Guidance on research or experimental expenditures under H.R. 1 issued

The IRS released guidance Thursday in Rev. Proc. 2025-28 advising taxpayers how to handle making various elections, filing amended returns, and changing accounting methods for research or experimental expenditures, as provided under Section 70302 of H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act.

The revenue procedure also modifies Rev. Proc. 2025-23, List of Automatic Changes, and allows more time for partnerships, S corporations, C corporations, individuals, estates and trusts, and exempt organizations to file superseding 2024 federal income tax returns.

Under the revenue procedure:

• A small business taxpayer may, in general, elect to treat Section 70302(e)(1) of H.R. 1 as providing that amendments made by Section 70302 apply to amounts paid or incurred in tax years beginning after Dec. 31, 2021, rather than Dec. 31, 2024.

• An eligible small business taxpayer may, in general, make a late election under Sec. 280C(c)(2) for any prior applicable tax year to have the provisions of Sec. 280C(c)(1) not apply and instead elect to adjust the amount of the research credit under Sec. 41 as required under Sec. 280C(c)(2)(B) for such applicable tax year (late Sec. 280C(c)(2) election).

• An eligible small business taxpayer may, in general, revoke a prior election under Sec. 280C(c)(2) for any applicable tax year.

In addition, for domestic research or experimental expenditures paid or incurred in a tax year beginning after Dec. 31, 2024, a trade or business of a taxpayer (applicant) may elect to capitalize and amortize all such expenditures paid or incurred in the tax year under Sec. 174A(c) with one exception. The applicant cannot have changed its method of accounting with respect to domestic research or experimental expenditures under Section 7.02(3) of Rev. Proc. 2025-23, as modified by this revenue procedure, for such tax year.

The final section of Rev. Proc. 2025-28 says the IRS will treat the timely filing of Form 1065, U.S. Return of Partnership Income, including the furnishing of any applicable Schedules K-1, by a partnership; Form 1120-S, U.S. Income Tax Return for an S Corporation, including the furnishing of any applicable Schedules K-1, by an S corporation; Form 1120, U.S. Corporation Income Tax Return, (or another form in the Form 1120 series) by a C corporation; Form 1040, U.S. Individual Income Tax Return, by an individual; Form 1041, U.S. Income Tax Return for Estates and Trusts, including the furnishing of any applicable Schedules K-1, by a trust or estate; or Form 990-T, Exempt Organization Business Income Tax Return, by an exempt organization described in the revenue procedure as a timely and appropriately filed request for a six-month extension of the due date to file the forms.

An eligible partnership, S corporation, C corporation, individual, trust, estate, or exempt organization that timely filed a tax return (without regard to the extension provided by this revenue procedure) may file a superseding tax return, as well as furnish Schedules K-1, as applicable, before the expiration of the extended due date.

The revenue procedure also provides transition rules for various provisions.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.