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What technology and R&D-driven companies need to know about the Sec. 174 retroactive election window
Most tax deadlines come with months of advance notice. This one has been hiding in plain sight.
A provision buried inside the One Big Beautiful Bill Act (OB3) created a narrow, time-limited opportunity for eligible small businesses to retroactively recover research and development costs that had been amortized under Section 174 of the Internal Revenue Code in tax years 2022, 2023, and 2024. The window closes July 6, 2026.
Todd French, Regional Director at Capstan Tax Strategies — a firm that specializes in engineering-based tax strategy including R&D tax credits — published a detailed breakdown of the opportunity and the mechanics of filing. We’re sharing the highlights here for the businesses in our community who invest in research, development, and innovation.
A Little Background on Sec. 174
Before 2022, businesses could immediately deduct research and experimentation (R&E) expenditures in the year they were incurred. A rule change that took effect in 2022 required companies to amortize those costs over five years for domestic R&D (fifteen for foreign) — a shift that caught many businesses off guard and increased their tax burden without warning.
For companies in technology, software, product development, and other innovation-driven industries, the impact was real and immediate.
OB3 created a limited path to undo some of that damage but only for businesses that act before July 6.
Who Qualifies
To be eligible for this retroactive election, a business must have had average annual gross receipts under $31 million between tax years 2022 and 2024. That threshold captures a wide swath of the startup, growth-stage, and mid-market companies that are most active in R&D investment.
Importantly, as French notes in his post, this opportunity is not limited to companies that previously claimed the R&D Tax Credit or that formally amortized R&E costs. Even businesses that have never engaged with R&D tax strategy should consider whether this election is worth exploring opting out of amortization retroactively now protects against future exposure and opens the door to begin capturing these benefits going forward.
Three Reasons the July 6 Window Is Worth Acting On
1. Real Refunds on Amended Returns
Eligible businesses can amend returns for TY 2022, 2023, and 2024 to immediately expense domestic R&D costs that were previously amortized. For companies with significant R&E expenditures in those years, this could mean meaningful refunds.
2. The 280C Election — Available Here, Usually Not
The 280C election can increase the value of the R&D credit by up to 20 percent. Under normal circumstances, it cannot be taken on an amended return. Within this specific window, through July 6 only, it is permitted. That is an unusual and time-limited combination.
3. Protection Against Future Penalties
Retroactively opting out of amortization now establishes technical compliance with the requirement, which eliminates potential future exposure regardless of how tax law continues to evolve.
The Deadline Is Firm
July 6 is not a soft target. As French makes clear, if amended returns or administrative adjustment requests are not filed before that date, the retroactive opportunity is gone — permanently, regardless of company size or circumstances. In some cases, depending on the IRC Sec. 6511 refund statute, the effective filing deadline may be even earlier.
The practical implication: this is a conversation worth having with your tax advisor now, not in June.
Insights from the Klemchuk Team
While Sec. 174 is a tax matter that sits squarely in your CPA’s domain, the underlying issue the treatment of R&D expenditures is something we see intersect with intellectual property strategy regularly. Many of the activities that qualify as R&E under the tax code are the same activities that generate patentable inventions, proprietary software, and trade secrets. Companies that are actively documenting their R&D for tax purposes often find that documentation also supports stronger IP protection and ownership arguments.
For any questions specific to how your R&D activities relate to your IP portfolio, we’re happy to be a sounding board.
Read the Full Breakdown
For the complete technical details, including the specific language required by Rev. Proc. 2025-28 when filing amended returns, we encourage you to read Todd French’s full post at Capstan Tax Strategies: Retroactive Reversal of Sec. 174 Amortization: July 6 Deadline Approaches.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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