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 Superseded 2024 Returns

• Most taxpayers who filed timely 2024 returns (without extension) can file superseded returns to apply OBBBA provisions.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