The American Institute of CPAs has sent a letter to officials at the Treasury Department and the Internal Revenue Service asking for immediate guidance on a provision of the One Big Beautiful Bill Act allowing companies to fully deduct their domestic research costs this year.
The guidance would allow eligible small business taxpayers to immediately deduct domestic research costs on their originally filed 2024 federal income tax returns instead of being required to capitalize those amounts.The AICPA contended that the issue requires immediate consideration as many eligible taxpayers haven’t filed their income tax returns for the 2024 income tax filing period yet. These taxpayers are facing uncertainty about whether they can deduct these costs upfront or instead need to capitalize them and later amend their returns. That lack of clarity could result in unnecessary administrative burdens and compliance risks.
To address this, the AICPA recommends the Treasury and the IRS issue guidance saying the following:
Eligible taxpayers may deduct 2024 domestic research costs on their originally filed 2024 federal income tax returns, provided they include a statement or reference indicating an election under Section 70302(f)(1)(A).Notwithstanding the deemed election, taxpayers may amend their 2022 and 2023 federal income tax returns to deduct domestic research costs paid or incurred in those years..If the election has affected a year in which the taxpayer reported a net operating loss, the taxpayer is allied to adjust the NOL in the carryforward year(s) instead of amending the original NOL year return.
“Providing the guidance cited in the AICPA’s comment letter allows immediate tax relief to eligible taxpayers and resolves uncertainty for those who may have already deducted 2024 domestic research costs,” said Reema Patel, senior manager of AICPA Tax Policy & Advocacy, in a statement. “This guidance benefits sound tax administration for impacted taxpayers, practitioners, and the IRS and we urge Treasury to act immediately to provide taxpayers with certainty and allow them to meet their tax obligations with minimal confusion.”
Section 70302, Full Expensing of Domestic Research and Experimental Expenditures, of the OBBBA enables taxpayers to immediately expense Section 174A domestic research costs paid or incurred in taxable years beginning after Dec. 31, 2024. The AICPA noted that under this section of the new tax law, eligible small business taxpayers can elect to substitute “December 31, 2021 for December 31, 2024” according to the legislative text, effectively allowing taxpayers retroactive treatment of immediate expensing of domestic research costs. To effectuate the election, an eligible taxpayer needs to file an amended return for each taxable year affected by the election.
The letter, from AICPA Tax Executive Committee chair Cheri Freeh, noted that making the election appears to bind an eligible taxpayer to amending returns unless an election to treat it as a change in method of accounting is made concurrently.
