The American Institute of CPAs is asking the Treasury Department and the Internal Revenue Service for further guidance on the rules for deducting domestic research and development expenses in light of the changes under the One Big Beautiful Bill Act.
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The OBBBA largely eliminated a requirement for amortizing R&D expenses over five years under the Tax Cuts and Jobs Act instead of writing them off in the first year, at least for U.S. companies. Research and experimentation expenses can now be deducted immediately. The Treasury and the IRS issued some preliminary guidance on the changes last August. Revenue Procedure 2025-28 instructs taxpayers on how to make various elections, file amended returns, or change accounting methods for research or experimental expenditures as provided under section 70302 of the OBBBA, officially known as Public Law 119-21.
In a letter Thursday to officials in the Treasury Department and the IRS, the AICPA asked for further guidance.
The AICPA recommends the IRS:
Issue guidance through modifications to Rev. Proc. 2025-28 and/or other published guidance, specifying that the capitalization and amortization election under Section 174A(c) is an election applied on a project-by-project basis for domestic R&E paid or incurred in the taxable year of election and subsequent taxable years consistent with Section 174 and Treasury Regulations Section 1.174-4 prior to amendment by the TCJA;Give taxpayers the option to treat the election under Section 174A(c) as a yearly election applied to domestic R&E paid or incurred in the taxable year of election only;Issue guidance, perhaps as a safe harbor, providing a simplified methodology of determining the month in which the taxpayer first realizes benefits from the domestic R&E based on the assumption that the month in which the taxpayer first realizes benefits is the mid-point of the taxable year in which such expenditures are paid or incurred; and,Issue guidance providing that an election to capitalize and amortize domestic R&E under Section 174A(c) is a method of accounting with respect to the specified domestic R&E paid or incurred during the taxable year of election subject to the election, consistent with Section 174 and Treas. Reg. Section 1.174-4 prior to the amendment by the TCJA.
Under the Tax Cuts and Jobs Act, businesses were required — beginning in 2022 — to capitalize R&E costs and amortize them over five years for domestic research or 15 years for foreign research. The OBBBA reversed part of this rule by restoring the option to immediately deduct domestic R&E expenses, effective for tax years starting after Dec. 31, 2024.
“There is conflicting language in Section 6 of Rev. Proc. 2025-28 which has led to varying interpretations of the election under Section 174A(c) as being either a method of accounting or a taxable year election,” said Reema Patel, senior manager for tax policy and advocacy for the AICPA, in a statement Friday. “The AICPA strongly believes that allowing taxpayers to either make the election under Section 174A(c) on a project-by-project basis or on a taxable-year basis will appropriately balance flexibility with administrability. Tax practitioners also need clarification on the guidance as they prepare their tax returns.”
Providing an optional, simplified methodology to determine the month in which benefits from domestic R&E are first realized would help avoid unnecessary disputes and burdensome analysis, according to the AICPA.
“Specifically, a methodology that presumes the month in which the taxpayer first realizes benefits is the mid-point of the taxable year in which such expenditures are paid or incurred would reduce the need for subjective, project-by-project determinations in taxable years involving multiple research projects and would align the recovery of domestic R&E selectively capitalized under Section 174A(c) with foreign R&E capitalized under Section 174 for projects with both domestic and foreign research,” wrote AICPA Tax Executive Committee chair Cheri Freeh in the letter. “In addition, such a methodology would align the recovery of domestic R&E with the recovery of domestic R&E in state jurisdictions that continue to conform to TCJA Section 174, further supporting administrability. This simplified methodology should be available to taxpayers regardless of whether they elect to apply Section 174A(c) on a project-by-project basis or as a yearly election.”
