Research and Experimental Costs Under Rev. Proc. 2025-28

In 2025, the Internal Revenue Service issued Rev. Proc. 2025-28. The revenue procedure provides procedural guidance for research and experimental (R&E) expenditures. It addresses how taxpayers apply updated rules for tax years beginning after December 31, 2024.

Statutory background

R&E expenditures are governed by Internal Revenue Code rules that determine when costs are deducted and when costs are capitalized. The revenue procedure focuses on the procedural steps taxpayers must follow when applying the updated framework described in Rev. Proc. 2025-28.

Domestic R&E treatment and taxpayer choices

For domestic R&E expenditures, the revenue procedure describes how taxpayers implement the current-year deduction approach and how taxpayers implement the elective capitalization and amortization approach. The election mechanics and timing rules are addressed in Rev. Proc. 2025-28.

When a taxpayer elects capitalization and amortization for domestic R&E, the procedure describes how the election is made on a timely filed return. It also describes how the amortization period is determined under the updated rules in Rev. Proc. 2025-28.

Foreign R&E treatment

The revenue procedure confirms that foreign research or experimental expenditures continue to follow the capitalization and amortization regime described in the guidance. The procedural rules and scope discussion are included in Rev. Proc. 2025-28.

Accounting method changes

Taxpayers may need an accounting method change to adopt the updated R&E treatment. The revenue procedure describes when automatic procedures are available and what statements and attachments are required. These procedural requirements are set out in Rev. Proc. 2025-28.

Transition rules for previously capitalized amounts

Taxpayers with unamortized R&E amounts from prior years may need transition rules to align those balances with the updated framework. The revenue procedure describes transition approaches and the required return reporting steps in Rev. Proc. 2025-28.

Special procedural relief for certain small businesses

The revenue procedure includes special procedural provisions for certain small business taxpayers. These provisions describe eligibility concepts and filing steps. The details appear in Rev. Proc. 2025-28.

Documentation and consistency

Taxpayers should apply elections consistently and retain records that support the treatment of R&E expenditures. The revenue procedure emphasizes procedural compliance, required statements, and consistent application across years in Rev. Proc. 2025-28.

Conclusion

Rev. Proc. 2025-28 provides the IRS procedural roadmap for applying updated rules for R&E expenditures. It addresses domestic treatment options, foreign treatment scope, accounting method changes, and transition rules. Taxpayers should review Rev. Proc. 2025-28 carefully before finalizing positions for tax years beginning after December 31, 2024.

Editorial disclaimer: This article is for general information only. It is not legal or tax advice. Tax outcomes depend on facts and can change with new guidance. Readers should consult a qualified tax professional for advice. Official IRS sources are linked inline.

M. Spik

Editor
25 years of experience managing tax, accounting, payroll, and employment-related information portals. Editor of Accounting Portal since 2011.
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