Section 174 Relief Arrives: Immediate R&E Expensing Returns, and How Small Businesses Can Claim It Back to 2022

The end of a four-year problem

The Tax Cuts and Jobs Act required taxpayers to capitalize research or experimental expenditures under IRC § 174 beginning with tax years after December 31, 2021 — five-year amortization for domestic research, fifteen-year for foreign — instead of deducting them currently. The effect was severe and counterintuitive: a profitable software company or engineering firm that spent the same on research as the year before could see its taxable income jump, because the deduction it used to take in full was now stretched over years. Four tax years passed under that regime, with repeated legislative attempts to reverse it failing.

The One Big Beautiful Bill Act (OBBBA), Public Law 119-21, signed July 4, 2025, reversed it for domestic research. New IRC § 174A permits the immediate deduction of domestic research or experimental expenditures, effective for tax years beginning after December 31, 2024. Companies can again expense their U.S. research spending in the year incurred.

Two limits on that relief should be stated plainly. First, it is domestic-only. Foreign research or experimental expenditures must still be capitalized and amortized over fifteen years under § 174; the new immediate deduction does not reach them. Second, immediate expensing is the default, but a taxpayer may instead elect under § 174A to capitalize and amortize domestic research over a period of not less than 60 months — an option that can matter for loss companies or for credit-coordination reasons.

The retroactive reach for smaller businesses

The provision that changes the most for closely held companies is the retroactive election, and it is limited by size.

A small business taxpayer — one that meets the gross-receipts test of IRC § 448(c), with average annual gross receipts at or below the inflation-adjusted threshold, which is $31 million for 2025 — may elect to apply § 174A retroactively to tax years beginning after December 31, 2021. In plain terms: an eligible business can reach back to 2022 and treat its domestic research as immediately deductible all along, amending its 2022, 2023, and 2024 returns to claim the deductions it was forced to capitalize, and recover the resulting tax.

For a small, research-intensive company that paid real cash tax over the last three years solely because of the capitalization rule, this is the headline. It is not a going-forward benefit only; it is a potential refund for three closed years.

The catch-up option for everyone else

Larger businesses do not get the retroactive amend-back, but they are not left holding stranded amortization either. Any taxpayer with remaining unamortized domestic research from 2022 through 2024 may elect to deduct that remaining balance either in full in the first tax year beginning after December 31, 2024, or ratably over two years — 2025 and 2026. A taxpayer that prefers to simply continue amortizing the old amounts on the original schedule may also do that. The point is that the capitalized balances built up over the hard years do not disappear; they accelerate, on a timeline the taxpayer chooses.

What Rev. Proc. 2025-28 added

A statutory right to relief is only useful if there is a mechanism to claim it, and on August 28, 2025, the IRS supplied one in Rev. Proc. 2025-28.

The procedure does several things that make the relief practically accessible. It provides automatic accounting-method-change procedures to move from § 174 capitalization to § 174A expensing, and — importantly — it waives the usual Form 3115 in favor of a statement attached to the return. It sets the deadline for the small-business retroactive election and the associated amended returns at the earlier of July 6, 2026 (one year after enactment) or the due date, with extensions, for the relevant refund claim. It addresses partnerships, including how partnerships subject to the centralized audit rules make the election through an administrative adjustment request. And it provides relief for taxpayers who had already filed 2024 returns under the old rules, including a route to file a superseding return.

The procedure also handles a coordination point that catches the unwary. A taxpayer claiming the research credit under § 41 must reduce its § 174A deduction by the amount of the credit unless it makes the reduced-credit election under § 280C(c)(2); Rev. Proc. 2025-28 permits a late § 280C election on the same July 6, 2026 timeline. Companies pursuing both the deduction and the credit should not treat them as independent.

The decision in front of eligible businesses

For a small research-intensive company, this is one of the clearer planning calls the year has produced. The questions are concrete: Is the company within the $31 million gross-receipts threshold? How much domestic research did it capitalize across 2022 through 2024, and what was the cash-tax cost of doing so? Does the size of the recoverable amount justify amending three years of returns before the July 6, 2026 deadline?

For a larger company, the call is narrower but still real: take the unamortized balance in full in 2025, spread it over 2025 and 2026, or continue the existing amortization — a choice that depends on the company's income trajectory and its other 2025 positions. The relief is available either way; the only mistake is leaving stranded amortization or a retroactive refund on the table because the deadline passed unexamined.

Key takeaways

• OBBBA (Pub. L. 119-21) created IRC § 174A, restoring immediate expensing of domestic research or experimental expenditures for tax years beginning after December 31, 2024; foreign research must still be amortized over 15 years.
• Small business taxpayers meeting the § 448(c) gross-receipts test (average annual gross receipts at or below $31 million for 2025) may elect to apply § 174A retroactively to 2022, amending 2022–2024 returns for refunds.
• All taxpayers may accelerate remaining unamortized 2022–2024 domestic research — fully in 2025 or ratably over 2025 and 2026.
• Rev. Proc. 2025-28 (Aug. 28, 2025) provides the procedures, waives Form 3115 in favor of a statement, and sets a July 6, 2026 deadline for the retroactive small-business election and related amended returns.

Frequently asked questions

Can my company deduct its research spending again?

If it is domestic research, yes — IRC § 174A restores immediate expensing for tax years beginning after December 31, 2024. Foreign research or experimental expenditures must still be capitalized and amortized over fifteen years.

My company is small. Can I recover the deductions I lost in 2022 through 2024?

If you meet the § 448(c) gross-receipts test — average annual gross receipts at or below $31 million for 2025 — you may elect to apply § 174A retroactively to tax years beginning after December 31, 2021, and amend your 2022, 2023, and 2024 returns. The election and amended returns are due by the earlier of July 6, 2026, or the refund-claim due date.

What if my company is too large for the retroactive election?

You can still accelerate the remaining unamortized domestic research from 2022–2024 — either deducting it fully in 2025 or ratably over 2025 and 2026 — rather than continuing the original amortization schedule.

Bottom line

The most punishing business-tax rule of the last four years is reversed for domestic research, and for smaller companies the reversal reaches backward to 2022. Eligible businesses should determine their § 448(c) status and quantify the recoverable amount well before the July 6, 2026 election deadline. The relief is real; capturing it requires action on a defined clock.