Compliance
Compliance Alert: New Research & Experimentation Expense Rules for U.S. Small Businesses
U.S. law changed how R&E expenses are deducted—small businesses must act by July 6, 2026 to retroactively claim relief for prior years.
By NomadicTax Research Team • 5-8 min read • June 21, 2026
## What Changed?
Under the **One, Big, Beautiful Bill**, the U.S. modified the treatment of **Domestic Research & Experimentation (R&E) expenses**. Eligible businesses may now apply new rules not only prospectively, but retroactively for tax years after **December 31, 2021** and before **January 1, 2025**—but only if they act by **July 6, 2026**. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/small-businesses-understand-new-research-expense-rules-and-a-july-6-filing-deadline/2026/06/?utm_source=openai))
## Who Qualifies?
To access this relief, a business must:
- **Not be a tax shelter** under IRC § 448(d)(3) or Treas. § 1.448-2(b)(2);
- **Meet the gross receipts test** under IRC § 448(c);
- Have separate domestic and foreign R&E expense figures,
- Review affected years for consistency,
- Determine eligibility for research credits and any IRC § 280C elections. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/small-businesses-understand-new-research-expense-rules-and-a-july-6-filing-deadline/2026/06/?utm_source=openai))
## How to Elect Relief and Meet Deadlines
- File **amended returns** or submit **Administrative Adjustment Requests (AARs)** for the years in question;
- Use Form **3115** if changing accounting methods;
- All must be submitted **by July 6, 2026**, or the earlier of that date or standard refund claim deadlines. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/small-businesses-understand-new-research-expense-rules-and-a-july-6-filing-deadline/2026/06/?utm_source=openai))
## Detailed Example
Suppose *Techtrend LLC*, a business with gross receipts under the required threshold, incurred domestic R&E expenses in 2022. Under the new rules, it may claim a deduction or credit retroactively. Techtrend analyses its 2022 R&E expenses and files an amended return by July 6, 2026 to take full advantage. If it misses the deadline, those opportunities are lost.
## Actionable Advice
- **Inventory your R&E expenses** from 2022–2024 now: separate domestic vs foreign, tally amounts and ensure documentation.
- Work with accounting professionals to decide between amending versus AARs.
- Ensure Form 3115 is properly filled if changing accounting methods.
- Plan your cashflow: retroactive claims may increase refunds or lower liabilities, but audit risk and substantiation will be required.
- Don’t miss the deadline—July 6, 2026 is firm for eligible taxpayers for retroactive elections.
## Risks & Compliance Concerns
- Lack of proper documentation could lead to denials or penalties.
- More aggressive elections may invite IRS scrutiny, especially if claiming large amounts.
- Make sure earlier returns have consistency—discrepancies between domestic and foreign R&E reporting can trigger issues.
**Why this matters:** For small businesses able to leverage the updated R&E rules, it’s a rare window to reduce tax liabilities for past years. Staying compliant and timely will ensure maximum benefit with reduced downside risk.