For years, taxpayers have been stuck with one of the least popular provisions of the 2017 tax reform: the mandatory capitalization of research and experimental (R&E) costs. Instead of writing off innovation expenses immediately, businesses were forced to spread deductions over five years for domestic research and fifteen years for foreign research. This created cash flow headaches for companies of all sizes, from startups to Fortune 500s.

The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, finally delivers meaningful relief. It introduced a new framework under § 174A, which restores the ability for businesses to deduct domestic R&E costs immediately or, if they prefer, to continue capitalizing and amortizing them.

Here’s what makes this moment historic:

• Small business taxpayers now have the ability — thanks to Revenue Procedure 2025-28 — to apply these rules retroactively to 2022, 2023, and 2024. This means many small businesses can reclaim deductions they thought were permanently locked into capitalization.
• Large taxpayers don’t get retroactive relief, but they aren’t left out. Rev. Proc. 2025-28 also updates the automatic accounting method change rules, making it simpler to adopt § 174A in 2025 or even in later years like 2026. For big companies that have been modeling R&E costs around five-year capitalization, the chance to expense research again is a major cash flow opportunity.

Of course, the rules come with strings attached:

• Only taxpayers who meet the gross receipts test and are not classified as tax shelters can make the retroactive small-business election.
• The retroactive election must be applied consistently across all years (2022–2024).
• Both large and small taxpayers must navigate superseding returns, AARs, and coordinated § 280C elections for the research credit to make their elections valid.

In this article, we’ll break down what these new rules mean, who qualifies, and — most importantly — how both small and large businesses can take advantage of this long-awaited relief.

In the sections that follow, we’ll walk through the key moving parts:

1. What the new § 174A rules do and how they affect large versus small taxpayers.
2. Who qualifies as a small business taxpayer, focusing on the gross receipts test.
3. What it means to be a tax shelter and why that disqualifies some businesses.
4. How to make and report the retroactive election under Rev. Proc. 2025-28, including superseding returns and IRS administrative relief.
5. Coordinating with § 280C elections for the research credit.
6. Options for large taxpayers and those electing later years like 2025 or 2026.
7. Practical examples and calculations, including sample election language and § 481(a) adjustments.

By the end, you’ll have a step-by-step roadmap for determining whether you qualify, choosing the right method, and filing the proper elections to maximize your R&E deductions under the new rules.

1. What the § 174A Rules Do: Large vs. Small Taxpayers

With the OBBBA and the IRS’s follow-up guidance in Rev. Proc. 2025-28, research costs are no longer trapped in a one-size-fits-all capitalization regime. Instead, we now have a two-track system: one path for small business taxpayers who qualify for retroactive relief, and another path for larger taxpayers who must adopt the new rules prospectively.

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Large Taxpayers – Prospective Relief Only

For larger companies (those that do not meet the small business definition under § 448(c)), the changes begin with tax years starting after December 31, 2024. Here’s what that looks like:

• Default treatment: Capitalize and amortize domestic R&E expenditures under § 174A(c). The amortization period must be at least 60 months, beginning with the month in which the taxpayer first realizes benefits from the research.
• Alternative treatment: Elect to expense R&E immediately under § 174A(a), but this requires an accounting method change (filed on Form 3115, DCN 273).
• Flexibility in timing: Rev. Proc. 2025-28 updates the method change rules so large taxpayers can adopt expensing not just in 2025, but also in later years like 2026. Depending on the choice, the transition may require a § 481(a) adjustment or cut-off approach.
• Foreign R&E: No change here — foreign research continues to be capitalized and amortized over 15 years, regardless of taxpayer size.

For these businesses, the benefit is forward-looking. After years of mandatory capitalization, they can finally expense research again — though only starting in 2025 (or later if they choose).

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Small Business Taxpayers – Retroactive Relief

Smaller businesses get a much bigger prize: the ability to reach back and apply § 174A to earlier years. If a taxpayer meets the gross receipts test and is not a tax shelter, they may elect to apply § 174A retroactively to the “applicable years”:

• Tax years beginning after 12/31/2021 and before 1/1/2025 (for most, that means 2022, 2023, and 2024).
• The taxpayer must apply the election consistently to all applicable years — no cherry-picking.
• Within that framework, the taxpayer may choose:
  • Immediate deduction of domestic R&E under § 174A(a), or
  • Capitalization and amortization under § 174A(c), with costs charged to a capital account and written off over a minimum of 60 months.
• Foreign R&E remains capitalized over 15 years — the retroactive relief applies only to domestic costs.

This is powerful: companies that previously thought their 2022 and 2023 deductions were lost to capitalization now have a path to reclaim them through amended returns or superseding filings.

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Side-by-Side Example

Let’s say two businesses — one large, one small — each spend $1 million on domestic R&E in 2023 and 2025.

• Large Taxpayer (C-corp, $100M receipts):
  • 2023: Must capitalize $1M and begin a 5-year amortization ($200k per year).
  • 2025: May switch to expensing under § 174A(a), but only prospectively. Must file a Form 3115 with a § 481(a) adjustment for any unamortized 2023–2024 balances.
• Small Business (LLC, $10M receipts, not a tax shelter):
  • 2023: Can retroactively elect to expense the full $1M under § 174A(a) by amending the return or filing a superseding return.
  • 2025: Simply continues expensing under the new law — no Form 3115 required if consistent.

The difference in cash flow is dramatic. The small business may reduce taxable income by an extra $800,000 in 2023 compared to the large taxpayer, simply because of the retroactive election.

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Key Takeaways

• Large taxpayers: relief is prospective, with optional expensing via method change in 2025 or later.
• Small taxpayers: relief is retroactive, but must be applied consistently across 2022–2024.
• Foreign R&E stays unchanged: still 15-year amortization for everyone.

This two-track system is the heart of § 174A — and sets the stage for why it’s so important to determine whether your business qualifies as a small business taxpayer. That’s where we turn next.

2. Who Qualifies as a Small Business Taxpayer?

Whether your business qualifies as a small business taxpayer is the hinge point for retroactive relief. If you meet the definition, you can go back and reclaim deductions in 2022–2024. If not, you’re limited to prospective changes starting in 2025.

The term “small business taxpayer” isn’t new. It comes directly from IRC § 448(c) and has long been used in determining eligibility for the cash method of accounting. The OBBBA imported that definition wholesale for purposes of § 174A.

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The Gross Receipts Test

To qualify, a business must meet the gross receipts test:

• Average annual gross receipts for the three prior taxable years must not exceed the inflation-adjusted threshold.
• For tax years beginning in 2025, the threshold is $31 million.
• Because OBBBA was enacted in 2025, the three-year lookback for the first test year (2025) is fixed to 2022, 2023, and 2024.
• Example:
  • A calendar-year taxpayer applying the test for 2025 would average receipts from 2022, 2023, and 2024.
  • If the average ≤ $31 million → passes the test.
  • If the average > $31 million → fails the test, and no retroactive election is available.

Gross receipts are measured broadly — not just sales but also investment income, rents, and other revenue streams. Affiliates and related parties may need to be aggregated under § 448 rules, so the test isn’t always as simple as checking your top-line revenue.

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The “Not a Tax Shelter” Requirement

Passing the gross receipts test alone isn’t enough. A business must also not be a tax shelter under § 448(d)(3). This brings in the syndicate rule:

• If more than 35% of losses in a taxable year are allocated to limited partners or limited entrepreneurs (passive owners), the entity is a syndicate and therefore a tax shelter.
• Tax shelters are categorically excluded from the small business definition, even if receipts are under $31 million.
• In practice, this usually only matters in loss years for partnerships/LLCs with passive investors. (We’ll break this down further in Section 3.)

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Why This Matters

This two-prong test — receipts threshold + not a tax shelter — is critical:

• If you qualify → you can elect to apply § 174A retroactively to 2022–2024, either expensing or capitalizing consistently.
• If you don’t qualify → you’re treated as a large taxpayer, and your relief is prospective only (2025 onward).

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Quick Example

Imagine an engineering firm organized as an LLC:

• Gross receipts were $15M in 2022, $25M in 2023, and $20M in 2024.
• Three-year average (2022–2024) = $20M → well under the $31M threshold.
• All four members are active managers, so no passive owners.
• Result: The firm qualifies as a small business taxpayer for 2025 and may elect to expense 2022–2024 research immediately under § 174A(a).

By contrast, if two of those four members were passive and the firm had a large loss in 2022 that allocated >35% of losses to those passive members, it could be deemed a syndicate and disqualified — even though it passes the receipts test.

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Key Takeaways

• For the first year of application (2025), the gross receipts test looks back at 2022, 2023, and 2024.
• The gross receipts test is the first hurdle: ≤ $31M average over those years.
• The tax shelter exclusion is the second: avoid syndicate status in loss years.
• Only if both conditions are met can a taxpayer use the retroactive relief.

3. What Is a Tax Shelter, and Why Does It Matter?

Meeting the gross receipts test is only half the battle. To qualify as a small business taxpayer, you must also prove that you are not a tax shelter. This second requirement is where many partnerships and LLCs can get tripped up, especially in loss years.

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The General Definition

For purposes of § 448 and, by extension, § 174A, a tax shelter means:

1. An arrangement with tax avoidance as a significant purpose, or
2. A syndicate — the most common issue for small and mid-sized entities.

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The Syndicate Rule: The 35% Loss Allocation Test

A business is a syndicate if more than 35% of its losses for the taxable year are allocated to limited partners or limited entrepreneurs (owners who do not actively participate in management).

• This test is applied annually.
• In a profitable year, there are no losses to allocate, so the business usually avoids syndicate status.
• In a loss year, however, if passive investors absorb more than 35% of the loss, the entity is automatically classified as a tax shelter.

Example:

• A partnership has four equal members.
• Two are active managers, two are passive investors.
• In a $1M loss year, $500k (50%) of losses are allocated to the passive members.
• Result: The partnership is a syndicate and therefore a tax shelter for that year.

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Why It Matters for § 174A

If your business is a tax shelter in the first taxable year beginning after 12/31/2024 (for most, the 2025 tax year):

• You are ineligible for the small business retroactive election.
• Even if you meet the gross receipts test, being a tax shelter disqualifies you.
• You’ll be treated as a large taxpayer, with prospective relief only (2025 onward).

This rule reflects Congress’s intent: retroactive expensing relief was designed to help active, operating small businesses, not passive investment structures.

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Practical Tips

• Watch loss allocations: Partnerships and LLCs with passive members should carefully model allocations before finalizing returns.
• Document participation: Ensure managing members’ active roles are clear, since “limited entrepreneur” status hinges on lack of active participation.
• Remember the timing: For the retroactive election, the key test year is 2025 — if you are not a tax shelter then, you can still qualify even if you had prior loss allocations.

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Key Takeaways

• A tax shelter is either an avoidance-driven arrangement or, more commonly, a syndicate.
• The 35% loss allocation rule can catch partnerships with passive owners in down years.
• Being classified as a tax shelter in 2025 knocks you out of retroactive relief under § 174A.

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Next, we’ll turn to the practical mechanics: how to actually make the retroactive election under Rev. Proc. 2025-28, what must be included in the statement, and why it applies to all three years (2022–2024).

4. How to Make the Retroactive Election Under Rev. Proc. 2025-28

Once you confirm you’re a small business taxpayer (meet the §448(c) receipts test and are not a tax shelter), you make the election by attaching a short statement to each amended return or AAR for 2022–2023 and, if applicable, to a superseding (or extended, timely-filed) 2024 return. The IRS designed this as an all-years election for every “applicable year” (generally 2022–2024) in which you paid or incurred domestic R&E.

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What the election statement must include (generic)

Your statement (title it “FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28”) should cover:

1. Taxpayer identifiers: name and TIN.
2. Non-tax-shelter declaration for the first tax year beginning after 12/31/2024.
3. Gross receipts test declaration (that you meet §448(c) for that first post-2024 year).
4. Your chosen method for domestic R&E in the applicable years (2022–2024):
   • Expensing under §174A(a), or
   • Capitalization & amortization under §174A(c).
5. If capitalizing under §174A(c), include both:
   • (i) You are charging domestic R&E to a capital account and amortizing beginning with the month benefits are first realized,
   • (ii) The specific number of months (not less than 60) over which you will amortize (e.g., 60 months).
6. “All applicable years” commitment: you will file AARs/amended returns for all applicable taxable years already filed prior to September 15, 2025 in which domestic R&E was paid or incurred (i.e., no cherry-picking years).
7. Optional/only if relevant: if you intend to make the §1.448-2(b)(2)(iii)(B) election on your 2025 original return and haven’t previously made it, note that intent. (If you’re not making that election, no need to mention it.)

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Superseding returns and automatic relief for 2024

• Superseding path (cleaner admin): If you filed your 2024 return before Sept 15, 2025, the procedure lets you file a superseding return (treated as a corrected original) to attach the election—avoiding AARs where possible.
• Deemed election for 2024 (expensing only): If you timely file 2024 on extension and expense domestic R&E under §174A(a) on that return, you are deemed to have made the election for that year (no separate 2024 statement required).

Why you may still attach an election to an extended 2024 return

Even with the deemed rule, it’s smart to attach the election statement anyway because:

• It creates a clear, consistent record the IRS can match against your 2022–2023 AARs/amendments (remember: all applicable years must align).
• It reduces processing friction and potential correspondence when the service center lines up multiple years.
• If you are capitalizing under §174A(c), the deemed rule does not apply—you must include the statement.

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Example election statement — Expensing (§174A(a))

FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28

This taxpayer is filing an election in accordance with Section 3.03 of Rev. Proc. 2025-28, and has paid or incurred domestic research or experimental expenditures in taxable years beginning after December 31, 2021, and before January 1, 2025.

Taxpayer Name: Example Innovations, LLC
Taxpayer Identification Number: 12-3456789

1. This taxpayer declares that it is not a tax shelter for its first taxable year beginning after December 31, 2024.
2. This taxpayer declares that it meets the §448(c) gross receipts test as provided in §448(c) and §1.448-2(c), for its first taxable year beginning after December 31, 2024.
3. This taxpayer is making the small business OBBBA election to deduct domestic research or experimental expenditures in the applicable taxable year in which they were paid or incurred.
4. This taxpayer declares that it will file an AAR or amended return, as applicable, to reflect the election provided in this Section 3.03 for any applicable taxable year(s) for which the taxpayer previously filed a Federal income tax return prior to September 15, 2025, that specifies such applicable taxable years, if the taxpayer paid or incurred domestic research or experimental expenditures in such applicable taxable year(s).

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Example election statement — Capitalization & amortization (§174A(c))

FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28

This taxpayer is filing an election in accordance with Section 3.03 of Rev. Proc. 2025-28, and has paid or incurred domestic research or experimental expenditures in taxable years beginning after December 31, 2021, and before January 1, 2025.

Taxpayer Name: Example Innovations, LLC
Taxpayer Identification Number: 12-3456789

1. This taxpayer declares that it is not a tax shelter for its first taxable year beginning after December 31, 2024.
2. This taxpayer declares that it meets the §448(c) gross receipts test as provided in §448(c) and §1.448-2(c), for its first taxable year beginning after December 31, 2024.
3. This taxpayer is making the small business OBBBA election to capitalize domestic research or experimental expenditures for applicable taxable years beginning after December 31, 2021, and before January 1, 2025, charging such expenditures to a domestic R&E capital account and amortizing them beginning with the month the taxpayer first realizes benefits over not less than 60 months.
4. Amortization period selected: 60 months.
5. This taxpayer declares that it will file an AAR or amended return, as applicable, to reflect the election provided in this Section 3.03 for any applicable taxable year(s) for which the taxpayer previously filed a Federal income tax return prior to September 15, 2025, that specifies such applicable taxable years, if the taxpayer paid or incurred domestic research or experimental expenditures in such applicable taxable year(s).

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Key takeaways

• The election is blanket—if domestic R&E was incurred, apply it to all applicable years (2022–2024); no cherry-picking.
• Superseding is the preferred path for 2024 already filed; extended filers who expense are deemed to have elected, but attaching a statement still helps align 2022–2023 filings.
• If choosing capitalization, you must include the capital-account and ≥60-month amortization details and the specific number of months.
• Foreign R&E remains 15-year—outside the retroactive relief.

5. Coordinating § 280C(c) Elections with Your § 174A Election

Reopening 2022–2024 under § 174A isn’t just about deductions—it also changes how your research credit (§ 41) interacts with those deductions through § 280C. If you expense domestic R&E, you must either (1) reduce your deduction by the credit (§ 280C(c)(1)), or (2) elect the reduced credit so you keep the full deduction (§ 280C(c)(2)). Historically, the (c)(2) election had to be made on a timely filed original return.

Rev. Proc. 2025-28 fixes that for small business taxpayers: when you amend or file an AAR to implement § 174A for 2022–2024, you can make a late § 280C(c)(2) election—or revoke a prior (c)(2) election—so your credit mechanics line up with your new deduction method.

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Late § 280C(c)(2) election (what you must file)

For each eligible prior year you’re opening (2022–2024), Rev. Proc. 2025-28 § 4.03 requires a package, not just a paragraph. Do all of the following on the AAR or amended return for that year:

1. Adjust the research credit to the reduced-credit amount under § 280C(c)(2)(B)
   – Include all affected forms, including Form 3800.
2. Adjust your R&E deduction/capitalization
   – Remove any prior § 280C(c)(1) reduction (as modified by OBBBA) so the deduction reflects your new position.
3. Attach an amended Form 6765
   – Mark the top: “FILED PURSUANT TO SECTION 4.03 OF REV. PROC. 2025-28”
   – Check Question A (page 1) to indicate the § 280C(c)(2) election and complete the relevant sections.
4. Attach a short statement (if those declarations aren’t already elsewhere on the AAR/amended return) confirming:
   – You are not a tax shelter for your first taxable year beginning after 12/31/2024; and
   – You meet the § 448(c) gross-receipts test for that post-2024 year.
   (If relevant, you may also state you’ll make the § 1.448-2(b)(2)(iii)(B) election on your 2025 original return—but it isn’t always needed.)

Streamlined example statement — late § 280C(c)(2)

FILED PURSUANT TO SECTION 4.03 OF REV. PROC. 2025-28

This taxpayer is filing a late election under § 280C(c)(2) in accordance with Section 4.03 of Rev. Proc. 2025-28, for an applicable taxable year in which it paid or incurred domestic research or experimental expenditures.

Taxpayer Name: Example Innovations, LLC
Taxpayer Identification Number: 12-3456789

1. This taxpayer declares that it is not a tax shelter for its first taxable year beginning after December 31, 2024.
2. This taxpayer declares that it meets the § 448(c) gross receipts test as provided in § 448(c) and § 1.448-2(c), for its first taxable year beginning after December 31, 2024.

Don’t forget: include the amended Form 6765 with the header above and Question A checked, plus any affected Form 3800 and deduction schedules reflecting the new positions.

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Revoking a prior § 280C(c)(2) election

If your old returns already used the reduced-credit method but your reopened § 174A posture now works better under § 280C(c)(1) (i.e., reduce the deduction instead), Rev. Proc. 2025-28 § 5.03 lets you revoke (c)(2) for those prior years. The filing mechanics mirror the late-election package:

1. Adjust the research credit back to the non-reduced amount (as applicable) and include Form 3800.
2. Adjust the R&E deduction or capital account to apply § 280C(c)(1) (i.e., reduce the deduction instead of the credit).
3. Attach an amended Form 6765 marked: “FILED PURSUANT TO SECTION 5.03 OF REV. PROC. 2025-28” and complete it accordingly.
4. Attach a short statement (if not already included elsewhere) with the same two declarations (non-tax-shelter; meet § 448(c)) tied to your first taxable year beginning after 12/31/2024.

Streamlined example statement — revocation of § 280C(c)(2)

FILED PURSUANT TO SECTION 5.03 OF REV. PROC. 2025-28

This taxpayer is revoking its prior election under § 280C(c)(2) in accordance with Section 5.03 of Rev. Proc. 2025-28, for an applicable taxable year in which it paid or incurred domestic research or experimental expenditures.

Taxpayer Name: Example Innovations, LLC
Taxpayer Identification Number: 12-3456789

1. This taxpayer declares that it is not a tax shelter for its first taxable year beginning after December 31, 2024.
2. This taxpayer declares that it meets the § 448(c) gross receipts test as provided in § 448(c) and § 1.448-2(c), for its first taxable year beginning after December 31, 2024.

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Why this matters in practice

• Aligning § 174A and § 280C eliminates mismatches that delay processing or create IRS correspondence.
• The amended 6765 with the exact header and the two declarations are not niceties—they’re the procedure.
• Decide which lever helps cash flow more across your reopened years: a reduced credit with full deduction (c)(2), or a full(er) credit with reduced deduction (c)(1). Now you can pick the right one retroactively to match your § 174A method.

6. Large Taxpayers and Electing in Later Years

While the spotlight of Rev. Proc. 2025-28 has been on small business taxpayers and their ability to reclaim deductions retroactively, large taxpayers are not left behind. The OBBBA still restored the option to expense domestic R&E costs going forward, and the IRS created a practical path for adopting those changes in 2025 or even later years.

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Large Taxpayers – Prospective Relief

A large taxpayer is any business that:

• Fails the § 448(c) gross receipts test (e.g., average receipts above $31M), or
• Is a tax shelter (such as a syndicate in a loss year).

For these taxpayers:

• No retroactive relief is available. 2022–2024 remain under the old § 174 capitalization rules.
• Starting with the first tax year after 12/31/2024 (for most, 2025), you must adopt § 174A.
• You may choose:
  • Expensing under § 174A(a), or
  • Capitalization and amortization under § 174A(c) (≥60 months).
• To adopt the new method, you file an automatic accounting method change (Form 3115, DCN 273).

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Later-Year Adoption – Flexibility to Wait

Rev. Proc. 2025-28 updated the earlier guidance (Rev. Proc. 2025-23) to make it clear that taxpayers don’t have to make the switch in 2025 if they aren’t ready. You can:

• Adopt § 174A in 2025, or
• Delay until 2026 or a later year and change methods then.

The IRS even spelled out how the mechanics differ:

• Switching to expensing (174A(a)) in a later year requires a modified § 481(a) adjustment. Only post-2024 domestic R&E costs are included in the adjustment.
• Switching to capitalization/amortization (174A(c)) is done on a cut-off basis — meaning only expenditures after the year of change are capitalized and amortized.

This flexibility allows taxpayers to plan cash flow and coordinate elections with financial statement reporting, especially for public companies.

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Example – Large C-Corp Switching in 2026

• Taxpayer capitalized $10M of domestic R&E in 2025 under old § 174A(c).
• In 2026, it files Form 3115 to switch to § 174A(a) expensing.
• At the start of 2026, $8M of the 2025 costs remain unamortized.
• The taxpayer takes a § 481(a) adjustment to deduct the $8M over four years (the standard spread for positive adjustments).
• From 2026 forward, all domestic R&E is deducted as paid/incurred.

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Small Businesses That Skip the Retroactive Election

Some eligible small businesses may decide not to use the retroactive relief (for example, if amending prior returns would trigger NOL complications or credit carrybacks). In that case:

• They must still adopt § 174A starting in 2025.
• Like large taxpayers, they use the automatic method change (Form 3115, DCN 273) if switching from the old capitalization rules.
• They gain no benefit for 2022–2024, but they still have the option to expense prospectively.

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Key Takeaways

• Large taxpayers: relief is prospective only. No reopening 2022–2024, but you can expense starting 2025 (or later) via automatic change.
• Later-year adoption: 2026 is fair game. Expensing changes use a modified § 481(a) adjustment; capitalization changes are cut-off.
• Small businesses skipping retroactive relief: same mechanics as large taxpayers for 2025 onward, but they give up the chance to reclaim deductions for 2022–2024.

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In Section 7, we’ll pull it all together with examples: sample elections, calculations for § 481(a) adjustments, and illustrations showing how cash flow differs between the expensing and capitalization paths.

7. Automatic Method Change for Large Taxpayers (and Small Taxpayers Skipping Retroactive Relief)

If you’re not using the small-business retroactive election, you adopt the new §174A rules by filing an automatic accounting method change. This is how large taxpayers convert away from the TCJA-era capitalization and, crucially, sweep out the unamortized domestic R&E from 2022–2024 in 2025.

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What you’re changing to

• Method: §174A(a) expensing of domestic R&E (foreign R&E remains 15-year amortization).
• Vehicle: Form 3115 (automatic change; DCN 273).
• Year of change: Typically 2025 (first year beginning after 12/31/2024). You can also adopt a different §174A posture (e.g., capitalize under §174A(c)), but the section below focuses on expensing because that’s where the catch-up happens.

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The key mechanic: a negative §481(a) adjustment in 2025

When you switch to expensing in 2025, you compute a §481(a) adjustment equal to the unamortized balance of domestic R&E from 2022–2024 as of 1/1/2025 (i.e., what’s still sitting on your books because of the five-year amortization that began in those years).

• This is a negative §481(a) adjustment (it increases deductions).
• You may deduct the full amount in 2025, or elect to split it evenly over 2025 and 2026.
• Do not include foreign R&E in this catch-up (foreign stays on 15-year).

You also expense all 2025 domestic R&E under §174A(a) as incurred—separate from the §481(a) catch-up.

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Step-by-step: how to do it

1. Inventory the carryforwards (domestic only).
   Pull the unamortized balances from 2022, 2023, and 2024 as of 1/1/2025.
2. Compute §481(a) (negative).
   Sum those unamortized domestic amounts. That total is your negative §481(a).
3. Choose the deduction timing.
   • Take 100% in 2025, or
   • Elect 50%/50% over 2025–2026.
4. Prepare Form 3115 (DCN 273).
   • Describe the change to §174A(a) expensing for domestic R&E.
   • Include your §481(a) worksheet showing the 2022–2024 rollforward and the negative adjustment.
   • Attach Form 3115 to your timely filed 2025 return (including extensions) and file the required duplicate as instructed for automatic changes.

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Example (calendar-year, large taxpayer)

Facts

• Domestic R&E incurred and capitalized:
  • 2022: $20M (amort. 2022–2026) → $12M left on 1/1/2025
  • 2023: $25M (amort. 2023–2027) → $20M left on 1/1/2025
  • 2024: $30M (amort. 2024–2028) → $24M left on 1/1/2025
• Unamortized domestic total at 1/1/2025 = $56M

2025 automatic change to §174A(a) expensing

• §481(a) = –$56M (negative; increases deductions).
• Deduction options:
  • All in 2025: extra $56M deduction in 2025, or
  • Split: $28M in 2025 and $28M in 2026.
• Plus, expense all 2025 domestic R&E as incurred (separate from §481(a)).

Result
If the taxpayer spends $30M on domestic R&E in 2025, total 2025 deductions could be:

• $86M (if taking all §481(a) in 2025), or
• $58M in 2025 and $28M in 2026 (if split).

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What if you chose capitalization in 2025 and switch in 2026?

If you adopt §174A(c) capitalization in 2025 but decide to switch to expensing in 2026, you’ll compute a negative §481(a) in 2026 for any unamortized domestic amounts that would have been deducted under expensing (including the 2025 capitalized balance). You may take that all in 2026 or split over 2026–2027. (Foreign remains 15-year.)

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Bottom line

For large taxpayers, the automatic change to §174A(a) in 2025 effectively turns 2025 into a catch-up year: you can expense the remaining domestic R&E from 2022–2024 via a negative §481(a)—all at once or split over two years—and then expense domestic R&E going forward. It’s not “retroactive” relief by amendment, but the cash-flow impact can be just as powerful.

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Conclusion: Relief with Responsibilities

The OBBBA and Rev. Proc. 2025-28 give taxpayers something they’ve been waiting years for: relief from the rigid research capitalization rules. But this relief looks very different depending on whether you are a small business taxpayer or a large taxpayer.

• Small businesses get the rare opportunity to reopen 2022–2024, either expensing or capitalizing consistently, and aligning their elections with late or revoked § 280C(c)(2) elections. The trade-off: they must file amended or superseding returns for all applicable years and meet the July 6, 2026 deadline.
• Large taxpayers don’t get retroactive relief, but they aren’t left out. They can still restore expensing through an automatic accounting method change (Form 3115, DCN 273), either in 2025 or later, with careful planning around § 481(a) adjustments.

Across the board, the message is clear: the IRS has opened the door to relief, but it comes with compliance responsibilities. Elections must be carefully drafted, deadlines tracked, and supporting forms (like amended 6765s and 3115s) completed exactly as prescribed.

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What Taxpayers Should Do Now

1. Determine your status: Are you a small business taxpayer under § 448(c)? Are you a tax shelter?
2. Decide your approach: Retroactive relief (if eligible) or prospective change.
3. Coordinate § 280C: Don’t let your research credit elections lag behind your § 174A posture.
4. Model the cash flow impact: Expensing vs. amortization, retroactive refunds vs. future § 481(a) adjustments.
5. File correctly: Use the exact election language, amended forms, and procedural steps in Rev. Proc. 2025-28.

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Final Thought

After years of frustration with § 174 capitalization, taxpayers finally have choices. For some, that means reclaiming deductions they thought were gone. For others, it means accelerating deductions in the years ahead. Either way, the window to act is open now — and it won’t stay open forever.

At Corporate Tax Advisors, we help businesses and their CPAs navigate these elections, prepare the right forms, and model the outcomes. If you have research expenditures, now is the time to review your options under § 174A and make the elections that best fit your long-term strategy.