This blog breaks down what you need to know about the updated rules, how the repeal impacts prior and current tax years, and what proactive steps you can take during the transitional period.
After years of sustained advocacy from the business community, Congress officially reversed the mandatory capitalization of domestic research and experimental (R&E) expenses, which had applied starting in tax year 2022. The change, signed into law via the OBBBA, restores full expensing for qualified domestic R&E activities for tax years beginning after Dec. 31, 2021.
This represents a major shift. CPAs should begin reviewing client eligibility now to determine whether retroactive amendments or forward-looking deductions are appropriate.
While the repeal is effective retroactively for some taxpayers, the IRS has not yet issued detailed guidance on how to properly implement the retroactive election or claim the associated deductions. In particular, for clients who meet the gross receipts test and have not yet filed their 2024 returns, it remains unclear as of the drafting of this article at the end of July 2025 whether they can reflect full expensing for that year or whether an amended return will be required.
Until further guidance is available, CPAs should advise eligible clients to hold off on filing 2024 returns if possible. If clients have already filed using amortization, they may have to amend their return once procedures are finalized. Timing and communication will be key.
Foreign R&E expenses remain subject to 15-year amortization, regardless of the taxpayer’s size. This provision was not changed under the new law and continues to present a compliance consideration for multinational companies or any client performing development activities abroad.
Even with the repeal of Section 174 capitalization, the IRS remains focused on tightening documentation standards for R&D credit claims. Updates to Form 6765, which take full effect for tax year 2025, mark a shift in how credits must be substantiated and presented.
Key changes include the following:
Increased transparency is the IRS’s objective. For CPAs, this means boilerplate descriptions and retrospective estimates are no longer sufficient. Clients need to maintain contemporaneous documentation, capture the role of technical staff, and link costs to specific research activities throughout the tax year.
To help clients navigate these changes effectively, you should consider the following best practices:
The repeal of Section 174’s capitalization rule is a long-awaited and significant win for innovative businesses. While the repeal offers relief, it also introduces new layers of complexity that call for strategic guidance and proactive coordination. From determining eligibility and modeling deductions to documenting qualified research activities and waiting for IRS guidance, there’s plenty of work still to do.
For CPAs, this is a moment to step in as strategic partners. Your insights will help clients navigate these new rules with confidence and clarity, maximize their available incentives, and position them for stronger financial outcomes in the years ahead.
Ashley Chikes is director of operations at EPSA USA in Philadelphia. She can be reached at achikes@epsa.com.
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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.