INSIGHT

IRS provides relief for small businesses navigating Section 174 research expenses 

Erika Farr, Andre Shevchuck • November 18, 2025

Services: R&D Tax Credit

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The IRS has finally delivered guidance that many small businesses have been waiting for. Revenue Procedure 2025-28 gives qualified small business taxpayers a practical way to handle their research and experimental (R&E) expenditures retroactively, without the hassle of amending multiple prior-year returns. 

If your business invests in R&E activities, this could significantly simplify your 2024 tax filing and reduce your administrative burden. Here’s what you need to know and how to take advantage of this relief. 

Who qualifies for small business relief? 

Not every business can use this simplified approach. To qualify for the relief outlined in Rev. Proc. 2025-28, your business needs to meet these specific criteria: 

Average gross receipts test: Your average annual gross receipts for the three tax years ending with 2024 (typically 2022–2024) can’t exceed $31 million. The IRS calculates this using all income sources, reduced by returns and allowances. If your business wasn’t operating for the full three-year period, the calculation adjusts proportionally. 

Tax shelter exclusion: Your business can’t be classified as a tax shelter under Section 448(d)(3). 

If you meet these requirements, you have access to several valuable options for handling your R&E expenses. 

Your election options under Section 174A 

Revenue Procedure 2025-28 gives you flexibility in how you treat R&E costs incurred in tax years beginning after December 31, 2021, and before January 1, 2025. Here’s how it works: 

The retroactive election 

You can elect to apply Section 174A retroactively, which means you can choose to either: 

• Immediately deduct your R&E costs, or 
• Amortize them over at least 60 months 

The key advantage? You can make this election on your 2024 tax return and avoid amending all your prior returns right away. Instead, you simply include a declaration stating you’ll file amended returns for applicable prior years by September 15, 2025. 

The automatic deemed election 

If you deduct your 2024 domestic R&E expenditures and meet the other requirements in Section 3.03, the IRS will treat you as having made the election automatically. This streamlines the process even further. 

Learn more about our R&D Tax Credits Services

Understanding the timing and deadlines 

Getting the timing right matters. Here are the critical dates you need to track: 

Election deadline: You must file your election by the earlier of July 6, 2026, or your statute of limitations expiration date for the relevant tax year. 

For example, if you filed your 2022 return on March 1, 2023, your election for that year must be submitted by April 15, 2026. The revenue procedure includes additional timing scenarios in Section 3.03(3)(b)-(d) that may apply to your situation. 

The alternative: Small business retroactive method change 

If you don’t make the Section 3 election described above, you have another option. Under Section 7.02(3)(c), you can change your accounting method to the “small business retroactive method” for tax years beginning before 2025. 

This approach works differently: 

• You file an accounting method change for your first taxable year beginning after December 31, 2024 
• You can deduct any remaining unamortized R&E costs either entirely in 2025 or split between 2025 and 2026 

This flexibility lets you align your deductions with your tax planning strategy for the next couple of years. 

Don’t overlook the Section 280C considerations 

Both elections come with an important wrinkle: how they interact with your R&D tax credits under Section 280C(c)(2). 

Revenue Procedure 2025-28 provides procedures for making a late Section 280C(c)(2) election or revoking a prior one. This matters because it affects how your R&D tax credits work alongside your deductible R&E expenses. You’ll want to evaluate these implications carefully as part of your overall R&D credit and amendment strategy—the interaction can significantly impact your tax position. 

What this means for your 2024 filing 

This guidance arrives at a crucial time. If you’ve been capitalizing and amortizing your R&E expenses under Section 174’s mandatory requirements, you now have a path to retroactively expense those costs—potentially freeing up cash flow and simplifying your tax compliance. 

The administrative relief is substantial. Rather than preparing and filing multiple amended returns immediately, you can make your election on your 2024 return and have until September 15, 2025, to handle the prior years. 

However, the decision isn’t one-size-fits-all. Your optimal approach depends on your specific circumstances, including: 

• Your gross receipts trajectory over the qualification period 
• Your current and projected R&D tax credit position 
• Your Section 280C election status 
• Your broader tax planning objectives 

Take action before the window closes 

Revenue Procedure 2025-28 represents a significant opportunity for small businesses investing in research and development. But taking advantage of it requires prompt action—you need to make decisions now to coordinate your 2024 filing with your amendment strategy. 

BPM’s tax advisors can help you navigate these elections and determine the most advantageous approach for your business. We can assist with eligibility analysis, election statement preparation, and strategic planning around your amended returns and R&D credit position. 

Contact your BPM advisor or visit bpm.com to discuss how Revenue Procedure 2025-28 impacts your 2024 tax filing and your long-term R&E tax strategy.