The passage of the One Big Beautiful Bill Act (OBBBA) in July 2025 and the subsequent release of Revenue Procedure 2025-28 moved the research and development (R&D) landscape from liability management to strategic recovery.
For Tax Directors and CPAs, the primary challenge is no longer simply identifying research and experimental (R&E) costs, but optimizing the timing of the recovery of costs previously capitalized between 2022–2024.
For taxpayers other than qualified small businesses, the unamortized basis of domestic R&E costs from the Tax Cuts and Jobs Act (TCJA) era (2022–2024) is not automatically expensed.
Instead, Revenue Procedure 2025–28 provides a specific election to modify the amortization period. Taxpayers generally have three paths for their remaining domestic unamortized balance:
While immediate cash flow often favors one-year recovery, two-year ratable recovery is frequently the superior financial choice for companies navigating the following constraints:
Under Revenue Procedure 2025-28, the transition to the deduction method for new costs and the election to accelerate existing costs are both treated as changes in method of accounting.
The OBBBA reinforces that all software development—whether for sale or internal use—falls under the new Section 174A. This treatment renders the old "technical uncertainty" debate about software under §1.174-2 largely moot, as the statute now explicitly treats software development as an R&E expenditure eligible for either the 100% deduction or the optional 60-month amortization.
For high-level tax professionals, the how is equally important to the what. Under Revenue Procedure 2025-28, the IRS has streamlined the process for larger taxpayers to transition to the new Section 174A regime and recover prior costs without a formal Form 3115.
To implement the recovery of unamortized amount method—the acceleration of 2022–2024 costs—a specific statement must be attached to the timely filed federal income tax return for the first taxable year beginning after Dec. 31, 2024.
Below are tools to assist with the processes of calculating and reporting on expensing Section 174 capitalized expenses. Included are a required return statement to be attached to the tax return, an implementation roadmap, and a Section 174 basis reconciliation worksheet.
Identification & Title: The statement must be titled: “FILED PURSUANT TO SECTION 7.02 OF REV. PROC. 2025-28.”
Necessary Information: The IRS requires six technical data points to be clearly outlined.
Technical Tip: Unlike a standard Form 3115, a duplicate copy of this statement does not need to be filed with the IRS office in Ogden, Utah. Attaching it to the electronic return is sufficient to secure automatic consent.
| Task | Responsible Parties | Technical Requirement |
| Data Reconstruction | Tax and R&D teams | Re-verify the "unamortized basis" from 2022–2024 returns. |
| Net Present Value (NPV) Modeling | CFO, VP of Tax, CPA, and Tax team | Compare one-year versus two-year recovery impact on 163(j) and BEAT. |
| Statement Preparation | Tax Director, CPA, and Tax team | Draft Section 7.02 statement and Change No. 274. |
| Final Review | CFO and Controller | Confirm the Section 481(a)-style adjustment matches the general ledger (G/L). |
The figure reported in your “FILED PURSUANT TO SECTION 7.02 OF REV. PROC. 2025-28” statement must represent the net book value of domestic R&E costs as of Jan. 1, 2025.
| Tax Year | Total Domestic R&E Incurred (Gross) | Amortization Taken (Prior Returns) | Remaining Unamortized Balance |
| 2022 | $ | ($ ) | $ |
| 2023 | $ | ($ ) | $ |
| 2024 | $ | ($ ) | $ |
| TOTAL | $ (A) | ($ ) (B) | $ (A – B) = Unamortized Basis |
When reviewing potential tax mitigation strategies, the choice between a one-year recovery (full acceleration) and a two-year ratable recovery (two-year split) should be driven by an effective tax rate (ETR)-versus-cash analysis.
One-Year Recovery (Full Acceleration) (2025 only): The taxpayer takes a $10 million deduction on the 2025 return.
Risk: If taxable income is only $8 million, the taxpayer creates a $2 million net operating loss (NOL) carryforward. If the taxpayer is a Section 163(j) limited entity, its adjusted taxable income (ATI) decreases by $10 million, potentially causing the loss of millions in interest deductions.
Two-Year Ratable Recovery (Two-Year Split) (2025–2026): The taxpayer takes $5 million in 2025 and $5 million in 2026.
Benefit: This split smooths the impact on the Section 163(j) calculation and helps the taxpayer avoid "trapping" deductions in an NOL carryforward subject to the 80% limitation.
The IRS has indicated that while it is granting automatic consent for this change, it is not granting audit protection for the underlying 2022–2024 calculations.
The One Big Beautiful Bill Act (OBBBA) has established a strategic window for taxpayers to recover unamortized Section 174 balances via the newly enacted Section 174A. Under Revenue Procedure 2025–28, taxpayers are no longer bound to a five-year recovery period and may elect to accelerate domestic R&E deductions over either one or two-year periods.
Tax Directors and Chief Financial Officers (CFOs) should prioritize quantitative modeling to evaluate the interplay among accelerated deductions, Section 163(j) interest limitations, Section 59A (BEAT) exposure, and NOL utilization thresholds. Selecting the optimal recovery path—one-year versus two-year ratable recovery—is critical to maximizing cash flow and optimizing the ETR for the 2025 and 2026 tax years.
Let’s build a strategic tax plan. Schedule a complimentary R&D consultation with Randy Eickhoff, CPA, Acena Consulting's Founder & Head Coach.
Register for our free monthly webinar, next on Jan. 20, 2026: Cracking the (Tax) Code for R&D.
Visit our Acena Events page to sign up for our newsletter and stay abreast of all upcoming events.
Follow Acena on LinkedIn and X for the latest industry-specific incentives and tax policy updates.