Bulletin 2025–38: OBBBA Implementation & Clean Energy Adjustments

Bulletin Breakdown: OBBBA Guidance and Clean Energy Rates

This Internal Revenue Bulletin (IRB) provides crucial updates on two significant fronts: clean energy tax credits and the retroactive relief for Research & Experimental (R&E) expenditures following the enactment of the One, Big, Beautiful Bill Act (OBBBA). Notice 2025-38 delivers updated inflation adjustment factors for the Section 45Y clean electricity production credit, while Rev. Proc. 2025-28 furnishes comprehensive guidance on implementing the OBBBA's R&E provisions, offering substantial relief and clarity to tax practitioners navigating the complexities of R&E amortization.

Notice 2025-38: Clean Electricity Credits Set at 0.6 and 3.0 Cents

As tax practitioners digest the implications of the One, Big, Beautiful Bill Act (OBBBA) and related guidance, further updates continue to arrive. Notice 2025-38 delivers updated inflation adjustment factors for the Section 45Y clean electricity production credit, while Rev. Proc. 2025-28 furnishes comprehensive guidance on implementing the OBBBA's R&E provisions, offering substantial relief and clarity to tax practitioners navigating the complexities of R&E amortization.

The Rule

Notice 2025-38 provides the inflation adjustment factor and applicable amounts for the clean electricity production credit under Section 45Y for the 2025 calendar year. The notice states that the inflation adjustment factor for 2025 is 1.9971. Consequently, the applicable amount for the base credit under Section 45Y(a)(2)(A) is 0.6 cents per kilowatt-hour (kWh), and the applicable amount for the alternative credit under Section 45Y(a)(2)(B) is 3 cents per kWh. Section 45Y(a)(2)(A) provides a base amount, while section 45Y(a)(2)(B) provides for a higher alternative amount if certain requirements are met, such as a maximum net output of less than 1 megawatt. The IRS explicitly notes these amounts are rounded as required. Specifically, if the 0.3 cent amount as adjusted for inflation is not a multiple of 0.05 cent, the amount is rounded to the nearest multiple of 0.05 cent. If the 1.5 cent amount as adjusted for inflation is not a multiple of 0.1 cent, the amount is rounded to the nearest multiple of 0.1 cent.

The Context

Section 45Y, which provides an income tax credit for producing electricity at a qualified facility, was added to the tax code by the Inflation Reduction Act of 2022 (IRA). The IRA aimed to incentivize clean energy production, and Section 45Y is a critical component of that effort, replacing the traditional Section 45 credit for facilities placed in service after December 31, 2024. This credit, part of a broader push towards sustainable energy, is designed to reward electricity production from facilities with zero or near-zero greenhouse gas emissions.

The Implication

For tax practitioners, Notice 2025-38 provides the definitive figures needed to calculate the Section 45Y credit for the 2025 tax year. When determining the credit amount for electricity sales, consumption, or storage in 2025, practitioners must use the adjusted figures of 0.6 cents per kWh for the base amount and 3 cents per kWh for the alternative amount. These amounts are derived from multiplying the base and alternative amounts specified in Section 45Y(a)(2)(A) and (B) by the inflation adjustment factor of 1.9971. It's crucial to note the rounding conventions dictated by Section 45Y(c)(1): the base amount is rounded to the nearest multiple of 0.05 cent, and the alternative amount is rounded to the nearest multiple of 0.1 cent.

Rev. Proc. 2025-28: Small Business R&E Relief Goes Retroactive

As discussed in the previous section regarding clean electricity production credits, the new Internal Revenue Bulletin provides updates regarding several aspects of tax law. A key focus of the guidance concerns research and experimental (R&E) expenditures, particularly in light of recent legislative changes. This section delves into the provisions of Revenue Procedure 2025-28, focusing on the retroactive relief offered to small businesses.

The context for this guidance stems from the Tax Cuts and Jobs Act of 2017 (TCJA) and the One, Big, Beautiful Bill Act (OBBBA). The TCJA's Section 174 required taxpayers to capitalize and amortize R&E expenditures, a departure from prior law which allowed for immediate expensing. However, OBBBA § 70302 amended this, introducing Section 174A to provide relief.

This new revenue procedure allows 'Eligible Taxpayers' – specifically, small businesses meeting the gross receipts test outlined in Section 448(c) – to elect to retroactively apply Section 174A to taxable years beginning after December 31, 2021. Section 448(c) defines a small business as one with average annual gross receipts of $25 million or less for the three prior taxable years, adjusted for inflation. For the taxable year beginning in 2025, the inflation-adjusted amount is $31 million.

The mechanism for this retroactive application is the 'Small Business OBBBA Election.' This election allows eligible taxpayers to either deduct domestic R&E expenditures fully in the year they were incurred or, alternatively, to charge such expenditures to a capital account and amortize them ratably over a period of not less than 60 months, starting from the month in which the taxpayer first realizes benefits from the expenditures.

The deadline for making this election is July 6, 2026. Because July 4, 2026, falls on a Saturday, Section 7503, which addresses instances where the last day for performing an act falls on a Saturday, Sunday, or legal holiday, extends the deadline to the next succeeding day that is not a Saturday, Sunday, or legal holiday. This retroactive relief is a significant advantage for small businesses that were burdened by the TCJA's capitalization and amortization requirements. Practitioners need to be aware of the eligibility requirements, the election mechanism, and the strict deadline to ensure their clients can benefit from this provision.

Credit Interactions: Fixing § 280C Elections for Prior Years

The previous section detailed the retroactive relief afforded to small businesses regarding the capitalization of research and experimental (R&E) expenditures under the One, Big, Beautiful Bill Act (OBBBA). This section addresses the interaction of this relief with the election under Section 280C(c) of the Internal Revenue Code, which prevents taxpayers from receiving a double tax benefit when claiming both a deduction for R&E expenses and the research credit under Section 41, which incentivizes increased research activities.

The Issue: The OBBBA allows eligible small businesses to retroactively expense R&E expenditures under Section 174A, a new section enacted by the OBBBA that restores the ability to immediately expense domestic R&E expenditures. Given this change, prior elections (or lack thereof) concerning the reduced credit under Section 280C(c)(3) might now yield a less favorable tax outcome for the 2022-2024 tax years. The general rule under Section 280C(c)(1) requires a taxpayer to reduce their Section 174 (now 174A) deduction by the amount of the Section 41 research credit claimed. However, Section 280C(c)(3) provides an election to take a reduced credit on Form 6765, allowing the taxpayer to retain the full R&E deduction while receiving a smaller research credit (approximately 79% of the gross credit, reflecting the 21% corporate tax rate).

The Fix: Revenue Procedure 2025-28 grants eligible small businesses the opportunity to make a late election or to revoke a prior election under Section 280C(c)(2). This provision is critical because a taxpayer might have previously chosen to take the full research credit and reduce their R&E deduction when amortization was mandatory. With the ability to now fully expense these costs, the reduced credit election might be more advantageous.

Implication: Practitioners must diligently review prior year returns (2022-2024) to determine whether amending the Section 280C election would result in a more beneficial tax position, given the renewed ability to expense R&E. An eligible small business taxpayer, as defined by meeting the gross receipts test under Section 448(c) (average annual gross receipts for the three prior years not exceeding $31 million for 2025), can make a late Section 280C(c)(2) election for any applicable taxable year for which they filed an original federal income tax return on or before September 15, 2025. To make this election, taxpayers must adjust their research credit amount under Section 41(a) or the alternative simplified credit amount under Section 41(c)(4) and adjust their domestic research expenditures to reflect the OBBBA modifications, filing an amended Form 6765 marked "FILED PURSUANT TO SECTION 4.03 OF REV. PROC. 2025-28" with their amended return. Taxpayers must also include a declaration affirming that they are not a tax shelter and that they meet the Section 448(c) gross receipts test. Critically, any election or revocation made on an amended return must be filed on or before July 6, 2026.

Post-2024 Guidance: New § 174A and Unamortized Cost Recovery

The recent passage of the One, Big, Beautiful Bill Act (OBBBA) brought significant changes to the treatment of research and experimental (R&E) expenditures, particularly with the introduction of Section 174A, which allows for the deduction of domestic R&E expenditures. Revenue Procedure 2025-28 addresses the method of accounting for domestic R&E expenditures paid or incurred in taxable years beginning after December 31, 2024. For these years, Section 174A(a) allows a deduction for any domestic research or experimental expenditures paid or incurred by the taxpayer during the taxable year. Taxpayers can alternatively elect, under Section 174A(c)(1), to capitalize and amortize these expenditures ratably over a period of not less than 60 months, beginning with the month in which the taxpayer first realizes benefits from such expenditures.

This new guidance also addresses the recovery of costs capitalized under the Tax Cuts and Jobs Act (TCJA) rules. For domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and before January 1, 2025—years when capitalization was mandatory under the TCJA amendments to Section 174—taxpayers may have capitalized these costs. The OBBBA provides a "Recovery of Unamortized Amount Method" under Section 70302(f)(2)(A), allowing taxpayers to recover the remaining unamortized amount of these expenditures. This recovery can occur in one of two ways: either amortizing the remaining unamortized amount in full in the first taxable year beginning after December 31, 2024, or amortizing it ratably over the two-taxable-year period beginning with the first taxable year beginning after December 31, 2024.

The revenue procedure clarifies that changing to either the Section 174A(a) deduction method or the Section 174A(c) amortization method for post-2024 expenditures, or adopting the "Recovery of Unamortized Amount Method," is treated as a change in accounting method. However, these changes are implemented on a cut-off basis, meaning that no Section 481(a) adjustment is required. Section 481(a) requires an adjustment to prevent items from being duplicated or omitted when there is a change in accounting method. Taxpayers wanting to change their accounting method must include a statement with their tax return (in lieu of Form 3115, Application for Change in Accounting Method) including their name, taxpayer ID, the designated automatic accounting method change number, and other declarations based on which method they are changing to. The designated automatic accounting method change number for these changes is "273."

Filing Season Relief: IRS Grants Extension for Superseding 2024 Returns

As discussed in the previous section, taxpayers wanting to change their accounting method must include a statement with their tax return (in lieu of Form 3115, Application for Change in Accounting Method) including their name, taxpayer ID, the designated automatic accounting method change number, and other declarations based on which method they are changing to. The designated automatic accounting method change number for these changes is "273."

Given the timing of this guidance, many taxpayers may have already filed their 2024 tax returns before its release in September 2025. To address this, Section 8 of Revenue Procedure 2025-28 provides administrative relief in the form of an automatic six-month extension to file a superseding tax return (and furnish any applicable Schedules K-1) for the 2024 tax year. A superseding return is essentially an amended return filed before the original due date (including extensions) of the original return.

This relief is available to an "eligible entity," encompassing partnerships filing Form 1065, S corporations filing Form 1120-S, C corporations filing Form 1120 (or other forms in the Form 1120 series), individuals filing Form 1040 (Schedule C), trusts and estates filing Form 1041, and exempt organizations filing Form 990-T.

To qualify for this extension, the entity must meet three requirements: (1) it must have timely filed its original tax return and furnished any applicable Schedules K-1 before September 15, 2025; (2) it must not have otherwise filed for an extension; and (3) it must file the superseding tax return and furnish any applicable Schedules K-1 on or before the date that is six months after the taxpayer’s original due date (excluding any extensions). This superseding return can only be filed to take advantage of the small business OBBBA election provided in section 3 of the revenue procedure, make or revoke a late election under Section 280C(c)(2), which allows for a reduced research credit in lieu of reducing the deduction under Section 174A, or make a change in method of accounting as described in section 7.02(3)(c) of Rev. Proc. 2025-23. Section 280C(c) prevents a double benefit when a taxpayer claims the research credit under Section 41. Under Section 280C(c)(3), taxpayers can elect to take a reduced credit using Form 6765 allowing them to keep the full research and experimental (R&E) deduction.

This relief applies only to taxable years beginning during 2024 that ended before September 15, 2025, and for which the due date (excluding extensions) for the return of tax was before September 15, 2025.

To take advantage of this extension, the eligible entity must file a superseding tax return in the same manner as the original return and write "REVENUE PROCEDURE 2025-28" on the top of the superseding tax return.