The American Institute of CPAs (AICPA) has formally requested[^1] immediate guidance from the Department of the Treasury and the Internal Revenue Service (IRS) regarding Section 174A of the Internal Revenue Code (IRC), which pertains to domestic research and experimental expenditures (domestic research costs). This urgent appeal, addressed to the Honorable Kenneth J. Kies, Assistant Secretary of the Treasury, Tax Policy, highlights critical issues facing eligible small business taxpayers as they finalize their 2024 federal income tax returns.

Overview of Section 174A and Current Ambiguities

Section 70302 of H.R. 12 (“the Act”) generally allows taxpayers to immediately expense Section 174A domestic research costs paid or incurred in taxable years beginning after December 31, 2024. However, the Act includes a significant provision for eligible small business taxpayers, allowing them to elect to substitute "December 31, 2021 for December 31, 2024" in the legislative text. This election effectively grants these taxpayers retroactive treatment for immediate expensing of domestic research costs. To effectuate this election, the statute stipulates that an eligible taxpayer must file an amended return for each taxable year affected by the election.

A primary concern stems from the uncertainty surrounding the treatment of 2024 domestic research costs for eligible taxpayers who have not yet filed their income tax returns for the 2024 tax period. It is presently unclear whether these taxpayers may deduct 2024 domestic research costs on their originally filed 2024 federal income tax returns, or if they are expected to capitalize these amounts on their original returns with the intention of later filing amended 2024 returns to deduct such costs. The language of the Act grants eligible taxpayers the authority to make an election to substitute the effective dates of Section 70302 and permits treating this election as a change in method of accounting for the first taxable year affected. However, the AICPA notes that making the election appears to bind an eligible taxpayer to amending returns unless an election to treat it as a change in method of accounting is concurrently made.

AICPA's Recommendations for Guidance

To address these ambiguities and potential unintended consequences, the AICPA has put forth several key recommendations for Treasury and the IRS to incorporate into their guidance:

Deemed Election for 2024 Costs: The guidance should state that an eligible taxpayer who deducts 2024 domestic research costs on their 2024 federal income tax return, and includes a statement or reference indicating an election for the 2024 tax year under Section 70302(f)(1)(A), will be deemed to have made a valid election under subsection (f)(1)(A) of Section 70302 of the Act. This is contingent upon the taxpayer being otherwise eligible under subsection (f)(1)(B) of Section 70302 of the Act as of December 31, 2024, and complying with Section 280C(c), as amended by subsection (b)(2)(B) of the Act.
Flexibility for Retroactive Application: Notwithstanding the deemed election on the 2024 federal income tax return, the guidance should affirm that such a taxpayer may either amend their 2022 and 2023 federal income tax returns to apply Section 70302 of the Act retroactively for domestic research costs paid or incurred in taxable years beginning in 2022 and 2023, or elect to file a change in method of accounting as described in subsection (f)(1)(C) of Section 70302 of the Act, for their first taxable year beginning after December 31, 2024.
Net Operating Loss (NOL) Adjustments: Furthermore, the AICPA recommends that if an eligible taxpayer makes the aforementioned election and has a net operating loss for any taxable year affected by the election, then in lieu of amending the NOL year return, the taxpayer should be permitted to adjust the NOL in the carryforward year(s), with a notation that the NOL has been adjusted to reflect the election.

Analysis and Rationale for Proposed Guidance

These recommendations are designed to allow eligible taxpayers to avoid unintended consequences if they choose to deduct domestic research costs on their original 2024 income tax returns. Providing timely guidance that allows eligible taxpayers to deduct their 2024 domestic research costs while preserving the ability to recover domestic research costs paid or incurred in taxable years beginning in 2022 and 2023 in accordance with the transition rules in subsection (f)(1) of Section 70302 of the Act, would yield the benefit of sound tax administration for all impacted parties: taxpayers, practitioners, and the IRS.

Such guidance would offer immediate tax relief to eligible taxpayers. It would also provide relief to those eligible taxpayers who may have inadvertently deducted 2024 domestic research costs on their 2024 federal income tax returns and now fear that such a deduction could jeopardize their ability to elect to treat the retroactivity election in the Act as a change in method of accounting.

The AICPA, representing over 397,000 members globally, emphasizes that these comments are crucial for achieving the tax policy objectives of the voluntary method change procedures and welcomes further discussion on these issues.

[^1]: “Small Business Taxpayer Domestic Research and Experimental Expenditures and the Election for the Retroactive Effective Date of Section 174A,” AICPA Tax Executive Committee Letter, July 31, 2025