The IRS recently released updated guidance regarding the treatment of domestic research and experimentation (R&E) expenditures. Revenue Procedure 2025-28 outlines several elections for handling R&E costs incurred in tax years beginning after January 1, 2025, as well as unamortized R&E costs from 2021 through 2024.

For eligible small businesses—defined as those with average annual gross receipts under $25 million over the prior three years—this presents important tax saving opportunities. Businesses should carefully assess their financial position, including whether they are generating taxable income and their ability to utilize deductions.

Key Elections Available Under the Revenue Procedure

1. Amend Prior Returns (for eligible small business only)

Small businesses may amend their federal income tax returns for 2022, 2023, and 2024 to claim deductions or refunds for previously capitalized R&E expenditures.

2. Deduct R&E on the 2024 federal income tax return (a deemed election for eligible small business only)

If the 2024 tax return has not yet been filed, businesses may elect to fully deduct R&E expenses for that year. This election also required amendments to the 2022 and 2023 federal income tax returns to claim refunds.

3. Prospective Election(s)

Taxpayers may elect to deduct domestic R&E expenditures beginning with the 2025 tax year and beyond. Additionally, they may recover the remaining unamortized R&E costs from 2022 through 2024 by making an election on the 2025 federal income tax returns to amortize the remaining balance over one taxable year or ratably over tax year 2025 and 2026.

4. Continue Capitalization and Amortization

Businesses may choose to continue capitalizing and amortizing domestic R&E expenditures over a minimum 60-month period.

Important Deadlines and Considerations

• The IRS is currently experiencing significant processing delays, and amended returns may take several months to be reviewed.
• The deadline to submit amended returns under this guidance is July 6, 2026.
• Taxpayers should evaluate whether pursuing amendments is beneficial given these timing constraints.

Final Thoughts

Navigating these options requires careful planning and attention to detail. It is essential to ensure that all required elections and statements are properly included with the applicable tax filings. Businesses are strongly encouraged to consult with a qualified tax advisor to determine the most advantageous path forward.