now is the moment to align construction timelines to secure 100% bonus treatment and confirm eligibility under QPP definitions.

100% Bonus Depreciation Returns

Effective for property acquired after January 19, 2025
Permanent under the final bill

Qualified Production Property (QPP)

Applies to new non-residential property used for manufacturing/refining
Must begin construction after Jan 19, 2025, and be placed in service by Jan 1, 2031
Excludes office, software, sales, lodging, and parking

IV. Energy Efficiency & Clean Energy Incentives

Clients pursuing energy-efficient or clean energy projects should accelerate timelines or consider whether project viability changes with shorter incentive windows.

Section 45L Credit (New Residential Homes)

The credit will end for property acquired (e.g. sold or leased) after June 30, 2026. The prior version was 12 months after enactment.

Section 179D (Commercial Buildings)

The deduction will end for property beginning construction after June 30, 2026. The prior version was 12 months after enactment of the bill.

Clean Energy Credits (Sections 45Y and 48E)

Wind and Solar projects must now be in service before the end of December 31, 2027, previous version allowed for a credit for projects beginning construction up until 2027. There is a carveout for projects that begin construction within one year of enactment.
Special 5-year cost recovery period repealed

V. Section 174: Research & Experimental (R&E) Expensing

This is a major win for innovation-heavy clients. Consider amending 2022 or 2023 returns for eligible small businesses and advise all clients on the 2025 catch-up strategy.

Amortization Repealed Permanently
Small Business Relief: Retroactive deduction option for businesses under $31M in gross receipts for tax years starting in 2022
Catch-Up Option: All taxpayers may accelerate unamortized balances as of 12/31/24 over one or two years

Source Advisors is here to support your firm and your client. Our experts work behind the scenes so you can deliver exceptional results with confidence.

sourceadvisors.com | 800.806.7626

The One Big Beautiful Bill: Senate Update

Franklin Chow on June 17, 2025

The One Big Beautiful Bill, The Senate Update

The Senate released its text of the legislation (The One Big Beautiful Bill) in full as it relates to specialty taxes.

Bonus Depreciation

100% bonus will return for property acquired after January 19, 2025, and be permanent going forward.
Qualified Production Property is added to 100% bonus depreciation for any non-residential real property that meets the definition of “manufacturing, production, or refining of a qualified product”. Construction must begin after January 19, 2025, and be placed in service before 2031.

Research and Experimental Expenditures (174 Expensing)

For domestic research and experimental expenditures paid in tax years after December 31, 2024, will be deductible and permanent going forward.
Appears to give small taxpayers a retroactive election (Gross Receipts less than $31M).

New Energy Efficient Homes Credit IRC 45L and Commercial Buildings Deduction under 179D

The 45L credit will no longer be available for property acquired 12 months after the enactment of the legislation.
The 179D deduction will no longer be available for property that begins construction 12 months after the enactment of the legislation.

Clean Energy Production/Investment Tax Credits IRC 45Y and 48E

The credits will start to phase out after 2032 as originally enacted.
However, for solar and wind facilities these credits will phase out over the next two years.

This bill still must go to the floor of the Senate and as it stands there are doubts as to whether the Republicans have enough votes due to Medicaid cuts and deficit issues.

We will continue to provide updates as the legislation progresses.

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