July 6 R&E relief deadline for small business taxpayers

Small business clients with research and experimental (R&E) expenses may have new options for deducting domestic research costs, but the window for retroactive relief is limited.

The Taxpayer Advocate Service (TAS) recently reminded small businesses that July 6, 2026, is a key filing deadline for certain taxpayers who want to apply the new domestic R&E rules to prior tax years. For tax professionals, this is a review trigger for business returns that may have capitalized domestic R&E costs or claimed research credits and may now require an amended return, an administrative adjustment request (AAR) or an accounting method analysis.

The One Big Beautiful Bill Act (OBBBA) changed the tax treatment of certain domestic and foreign R&E expenses. The IRS also issued Revenue Procedure 2025-28, which explains the filing and procedural options available to eligible taxpayers.

Quick take for tax professionals

The July 6, 2026, deadline should be treated as a client screening point for small businesses with R&E expenses from 2022 through 2024.

Preparers should identify clients with capitalized domestic R&E costs or research credit claims and determine whether an amended return, AAR or accounting method analysis is needed.

Before filing, confirm small business eligibility and any §280C elections, then determine whether the normal refund claim deadline under §6511 creates an earlier deadline.

Important deadline for retroactive R&E relief

Some small businesses can apply the new domestic R&E rules to prior tax years beginning after Dec. 31, 2021, and before Jan. 1, 2025.

To do this, they may need to file amended returns or AARs.

For many taxpayers, the deadline to make this retroactive election is July 6, 2026. However, some taxpayers may have an earlier deadline because the normal refund claim deadline still applies.

Generally, taxpayers must file by the earlier of:

• July 6, 2026; or
• The applicable refund claim deadline under §6511

Depending on the client’s situation, the filing may also require amended forms or additional statements under Rev. Proc. 2025-28, especially if research credits were previously claimed.

Filing by mail requires proof of timely filing

TAS encourages taxpayers to file electronically whenever possible.

If documents must be mailed close to a deadline, TAS cautions taxpayers not to rely on placing them in a USPS collection box. Instead, taxpayers should take the documents to a post office counter and use a mailing method that provides a postmark or dated proof of mailing.

For preparers, this is an important documentation point. If a client is filing close to the July 6 deadline, the file should clearly show how and when the filing was submitted, along with proof of timely filing.

Small business eligibility for retroactive R&E relief

A business may qualify for small business retroactive relief if it:

• Is not a tax shelter under §448(d)(3) and Reg. §1.448-2(b)(2); and
• Meets the gross receipts requirements under §448(c)

The gross receipts test generally looks at average annual gross receipts for the three-tax-year period ending with the tax year that precedes the year being tested. The inflation-adjusted limit is $31 million for tax years beginning in 2025 and $32 million for tax years beginning in 2026.

Tax professionals should confirm eligibility before preparing an amended return or AAR. This review should include the client’s gross receipts history, entity structure, tax shelter status, and any related-party or aggregation issues that could affect the small business determination.

Retroactive R&E relief may affect more than deductions

Eligible small businesses may be able to apply the new domestic R&E rules to prior tax years.

Because these elections can affect multiple tax years, deductions, credits and accounting methods, all affected returns should be reviewed carefully before filing.

Remember, the client may be focused on the refund opportunity, but the preparer must evaluate the full filing position. A retroactive election may change current or prior deductions, research credit calculations, §280C treatment and future amortization schedules.

Domestic and foreign R&E expense treatment

For tax years beginning after Dec. 31, 2024, domestic R&E expenses generally can be deducted in the year they are paid or incurred.

Taxpayers may instead elect to capitalize those expenses and amortize them over at least 60 months, beginning with the month they first realize benefits from the expenditures.

If a taxpayer still has unamortized domestic R&E amounts from tax years beginning after Dec. 31, 2021, and before Jan. 1, 2025, the taxpayer may be able to recover those amounts in the first tax year beginning after Dec. 31, 2024, or ratably over a two-year period beginning with that tax year.

Software development costs are generally treated as R&E expenditures under these rules.

Foreign R&E expenses generally must be capitalized and amortized over 15 years. The amortization period generally begins at the midpoint of the tax year in which the expenses are paid or incurred.

For clients with both domestic and foreign research activity, preparers should separate those costs before determining the available deduction or required capitalization and amortization treatment.

Research credit claims require a second look

The R&E rules are closely connected to the research credit under §41 and the reduced credit election under §280C.

If a client claims the research credit, the taxpayer may need to reduce certain domestic R&E deductions or capitalized amounts or make a valid reduced credit election.

Revenue Procedure 2025-28 provides limited procedures that may allow eligible small businesses to make certain late elections or revoke prior elections for eligible years.

If a client is filing retroactively, review the prior research credit position and related R&E treatment before preparing the filing, including any §280C elections.

July 6 client review checklist

Before preparing a retroactive R&E filing, preparers should review whether the client needs to:

☐ Confirm the proper filing path, including whether an amended return or AAR applies.
☐ Attach or update Form 4562, Depreciation and Amortization (Including Information on Listed Property), if amortization reporting is affected.
☐ File Form 3115, Application for Change in Accounting Method, or a permitted statement instead of Form 3115, if an accounting method change applies.
☐ Attach any required statements described in Rev. Proc. 2025-28.
☐ Separate domestic and foreign R&E expenses.
☐ Review all affected tax years for consistency.
☐ Confirm whether the client qualifies as a small business taxpayer.
☐ Review research credit claims, related forms and any §280C elections.
☐ Determine whether the §6511 refund claim deadline creates an earlier deadline.
☐ Document the client’s eligibility, filing position, forms reviewed and proof of timely filing.

NATP education for deeper R&E planning

Tax professionals who want a deeper review of these changes can access NATP’s on-demand webinar, Inside OBBBA: Understanding R&E Expense Deduction Options for Better Tax Planning. The course covers OBBBA’s R&E expense changes, deduction timing, §174 and §41 coordination, compliance rules, audit risks and planning strategies.

The original version of this article appeared on the Taxpayer Advocate Service website. NATP has republished it here with additional analysis and practical application notes for tax preparers advising small business clients.