Why this topic matters for global companies
With the approval of the tax package known as the One Big Beautiful Bill (OBBB), significant changes were introduced regarding research and experimental (R&E) expenses and accounting adjustments permitted under Revenue Procedure 2025-28 to align with the new §174 and §174A rules.
If your Brazilian company operates in the U.S. or holds investments that involve R&E expenses, understanding and correctly applying these new guidelines is essential to avoid tax inconsistencies, penalties, or misstatements of expenses.
In this article, we will explore:
- What Revenue Procedure 2025-28 is and its connection with the OBBB
- Which accounting and tax elections are allowed
- How companies should adjust their accounting methods
- Key compliance risks
- Practical steps for adaptation
What is Revenue Procedure 2025-28 (Rev. Proc. 2025-28)?
Issued by the IRS on August 28, 2025, the Rev. Proc. 2025-28 provides specific guidance on how taxpayers can make accounting elections and adjustments to comply with the OBBB’s amendments to research and experimental (R&E) expenses under §§174 and 174A.
Key highlights include:
- Allows automatic accounting method changes (§446) to transition between historical and new R&E treatments.
- Provides guidance on electing immediate expensing or amortization for domestic R&E expenses for tax years beginning after December 31, 2024.
- Establishes transitional rules for foreign R&E expenses (which continue to be amortized over 15 years under the new §174).
- Enables eligible small businesses to make retroactive elections for tax years 2022–2024.
- Details procedures for attaching statements and filing Form 3115 (Application for Change in Accounting Method) when formal approval is required.
This Revenue Procedure fills gaps left after the OBBB enactment, offering clarity on how to treat expenses capitalized under the old regime.
Relationship between the OBBB and §174 / §174A
The One Big Beautiful Bill changed how research and experimental (R&E) expenses are treated:
- Introduced §174A, allowing taxpayers to immediately deduct domestic R&E expenses instead of amortizing them over several years.
- Maintains the 15-year amortization period for foreign R&E expenses under §174.
- Adjusts related rules, such as §280C, to prevent double or abusive deductions.
- Recognizes the need for accounting method changes and allows automatic transitions under Rev. Proc. 2025-28 in many cases.
In practical terms, companies that have historically capitalized their R&E expenses must now decide whether to:
- Apply immediate deduction (when eligible),
- Continue amortizing (if more advantageous), or
- Use hybrid methods as permitted by the IRS.
Accounting Adjustments and Permitted Elections under Rev. Proc. 2025-28
Permitted elections and procedures
- Most accounting method changes under Rev. Proc. 2025-28 qualify for automatic consent, requiring no prior IRS approval.
- Non-automatic changes require filing Form 3115 with detailed justifications and financial information.
- Eligible small businesses may apply retroactive elections for 2022–2024 to reflect R&E expenses under §174A.
- Transition procedures are defined for short tax periods between January 1, 2025, and the law’s enactment date.
Practical examples of application
- A company that capitalized R&E expenses prior to 2025 may elect to deduct the entire unamortized balance in the first year after 2024 (cut-off treatment).
- Alternatively, it may choose to amortize the remaining balance proportionally over two years, as outlined in Rev. Proc. 2025-28.
Accounting and tax impacts
- Immediate expensing may provide short-term cash flow and tax relief.
- However, it can also introduce future result volatility and require reassessment of tax forecasts.
- The decision between immediate deduction and amortization should be guided by cash flow simulations and aggregate tax impact analysis.
⚠️ Risks of Incorrect Elections
- Failing to follow required procedures when changing accounting methods can result in incorrect adjustments and potential penalties.
- Misapplying deductions or amortizations may create inconsistencies between tax filings and financial statements.
- Insufficient documentation can weaken IRS audit defenses.
- Ignoring available retroactive options for small businesses may lead to missed tax benefits.
Practical Roadmap for Adaptation
| Step | Recommended Action |
| 1 | Map historical R&E expenses capitalized under §174 |
| 2 | Simulate the impact of immediate deduction vs. amortization |
| 3 | Check small business eligibility for retroactive elections |
| 4 | Prepare attachments and statements for Form 3115 as required by Rev. Proc. 2025-28 |
| 5 | Adjust tax and financial forecasts (US GAAP / ASC 740) |
| 6 | Document method changes and justifications clearly |
| 7 | Engage specialized advisory support for compliance and review |
Conclusion
Revenue Procedure 2025-28 and the changes introduced by the One Big Beautiful Bill redefine the tax treatment of R&E expenses for U.S. companies — including subsidiaries and affiliates of Brazilian groups. For global businesses, properly adopting these accounting and tax elections is critical to maintaining compliance, optimizing tax outcomes, and avoiding inconsistencies.
At Drummond Advisors, we help Brazilian companies operating in the U.S. understand and apply these changes, structuring accounting and tax choices aligned with international best practices.
👉 Want to align your R&E planning with the new regulations seamlessly? Contact us via our live chat or email info@drummondadvisors.com for a personalized strategic analysis.
Written by Marcos Ferreira, Content Analyst at Drummond Advisors