Rev. Proc. 2025-28 provides a practical framework for large taxpayers and taxpayers treated as tax shelters to implement the new §174A rules beginning in 2025 and to accelerate recovery of domestic §174 costs that were capitalized during 2022–2024.
For most large taxpayers, the starting point is simple: the taxpayer’s accounting method choice is reflected by how the items appear on the return.
If domestic specified research expenditures (SREs) incurred in 2025 are deducted, the taxpayer is operating under §174A(a). If 2025 SREs are capitalized and placed into amortization (commonly via Part VI of Form 4562), the taxpayer is operating under §174A(c). Separately, the remaining unamortized domestic §174 balance from 2022–2024 can be recovered either entirely in 2025 or ratably over 2025 and 2026, and that choice is likewise evidenced by the amortization shown on the return.
This article focuses on large taxpayers and tax shelters. If your client qualifies as a small business eligible taxpayer, the mechanics are different and are covered in a separate article (linked here). Small business taxpayers are also eligible to expense their capitalized costs in 2025 or ratably over 2025 & 2026, and would follow a similar method as prescribed below, but will have to attach additional statements that they meet the eligibility criteria for this treatment similar to the attached article.
For purposes of small business eligibility, Rev. Proc. 2025-28 relies on the §448(c) gross receipts test. For tax years beginning in 2025, the inflation-adjusted threshold is $31 million, determined using the taxpayer’s average annual gross receipts for 2022, 2023, and 2024. Taxpayers exceeding this threshold—or treated as tax shelters—generally follow the approach described below.
Why attach a statement (or Form 3115) if the return already shows the method?
Although Rev. Proc. 2025-28 allows taxpayers to adopt these §174A methods through return presentation alone, attaching a statement in lieu of Form 3115 (or an actual Form 3115) can materially improve the taxpayer’s procedural posture on audit.
Return reporting establishes the substantive method choice. However, the IRS accounting method framework ties formal audit protection to filing either a Form 3115 or a statement in lieu that is treated as a Form 3115.
When a statement (or Form 3115) is attached:
- The change is formally recognized as an automatic accounting method change (DCN 273).
- The IRS system reflects that consent has been granted.
- Audit protection generally applies to the timing method itself, meaning exam teams are typically precluded from forcing a reversion to the prior §174 treatment for years covered by the change.
When the taxpayer relies solely on return presentation without a statement:
- The method is still adopted under Rev. Proc. 2025-28.
- But the change may not be procedurally logged as an automatic method change.
- This can invite “unauthorized method change” arguments, increase exam friction, and weaken positioning in Appeals.
It’s important to be clear about scope. This protection applies to the timing method (deduction versus capitalization and recovery period). It does not insulate the taxpayer from scrutiny over what costs qualify as §174, substantiation, §280C ordering, or R&D credit computations.
For large taxpayers, we generally view the statement (or Form 3115) as a low-cost way to reduce procedural risk. Even though Rev. Proc. 2025-28 allows adoption through return reporting alone, explicit documentation usually makes the taxpayer’s position clearer to LB&I and strengthens the file if the issue ever escalates.
What follows are common implementation scenarios, with example statement language you can attach to make the method choice explicit.
Expensing current-year SREs and fully recovering prior §174 in 2025
This approach is used when the taxpayer wants to deduct all domestic SREs incurred in 2025 under §174A(a) and also fully recover the remaining unamortized domestic §174 balance from 2022–2024 in a single year.
On the return, this typically appears as current-year deductions for 2025 SREs and full amortization of the legacy §174 balance (often reflected through Form 4562).
The following statement documents that position:
STATEMENT IN LIEU OF FORM 3115 TO AMORTIZE AND EXPENSE SPECIFIED RESEARCH EXPENDITURES UNDER §174A(a) AS AUTHORIZED UNDER REV. PROC. 2025-28
TAXPAYER NAME: CASUAL ENGINEERING, LLC
TAXPAYER ID: 99-9999999
DESIGNATED AUTOMATIC METHOD CHANGE NUMBER: 273
THE TAXPAYER IS CHANGING ITS METHOD OF ACCOUNTING FOR DOMESTIC RESEARCH OR EXPERIMENTAL EXPENDITURES ON A CUT-OFF BASIS. THE TAXPAYER IS DEDUCTING SPECIFIED RESEARCH EXPENDITURES UNDER THE §174A(a) DEDUCTION METHOD BEGINNING WITH THE YEAR OF CHANGE. THE TAXPAYER IS CHANGING TO AMORTIZE THE REMAINING UNAMORTIZED AMOUNT IN FULL IN THE FIRST TAXABLE YEAR BEGINNING AFTER DECEMBER 31, 2024, UNDER OBBBA § 70302(f)(2)(A)(i). THE TAXPAYER IS CHANGING THE METHOD OF ACCOUNTING FOR THE REMAINING UNAMORTIZED AMOUNT ON A CUT-OFF BASIS.
Expensing current-year SREs while recovering prior §174 ratably over 2025 and 2026
This version is used when the taxpayer expenses 2025 SREs under §174A(a) but prefers to spread recovery of the previously capitalized §174 balance evenly across 2025 and 2026.
This smooths taxable income while still accelerating recovery relative to the original five-year amortization.
STATEMENT IN LIEU OF FORM 3115 TO AMORTIZE AND EXPENSE SPECIFIED RESEARCH EXPENDITURES UNDER §174A(a) AS AUTHORIZED UNDER REV. PROC. 2025-28
TAXPAYER NAME: CASUAL ENGINEERING, LLC
TAXPAYER ID: 99-9999999
DESIGNATED AUTOMATIC METHOD CHANGE NUMBER: 273
THE TAXPAYER IS CHANGING ITS METHOD OF ACCOUNTING FOR DOMESTIC RESEARCH OR EXPERIMENTAL EXPENDITURES ON A CUT-OFF BASIS. THE TAXPAYER IS DEDUCTING SPECIFIED RESEARCH EXPENDITURES UNDER THE §174A(a) DEDUCTION METHOD BEGINNING WITH THE YEAR OF CHANGE. THE TAXPAYER IS CHANGING TO AMORTIZE THE REMAINING UNAMORTIZED AMOUNT RATABLE OVER THE 2-TAXABLE YEAR PERIOD BEGINNING THE FIRST TAXABLE YEAR AFTER DECEMBER 31, 2024, UNDER OBBBA § 70302(f)(2)(A)(ii). THE TAXPAYER IS CHANGING THE METHOD OF ACCOUNTING FOR THE REMAINING UNAMORTIZED AMOUNT ON A CUT-OFF BASIS.
Continuing capitalization of future SREs under §174A(c)
Some taxpayers may prefer to continue capitalizing current-year domestic SREs rather than expensing them, while still taking advantage of accelerated recovery of legacy TCJA §174 balances.
In this scenario, new 2025 SREs are capitalized and amortized over not less than 60 months under §174A(c), while previously capitalized §174 costs may still be recovered under either the one-year or two-year transition rules.
TATEMENT IN LIEU OF FORM 3115 TO CAPITALIZE AND AMORTIZE SPECIFIED RESEARCH EXPENDITURES UNDER §174A(c) AS AUTHORIZED UNDER REV. PROC. 2025-28
TAXPAYER NAME: CASUAL ENGINEERING, LLC
TAXPAYER ID: 99-9999999
DESIGNATED AUTOMATIC METHOD CHANGE NUMBER: 273
THE TAXPAYER IS CHANGING ITS METHOD OF ACCOUNTING FOR DOMESTIC RESEARCH OR EXPERIMENTAL EXPENDITURES ON A CUT-OFF BASIS. THE TAXPAYER IS CHARGING SPECIFIED RESEARCH EXPENDITURES TO A DOMESTIC RESEARCH OR EXPERIMENTAL EXPENDITURES CAPITAL ACCOUNT BEGINNING WITH THE YEAR OF CHANGE, AND AMORTIZING SUCH AMOUNT OVER A PERIOD OF NOT LESS THAN 60 MONTHS BEGINNING WIH THE MONTH IN WHICH THE TAPAYER FIRST REALIZES BENEFITS FROM SUCH EXPENDITURES, IN ACCORDANCE WITH THE §174A(c) AMORTIZATION METHOD. THE NUMBER OF MONTHS SELECTED FOR THE AMORTIZATION PERIOD IS 60 MONTHS.
Capitalizing future costs while expensing previously capitalized §174
A taxpayer may also combine approaches—continuing to capitalize new SREs while accelerating recovery of legacy TCJA §174 balances. In that case, one of the following recovery clauses is added depending on whether the taxpayer chooses full recovery in 2025 or ratable recovery over 2025–2026.
Expensing in 2025
THE TAXPAYER IS CHANGING TO AMORTIZE THE REMAINING UNAMORTIZED AMOUNT IN FULL IN THE FIRST TAXABLE YEAR BEGINNING AFTER DECEMBER 31, 2024, UNDER OBBBA § 70302(f)(2)(A)(i). THE TAXPAYER IS CHANGING THE METHOD OF ACCOUNTING FOR THE REMAINING UNAMORTIZED AMOUNT ON A CUT-OFF BASIS.
Expensing 2025 & 2026
THE TAXPAYER IS CHANGING TO AMORTIZE THE REMAINING UNAMORTIZED AMOUNT RATABLE OVER THE 2-TAXABLE YEAR PERIOD BEGINNING THE FIRST TAXABLE YEAR AFTER DECEMBER 31, 2024, UNDER OBBBA § 70302(f)(2)(A)(ii). THE TAXPAYER IS CHANGING THE METHOD OF ACCOUNTING FOR THE REMAINING UNAMORTIZED AMOUNT ON A CUT-OFF BASIS.
Final thoughts for CPAs
Rev. Proc. 2025-28 gives large taxpayers and tax shelters a relatively straightforward way to unwind TCJA-era §174 capitalization while also choosing how to treat domestic SREs going forward. In practice, most of the work happens directly on the return: expensing versus capitalization in 2025 establishes the §174A method, and full versus two-year recovery of prior balances establishes the transition approach.
That said, while return presentation alone is often sufficient to adopt these methods, attaching a statement (or Form 3115) can materially improve the taxpayer’s procedural position. It formally places the change inside the automatic accounting method framework, activates audit protection for the timing method, and reduces the likelihood of “unauthorized method change” arguments during exam. For large taxpayers in particular, this is typically a low-effort way to strengthen documentation and simplify future IRS conversations.
As always, this process addresses timing of deductions — not qualification of costs, §280C ordering, or R&D credit mechanics. Those items still require careful analysis and support.
If you’d like help evaluating which approach makes the most sense for your client, modeling the cash-flow impact of the one-year versus two-year recovery, or coordinating §174 with R&D credits and §280C, feel free to reach out. We’re happy to walk through specific fact patterns and help align the technical rules with practical filing strategy.
