Key points covered in this article:

• Businesses that capitalized domestic R&D costs from 2022 through 2024 may still be able to accelerate the remaining deductions under transition relief, even if they cannot amend prior tax returns.
• IRS Revenue Procedure 2025-28 allows all taxpayers, including larger businesses, to either deduct the full remaining balance in 2025 or recover it over 2025 and 2026, making the 2025 tax filing a critical planning opportunity.
• Because these decisions interact with Section 174A, the Section 41 research credit, Section 280C rules, and domestic-versus-foreign cost classification, careful modeling and proper election handling are essential.

Second in a Series on Recent R&D Tax Law Changes 

This article builds on our earlier overview of the July 6 deadline for small businesses and the broader shift back to immediate R&D expensing. Understand who qualifies for retroactive relief and what actions may still be available is important. 

For many businesses, the conversation around R&D tax changes has focused on retroactive relief and the July 6, 2026 deadline. But another, equally important question is emerging, especially for larger organizations: 

If prior R&D costs were capitalized and cannot be amended, is there still a way to accelerate those deductions? 

For businesses that have not yet finalized their 2025 tax filing, the answer is often yes. Transition guidance under the IRS Revenue Procedure 2025-28 provides a path forward. One that is highly relevant for organizations evaluating their current-year position. 

A Different Path: Transition Relief for All Businesses 

Transition relief is not limited to small businesses. All taxpayers may take advantage of the ability to accelerate previously capitalized domestic R&D costs, regardless of size. 

This distinction is particularly important for businesses with average gross receipts exceeding $31 million. These organizations typically cannot amend prior returns to retroactively apply immediate expenses. Instead, they must rely on forward-looking transition elections, making the 2025 filing a critical moment for action. 

What Changed and Still Applies 

As outlined in the first article, the legislative changes fundamentally reshaped how R&D expenditures are treated. 

Domestic R&D costs are once again eligible for immediate deduction beginning in 2025 under Section 174A, reversing the prior requirement to capitalize and amortize those costs over multiple years.  

Foreign R&D expenditures must still be capitalized and amortized over 15 years, making it critical to accurately classify where research activities are conducted.  

The Section 41 research credit remains available, but its application is now tied more directly to domestic R&D expenditures under the revised framework, and the reinstatement of Section 280C coordination rules requires businesses to evaluate how deductions and credits interact.  

These changes apply broadly and set the foundation for how transition relief operates. 

The Overlooked Opportunity: Accelerating Prior-Year Costs 

Between 2022 and 2024, businesses were required to capitalize domestic R&D expenditures and recover those costs gradually over time. Many organizations still have unamortized balances from this period. 

Transition guidance now allows those remaining amounts to be addressed more strategically. Rather than continuing to amortize those costs over several years, businesses may elect to accelerate the recovery of what remains. 

For businesses unable to amend prior returns, this is not simply an option—it is often the only pathway to improve the timing of R&D deductions tied to those investments. 

It’s a 2025 and 2026 Decision 

A key point of clarification is timing. The benefit of transition relief does not begin in 2026. 

Instead, the acceleration begins with the 2025 tax year, which is why businesses that have not yet finalized their return still have an opportunity to act. Under the transition rules, organizations may generally choose to: 

• Deduct the entire remaining balance in 2025, or

• Recover the balance over two years—2025 and 2026

This structure creates flexibility, allowing businesses to align the timing of deductions with their broader tax position. The impact is immediate, not deferred. 

What This Means for Larger Businesses 

For businesses above the small-business threshold, the path forward is more focused. These organizations typically cannot revisit prior filings to change how R&D costs were treated. 

As a result, transition relief becomes the central planning mechanism. The decision to accelerate deductions must be made as part of the 2025 tax filing process, and the key deadline is generally the extended due date of that return—not July 6, 2026. 

This timing distinction is important. While the July 6 deadline remains critical for small businesses pursuing retroactive relief, larger organizations should be focused on ensuring that appropriate elections are made within their 2025 filing window. 

Practical Considerations 

As businesses evaluate their options, the focus often shifts to practical application. Organizations are assessing the remaining unamortized balances from 2022 through 2024, determining whether immediate acceleration or a two-year recovery period better supports their tax position, and understanding how these decisions interact with current-year R&D credits. 

Equally important is ensuring that domestic and foreign R&D costs are properly identified, as this distinction now directly affects how deductions are treated. These considerations are interconnected, and decisions in one area can influence outcomes in another. 

Conclusion 

Recent R&D tax law changes created two distinct but complementary planning opportunities. The first, addressed in the prior article, allows eligible small businesses to look back and amend prior returns before the July 6, 2026 deadline. The second, outlined here, allows all businesses—particularly those that cannot amend prior filings—to look forward and accelerate remaining deductions through transition relief. 

For businesses that have not yet finalized their 2025 filing, this represents a timely opportunity to revisit how prior R&D investments are being recovered. The ability to accelerate remaining domestic R&D deductions into 2025 or across 2025 and 2026 can have a meaningful impact on current and near-term tax outcomes. Acting within the filing window ensures that these benefits are captured in accordance with IRS guidance. 

Next Steps 

PBMares works with organizations to evaluate available transition relief options, quantify remaining R&D balances, and align deduction strategies with broader tax planning considerations. The team supports the implementation of required elections, ensures compliance with IRS procedures, and helps businesses understand how these changes integrate with credit strategies and long-term planning objectives. 

If your organization has not yet finalized its 2025 tax return, there may still be an opportunity to accelerate remaining domestic R&D deductions under the transition rules. 

To explore how these changes may impact your organization, contact Dan Chenoweth, Partner on the PBMares’ Credits & Incentives team. Our experience in R&D tax matters can help you assess your position, navigate the technical requirements, and move forward with confidence.