By Michael Smith.
Executive Summary:
- CPAs have a limited window to amend 2022–2024 returns under updated R&D tax rules, with potential for immediate cash refunds.
- Recent changes reverse prior limitations allowing both the credit and immediate expensing of R&D costs.
- Expanded IRS documentation expectations will require more detailed reporting starting with upcoming tax years.
Tax season may be over, but one of the most valuable opportunities for CPA firms and their clients is still within reach, for a limited time.
Between now and July 6, firms have a narrow window to help eligible businesses revisit their R&D tax credit claims for prior years. Acting within that timeframe can unlock meaningful cash refunds. Missing it means losing the ability to apply more favorable treatment to those earlier filings.
At the same time, new documentation requirements are raising the bar for how the credit must be supported going forward. This moment calls for immediate action as well as thoughtful preparation.
A correction that restores value
In recent years, the treatment of research and development expenses created unintended consequences for many businesses. Under the Tax Cuts and Jobs Act of 2017, companies could claim the R&D tax credit but were required to amortize related expenses over five years rather than deduct them immediately. That change often increased taxable income and reduced the near-term benefit of the credit.
Recent federal tax legislation (H.R. 1) addressing Section 174 has restored the ability to take both the credit and the immediate deduction for qualifying expenses. The result is a more favorable outcome that aligns with the original intent of the incentive and improves cash flow for businesses investing in innovation.
Importantly, this change may apply retroactively. Companies with average gross receipts of $31M that followed the amortization rules from 2022 through 2024 can amend those returns and apply the updated treatment. In many cases, this creates the potential for direct cash refunds rather than simply improving future tax positions.
For additional detail, the IRS provides guidance on the credit itself in Form 6765 Instructions.
Why the July 6 deadline matters
The opportunity to revisit prior-year filings for qualifying small businesses is not open-ended. The July 6 deadline marks the end of the retroactive window, after which businesses will no longer be able to amend those returns under the OBBB revised rules.
This places a clear responsibility on CPA firms to identify affected clients and initiate timely conversations. Businesses that previously claimed the credit under less favorable conditions, or avoided it due to complexity, may now have a compelling reason to reassess.
For many clients, the impact is immediate and tangible. Amended returns can translate into recovered dollars, not just theoretical tax savings. That makes the weeks leading up to the deadline particularly significant for firms focused on delivering measurable value for their clients.
More rigorous documentation ahead
While the near-term opportunity centers on amended returns, future filings will require a more disciplined approach to documentation.
Updates to Form 6765 introduce expanded reporting expectations, particularly for businesses with more than $1.5 million in qualifying research expenses. Companies will need to identify the individuals involved in R&D activities and clearly describe the technical objectives and uncertainties associated with each business component.
Additional IRS guidance on qualifying activities and substantiation requirements can be found in IRS Audit Techniques Guide: Credit for Increasing Research Activities.
This level of detail has not been consistently maintained by many small and midsize businesses. Larger organizations tend to have established processes in place, but smaller companies often lack the systems needed to capture this information consistently.
What was once optional or loosely documented is becoming a required part of the filing process. Firms that wait until these requirements are enforced may find themselves working under tighter timelines and increased scrutiny.
A broader advisory opportunity
These changes highlight an expanding role for CPAs. Beyond preparing returns, firms are increasingly expected to guide clients in building the operational discipline needed to support complex credits like R&D.
That includes helping clients establish processes to:
- Track qualifying activities as they occur, whether it’s a product, software or business component
- Identify and document the individuals performing the research
- Define project goals and technical challenges
- Maintain records that can withstand IRS review
This level of involvement strengthens client relationships and positions the firm as a strategic advisor rather than a transactional service provider.
Act now and build forward
The current environment presents two priorities that should be addressed in parallel.
First, identify clients who may benefit from amending prior returns and ensure they understand the significance of the July 6 deadline. The potential for cash recovery makes this an urgent and practical conversation.
Second, begin laying the groundwork for future compliance by helping clients adopt stronger documentation practices. Addressing these requirements now reduces risk and creates a smoother path for upcoming filings.
The R&D tax credit continues to offer significant value, but capturing that value requires both timely action and sustained attention to detail. Firms that move quickly and guide clients effectively will be well positioned to deliver results today while preparing for the expectations ahead.
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Michael Smith is a Director of Tax, Strategic Partnerships & Alliances, at ADP.
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