Form 3115 and OBBBA Accounting Method Changes: Rev. Proc. 2025-23 Practitioner Guide

The One Big Beautiful Budget Act (OBBBA) restored immediate domestic R&E expensing via IRC 174A for tax years beginning after December 31, 2024, reversing three years of mandatory TCJA amortization. Every practitioner with a client who had domestic research and experimental expenditures in tax years 2022 through 2024 needs a clear answer to the same question: what accounting method change is required, which procedure governs, and what does the IRC 481(a) adjustment look like? This guide covers those questions and the broader automatic method change framework under Rev. Proc. 2025-23, which replaced the entire prior automatic change list in June 2025.

The guide is organized around the practitioner workflow: understanding when Form 3115 is required, using Rev. Proc. 2025-23 to locate the correct designated change number, applying the Rev. Proc. 2025-28 statement-in-lieu procedure for IRC 174A changes, computing the IRC 481(a) adjustment, and coordinating the method change with the IRC 280C election. A practitioner checklist and FAQ section are at the end. All statutory citations and procedure references in this guide should be verified at IRS.gov before application in client engagements. OBBBA provisions are recently enacted and subject to ongoing regulatory interpretation.

This guide is informational and does not constitute tax, legal, or accounting advice for any specific client situation. Verify all cited procedures, IRC sections, and filing requirements against current law and IRS.gov guidance before use in practice.

1. What Is an Accounting Method Change and When Is Form 3115 Required?

An accounting method is a consistent set of rules a taxpayer uses to determine when income is recognized and when deductions are taken. Permissible accounting methods include the cash receipts and disbursements method, the accrual method, and various special methods for specific items (such as inventory, depreciation, prepaid expenses, and R&E expenditures). A taxpayer must obtain IRS consent before switching from one accounting method to another, even if both methods are otherwise permissible. This consent requirement applies whether the taxpayer is moving from one permissible method to another or correcting an impermissible method to a permissible one.

Form 3115, Application for Change in Accounting Method, is the IRS form through which both types of consent are requested.

Two types of method changes

Automatic consent changes are listed in Rev. Proc. 2025-23 (the current authoritative list, effective for changes filed on or after the Rev. Proc. 2025-23 effective date). For these changes, the taxpayer files Form 3115 as an attachment to the return for the year of change. No advance IRS approval is required before implementing the change. The taxpayer must satisfy the eligibility conditions specified in Rev. Proc. 2025-23 for the applicable designated change number (DCN). A concurrent duplicate copy of Form 3115 is filed with the IRS National Office; hedge the concurrent filing requirement to current Form 3115 instructions and Rev. Proc. 2025-23.

Non-automatic (advance consent) changes are not on the automatic list. These require the taxpayer to file a Form 3115 application with the IRS National Office before the end of the year of change and to pay a user fee. The taxpayer does not implement the change until IRS consent is received. The general procedures for non-automatic changes are in Rev. Proc. 2015-13 and current IRS.gov guidance.

The OBBBA trigger

For tax years 2022 through 2024, the TCJA required taxpayers to amortize domestic R&E expenditures over 5 years (15 years for foreign R&E) under IRC 174. Taxpayers who followed this requirement were using an accounting method (5-year domestic amortization) that the OBBBA's IRC 174A displaced for tax years beginning after December 31, 2024. The shift from the TCJA amortization method to the IRC 174A expensing method is an accounting method change, and it requires IRS consent in the form prescribed by Rev. Proc. 2025-28 (statement-in-lieu, for eligible taxpayers) or a full Form 3115 under Rev. Proc. 2025-23.

Any practitioner with a client that had domestic R&E expenditures subject to TCJA amortization in 2022, 2023, or 2024 should treat the IRC 174A transition as a method change that required (or requires) a formal filing. Failing to make the change via the correct procedure and treating the year-of-change return as though expensing always applied is not a permissible shortcut.

2. Rev. Proc. 2025-23: The New Automatic Method Change List

Rev. Proc. 2025-23 is the foundational document for every automatic accounting method change filed on or after its effective date. It replaced the prior automatic change list (Rev. Proc. 2019-43 and all subsequent modifications) in its entirety. Practitioners who have not updated their Form 3115 workflow to use Rev. Proc. 2025-23 are working from a superseded source.

What Rev. Proc. 2025-23 covers

Rev. Proc. 2025-23 contains the complete list of automatic consent accounting method changes, organized by designated change number (DCN). Each DCN corresponds to a specific method change or category of method changes. The DCN identifies the applicable scope, eligibility conditions, and required terms and conditions for that particular change. Key categories in the automatic list include:

• Income recognition methods (including advance payments and long-term contracts for eligible taxpayers)
• Expense recognition methods
• Depreciation and amortization method changes
• Inventory and cost accounting methods (including UNICAP and simplified cost capitalization methods)
• Prepaid expense methods
• Research and experimental expenditure methods, including the IRC 174A transition from TCJA amortization

All specific DCNs, eligibility conditions, and terms must be verified in Rev. Proc. 2025-23 on IRS.gov. Do not rely on DCN numbers carried over from Rev. Proc. 2019-43; the numbering and conditions may have changed.

How to use Rev. Proc. 2025-23 in practice

1. Identify the specific accounting method the taxpayer currently uses and the specific method to which the taxpayer wants to change.
2. Search Rev. Proc. 2025-23 for the DCN that covers that specific change. If no DCN covers it, the change is not automatic, and advance consent under Rev. Proc. 2015-13 is required.
3. Review all eligibility conditions for the applicable DCN. Common conditions include limitations on the year of change (e.g., the taxpayer must be in a specified year of using the old method) and restrictions on taxpayers under examination.
4. Prepare Form 3115 using the DCN from Rev. Proc. 2025-23. Complete Part IV (IRC 481(a) adjustment) and all applicable schedules per the Form 3115 instructions.
5. File Form 3115 as an attachment to the return for the year of change. Send the required duplicate copy to the IRS National Office per the current Form 3115 instructions.

3. IRC 174A: OBBBA's Restoration of R&E Immediate Expensing

Understanding the method change requires understanding what changed, and why. R&E accounting has moved through three distinct regimes in the past decade. For context on how OBBBA's IRC 174A interacts with other OBBBA business provisions, see our Section 199A QBI Deduction OBBBA Practitioner Guide, which covers the OBBBA pass-through deduction changes that often accompany the same client fact patterns. The IRC 174A R&E expensing restoration and the OBBBA EBITDA-based ATI restoration are two parts of the same OBBBA capital expenditure reform; see our IRC 163(j) business interest limitation OBBBA guide for the interest-deduction side of that reform.

Pre-TCJA treatment (through 2021)

Under pre-TCJA IRC 174, taxpayers could elect to expense domestic R&E expenditures in the year incurred, or capitalize and amortize them over 60 months or more. Most taxpayers with significant R&E activity elected immediate expensing. This flexibility was the baseline rule for decades.

TCJA mandatory amortization (2022-2024)

For tax years beginning after December 31, 2021, the TCJA amended IRC 174 to eliminate the expensing election and require capitalization and amortization. Domestic R&E was amortized over 5 years (60 months), and foreign R&E over 15 years. The mandatory amortization period began at the midpoint of the tax year in which the expenditure was paid or incurred. The change affected every taxpayer with R&E expenditures and created the unamortized balance that becomes the IRC 481(a) adjustment under the OBBBA method change.

OBBBA IRC 174A (tax years beginning after December 31, 2024)

OBBBA enacted IRC 174A, which restored the ability to expense domestic R&E expenditures in the year incurred for tax years beginning after December 31, 2024. IRC 174A applies only to domestic R&E. Foreign R&E expenditures remain on the TCJA 15-year amortization schedule under IRC 174; the OBBBA did not change the foreign R&E treatment. Practitioners must verify the domestic/foreign distinction for each R&E item in the client's books.

IRC 174A is recently enacted. The IRS is issuing guidance under OBBBA, and the regulatory framework continues to develop. Confirm current IRC 174A mechanics, definitions, and any published guidance at IRS.gov before applying any specific interpretation in a client engagement.

Hedge all specifics to IRS.gov and applicable guidance. OBBBA recently enacted; subject to ongoing regulatory interpretation.

Why this triggers a method change

A taxpayer who amortized domestic R&E under the TCJA rules for 2022, 2023, and 2024 was using a mandatory capitalization and amortization method. For the first tax year beginning after December 31, 2024, that method is no longer applicable to domestic R&E (IRC 174A now permits immediate expensing). Switching from the TCJA amortization method to the IRC 174A expensing method is a change in accounting method that requires IRS consent, obtained through the Rev. Proc. 2025-28 procedure (statement-in-lieu or Form 3115). Treating the change as automatic without the required filing is impermissible.

4. Rev. Proc. 2025-28: The OBBBA Method Change Procedure

Rev. Proc. 2025-28 is the IRS-issued procedure specifically addressing the accounting method change from TCJA IRC 174 amortization to OBBBA IRC 174A expensing. It provides a procedural framework for making this particular transition, including a simplified filing option for qualifying taxpayers.

Statement-in-lieu of Form 3115

For certain qualifying taxpayers, Rev. Proc. 2025-28 allows the IRC 174A method change to be implemented by attaching a written statement to the return for the year of change, rather than filing the full Form 3115. This statement-in-lieu procedure significantly simplifies the filing for eligible taxpayers and eliminates the need to complete the detailed Form 3115 schedules.

The specific content requirements for the statement, the eligibility conditions for the statement-in-lieu procedure, and any restrictions on its use must be verified in Rev. Proc. 2025-28 on IRS.gov. Not every taxpayer making an IRC 174A method change qualifies for the statement-in-lieu; some may be required to file full Form 3115 under Rev. Proc. 2025-23.

IRC 481(a) adjustment under the IRC 174A change

The TCJA-to-174A method change typically produces a net negative IRC 481(a) adjustment, which is favorable to the taxpayer. The adjustment represents the unamortized domestic R&E expenditures from 2022, 2023, and 2024 that were not yet deducted under the TCJA amortization schedule. Under the new IRC 174A expensing method, those amounts should have been deducted in the year incurred. The IRC 481(a) adjustment accounts for this cumulative difference by allowing the remaining unamortized balance to be deducted in the year of change.

A net negative adjustment (favorable) is taken in full in the year of change. There is no 4-year spread for a net negative adjustment. The result is a potentially significant additional deduction in the year of change (the first tax year beginning after December 31, 2024 for most calendar-year taxpayers).

Deadline context (Rev. Proc. 2025-28)

Rev. Proc. 2025-28 established a first-year method change deadline of July 6, 2026 for calendar-year taxpayers filing 2025 returns. As of July 21, 2026, that deadline has passed for most calendar-year entities. The method change remains available for fiscal-year taxpayers and may be available under extended return procedures; verify current availability at IRS.gov and in Rev. Proc. 2025-28. The method change is also available for subsequent tax years (2026 and forward) under the standard automatic change procedures in Rev. Proc. 2025-23.

5. IRC 481(a) Adjustment Mechanics

Every accounting method change triggers an IRC 481(a) adjustment. Understanding the adjustment is essential for computing the tax effect of the method change and for completing Form 3115 Part IV correctly.

What the IRC 481(a) adjustment measures

The IRC 481(a) adjustment is the cumulative difference between (a) the income and deductions the taxpayer actually reported under the old method for all prior years and (b) the income and deductions that would have been reported for those same years if the new method had always been in use. The adjustment eliminates the distortion that would otherwise result from the gap between the two methods at the moment of change.

For example: a taxpayer who amortized $1,000,000 of domestic R&E in 2022-2024 under the TCJA and has $600,000 remaining unamortized entering the year of change would have a negative IRC 481(a) adjustment of $600,000. Under the new IRC 174A expensing method, all $1,000,000 would have been deducted when incurred. The $600,000 unamortized balance is the cumulative shortfall under the old method, and the negative adjustment allows it to be deducted in the year of change. These are illustrative mechanics only; verify the actual adjustment computation in current Form 3115 instructions and IRC 481(a).

Two types of adjustments

Hedge all specifics to IRC 481(a) and current Form 3115 instructions on IRS.gov.

Where the adjustment appears on the return

The IRC 481(a) adjustment is computed on Form 3115, Part IV, and is reported as a separate item on the return for the year of change. The adjustment flows to the same line as the income or deduction item it relates to (e.g., a negative IRC 481(a) adjustment for R&E flows through as an additional deduction on the return). Verify the specific reporting line and return treatment in the current Form 3115 instructions and applicable IRS guidance on IRS.gov.

Interaction with estimated tax payments

A large positive IRC 481(a) adjustment spread over 4 years increases taxable income in each of those years and affects estimated tax obligations. For a large negative adjustment taken in full in the year of change, it may significantly reduce taxable income in that year. Practitioners should build both scenarios into estimated tax planning for clients with material R&E balances. Hedge estimated tax mechanics to IRS.gov and current IRC 6654 (individuals) and IRC 6655 (corporations) guidance.

6. Non-Automatic (Advance Consent) Method Changes

Not every accounting method change qualifies for automatic consent under Rev. Proc. 2025-23. If the specific method change the taxpayer wants to make does not have a corresponding DCN in Rev. Proc. 2025-23, it is a non-automatic change, and the taxpayer must follow the advance consent procedures.

Process for non-automatic changes

1. File Form 3115 with the IRS National Office before the end of the year of change. Unlike automatic changes, the non-automatic Form 3115 goes to the National Office first, not to the return.
2. Include a user fee. The current user fee schedule is in Rev. Proc. 2025-1 (updated annually) or the current IRS.gov fee schedule. Do not use a prior year fee schedule.
3. Provide a complete statement of facts, a description of the old method and the new method, and an explanation of why the change is warranted. The specific content requirements are in Rev. Proc. 2015-13 and IRS.gov.
4. Do not implement the method change until the IRS issues a letter ruling or consent agreement. Implementing a non-automatic change without IRS consent is a violation of the method change rules.
5. Once consent is received, implement the change and report the IRC 481(a) adjustment per the consent agreement terms.

Common non-automatic change scenarios

Method changes that are more commonly non-automatic include: changes from the cash method to accrual for large taxpayers not eligible for the small business cash method exception; changes involving complex international income recognition rules; certain complex inventory method changes outside the automatic list; and changes with unusual facts that do not fit neatly within any DCN in Rev. Proc. 2025-23. Verify whether any specific change is automatic or non-automatic by consulting Rev. Proc. 2025-23 and Rev. Proc. 2015-13 on IRS.gov.

7. Small Business Taxpayer Exceptions

Certain small business taxpayers qualify for simplified accounting methods that reduce both the Form 3115 burden and the complexity of the method change analysis. Whether a taxpayer is a "small business taxpayer" for these purposes depends on the gross receipts test under IRC 448(c). The current threshold amount is subject to annual inflation adjustment; verify the current figure at IRS.gov before applying the test.

Simplified methods available to qualifying small businesses

• Overall cash method: small business taxpayers that would otherwise be required to use the accrual method under IRC 448 may use the overall cash receipts and disbursements method. The election to use the cash method for an otherwise required accrual-method taxpayer is a method change governed by Rev. Proc. 2025-23.
• Simplified inventory method: small business taxpayers may be exempt from the IRC 263A UNICAP rules and may use simplified inventory costing methods not available to larger taxpayers.
• Simplified long-term contract method: qualifying small business taxpayers may use the completed contract method for certain long-term contracts rather than the percentage-of-completion method otherwise required under IRC 460.

Under Rev. Proc. 2025-23, certain small business method changes may not require Form 3115 in every circumstance. Hedge all small business exceptions and Form 3115 waiver conditions to Rev. Proc. 2025-23 and IRS.gov. Do not assume a small business is exempt from Form 3115 without confirming the specific rule for the specific method change.

Note that the IRC 174A change and the Rev. Proc. 2025-28 statement-in-lieu procedure have their own eligibility rules that are separate from the general small business taxpayer rules. A taxpayer that qualifies as a small business taxpayer under IRC 448(c) still needs to determine whether it qualifies for the statement-in-lieu procedure under Rev. Proc. 2025-28 independently.

For practitioners advising closely held businesses evaluating entity structure alongside these accounting changes, see our IRC 1374 Built-In Gains Tax: C-Corp to S-Corp Conversion Practitioner Guide, which covers entity-level planning considerations in the post-OBBBA environment.

8. Interaction with IRC 280C and R&E Credits

The IRC 174A method change does not stand alone on the return. For taxpayers who claim an R&E credit under IRC 41, the accounting method change for R&E expenditures must be coordinated with the IRC 280C election decision or a computation error is nearly certain.

How IRC 280C(c) works

IRC 280C(c)(1) provides that if a taxpayer claims the IRC 41 R&E credit for a tax year, the amount allowable as a deduction under IRC 174A is reduced by the amount of the credit. In plain terms: claiming the full R&E credit reduces the R&E deduction by the credit amount, dollar for dollar.

IRC 280C(c)(2) provides an alternative: the taxpayer may elect a reduced credit amount, with the credit reduced to an amount that eliminates the deduction reduction. Under this election, the taxpayer keeps the full R&E deduction and takes a smaller credit. The reduced credit election preserves the full IRC 174A deduction at the cost of a lower credit.

Which approach is better?

The optimal choice between the full credit (with reduced deduction) and the reduced credit election (with full deduction) depends on the taxpayer's effective tax rate, credit utilization, and whether the credit would be fully used in the current year or carried forward. In general, the full credit approach is preferable for taxpayers with high effective tax rates where the credit's dollar-for-dollar reduction of tax liability exceeds the tax value of the additional deduction. The reduced credit election is often preferable for pass-through entities where the credit may be limited or where the full deduction has an immediate tax benefit at the owner level.

Hedge all IRC 280C computations, election mechanics, and the optimal choice analysis to IRS.gov, current Form 6765 instructions, and applicable IRC 41 and IRC 280C guidance. The interplay between the method change, the IRC 481(a) adjustment, the full R&E deduction, and the 280C election requires a coordinated computation for every client with R&E activity and an IRC 41 credit.

9. Practitioner Checklist: Form 3115 OBBBA Method Change Workflow

Use this checklist as a starting framework. Verify all steps against Rev. Proc. 2025-23, Rev. Proc. 2025-28, IRC 174A, IRC 481(a), and current IRS.gov guidance before use in client engagements. Items that are marked "verify" require confirmation of current rules at IRS.gov, as the regulatory environment continues to develop.

• Identify R&E activity: Determine whether the client had domestic R&E expenditures in tax years 2022, 2023, or 2024 that were amortized under the TCJA IRC 174 mandatory amortization rules. If yes, an IRC 174A method change is required for the first tax year beginning after December 31, 2024.
• Confirm domestic vs. foreign R&E: IRC 174A applies only to domestic R&E. Foreign R&E remains on the TCJA 15-year amortization schedule. Verify the domestic/foreign classification for each R&E expenditure in the client's records.
• Determine the year of change: For calendar-year taxpayers, the year of change is 2025 (the first tax year beginning after December 31, 2024). For fiscal-year taxpayers, determine the specific first tax year beginning after December 31, 2024 for that entity.
• Assess statement-in-lieu eligibility: Review the eligibility conditions in Rev. Proc. 2025-28 to determine whether the client qualifies for the statement-in-lieu procedure. If eligible, prepare the required statement per Rev. Proc. 2025-28. If not eligible, proceed to full Form 3115 preparation under Rev. Proc. 2025-23.
• Locate the applicable DCN: If full Form 3115 is required, locate the applicable designated change number (DCN) in Rev. Proc. 2025-23 for the IRC 174A method change. Confirm all eligibility conditions for that DCN are satisfied.
• Compute the IRC 481(a) adjustment: Calculate the cumulative difference between the unamortized domestic R&E balance under the old TCJA method and the amount that would have been deducted under the new IRC 174A expensing method. The result is typically a net negative adjustment (favorable). Verify the computation methodology in current Form 3115 instructions and IRC 481(a).
• Coordinate IRC 280C election: Determine whether the client claims or expects to claim an IRC 41 R&E credit. If yes, determine whether the full credit (with reduced deduction under IRC 280C(c)(1)) or the reduced credit election (under IRC 280C(c)(2)) is optimal. Make the election decision before finalizing the return.
• Calendar-year taxpayers (deadline has passed): The July 6, 2026 first-year Rev. Proc. 2025-28 window has closed for most calendar-year entities. If the 2025 return was not filed with the method change by that date, consult IRS.gov and Rev. Proc. 2025-28 for any available relief procedures. Plan the method change for the 2026 tax year under Rev. Proc. 2025-23 if relief is not available.
• Fiscal-year taxpayers: Verify the applicable deadline for the specific fiscal year-end under Rev. Proc. 2025-28 and IRS.gov. Fiscal-year entities whose applicable year of change has not yet been filed may still be within the window.
• File Form 3115 (or statement-in-lieu) with the return: Attach the completed Form 3115 or statement to the return for the year of change. Send the required duplicate copy of Form 3115 to the IRS National Office per current Form 3115 instructions. Retain a copy of the filing in the client file.
• Update client records: Note the method change in the client's permanent file, including the DCN used (or statement-in-lieu procedure), the year of change, the IRC 481(a) adjustment amount, and the return on which the change was reported. The method change is part of the client's tax history for future examinations and subsequent-year returns.

Frequently Asked Questions

Related Practitioner Guides

The following guides cover OBBBA provisions and related tax rules that practitioners should consider alongside the Form 3115 accounting method change analysis.

• IRC 174A Research and Experimental Expenditures Guide -- Form 3115 is the vehicle for making the Rev. Proc. 2025-28 catch-up 481(a) accounting method change for previously capitalized R&E expenditures under OBBBA IRC 174A; the two guides are directly paired.
• IRC 168(k) and 168(n) Bonus Depreciation and Qualified Production Property Guide -- changes in depreciation methods (switching from MACRS to ADS or vice versa) often require a Form 3115 filing; practitioners dealing with bonus depreciation method changes need both guides.
• IRC 163(j) Business Interest Limitation Guide -- certain IRC 163(j) elections and accounting method adjustments affecting ATI computation may require Form 3115.
• IRC 41 Research and Development Tax Credit Guide -- the IRC 174A catch-up 481(a) method change affects the Section 280C(c) reduced-credit election mechanics for IRC 41; practitioners need both guides when advising on research expenditures.
• IRC 446 and 448: Accounting Methods, Cash vs. Accrual, and the Small Business Taxpayer Exception -- foundational guide to the IRC 446 clearly-reflects-income standard, the IRC 448 accrual method prohibition for C corporations and tax shelters, and the OBBBA-adjusted $30M small business taxpayer gross receipts test exception that directly determines whether a Form 3115 filing is needed to change accounting methods.
• IRC 481(a) Method Change Adjustment -- The IRC 481(a) adjustment mechanics that apply when filing Form 3115 for an accounting method change -- 4-year spread, cutoff method, and involuntary change rules.

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