KPMG says new tax law restores R&E expensing, but creates ripple effects

KPMG’s latest read on the new tax law is simple: domestic research expensing is back, but the modeling work got harder, not easier. The One Big Beautiful Bill Act restores immediate deductibility for domestic research and experimental spending, yet the relief reaches into areas that tax teams often have to manage together, not one by one.

What changed and why it matters

The law created new Section 174A and lets companies expense domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. That reverses the capitalization-and-amortization regime that had forced many companies to spread those costs over time, a change that had frustrated taxpayers with heavy innovation spend.

The catch is that the fix is only partial. Foreign research expenditures remain under the old Section 174 rules, which means they are still capitalized and amortized over 15 years. For multinationals, that split treatment can leave domestic and foreign projects on different tax clocks, with different effects on cash tax, provision work and planning models.

Who gets the fastest payoff

The companies that feel the benefit first are the ones with meaningful domestic R&E spend and enough taxable income to use the deduction now. That is especially important for businesses that have been carrying capitalized domestic R&E costs since the prior law changed the treatment, because the new rule can improve current cash tax positions instead of merely shifting deductions into later years.

Small business taxpayers may have an even bigger opening. Those that meet the Section 448(c) gross receipts test can generally make a retroactive Section 174A election for domestic R&E incurred in tax years beginning after December 31, 2021. For 2025, the inflation-adjusted gross receipts threshold is $31 million, which makes the cutoff highly relevant for lower-middle-market companies and some fast-growing firms that are still below the line.

Where the modeling headaches start

The immediate deduction is attractive, but the planning traps stack up quickly. KPMG points to ripple effects in the corporate alternative minimum tax, the base erosion and anti-abuse tax, foreign-derived deduction eligible income, and research credit planning. In practice, that means a favorable statutory change can alter earnings forecasts, deferred tax balances, transfer pricing assumptions and cross-border strategy all at once.

That is why the question is not just whether to deduct now, but how the deduction interacts with everything else already on the books. Tax teams will need to test whether accelerating domestic R&E can change CAMT exposure, affect BEAT calculations, or reduce the value of a model that was built around amortized costs. Even the decision to keep or change a credit posture matters, because section 280C reduced credit elections sit alongside the new deduction rules and are made on Form 6765.

How the IRS transition rules shape the next move

The IRS has already tried to make the transition usable, not just theoretical. Revenue Procedure 2025-28, issued on August 28, 2025, lays out procedures for elections and accounting method changes tied to domestic research or experimental expenditures under the new law. The instructions, carried into the Internal Revenue Bulletin, cover accounting method changes, amended returns and transition procedures, giving taxpayers more than one path to fix prior treatment.

That flexibility matters, because the options are not identical. Some taxpayers may want to change methods prospectively, while others may benefit from amending prior returns or making elections that accelerate recovery of unamortized domestic R&E costs capitalized under earlier rules. For KPMG tax teams, that means the first client conversation should be about scenario modeling, not a single yes-or-no answer.

Why the old policy fight still matters

The law did not appear out of nowhere. Lawmakers had been pushing to restore immediate R&D expensing for years, and on March 10, 2025, Reps. Suzan DelBene, Ron Estes, John Larson and Rudy Yakym reintroduced the American Innovation and R&D Competitiveness Act. Earlier versions of that bipartisan push drew 64 or more original cosponsors, with backing from business and manufacturing groups that argued the prior amortization rule distorted investment decisions.

That history helps explain why the final law drew such broad attention from tax departments. It was never just about one deduction. It was about whether U.S. companies would again be able to treat domestic research as an immediate business cost, and how that choice would fit into the larger tax architecture around provisions, credits and international operations.

What KPMG teams should be telling clients now

For KPMG advisers, the work is to translate the statute into decisions clients can use. Federal tax teams need to map which domestic costs now qualify under Section 174A, international tax teams need to isolate what remains trapped in the foreign amortization bucket, provision teams need to refresh deferred tax positions, and deal teams need to understand how the change affects transaction modeling and diligence.

The best client conversations will be the ones that move quickly from technical description to business consequences. Companies want to know how much cash tax relief they can book, when they can book it, and whether earlier-year capitalized costs can be pulled back into the current period. The answer will often depend on the company’s size, its footprint, its credit posture and the interaction between old amortization assumptions and the new law.

The headline may read like a straightforward win for domestic innovation. In practice, it is a reminder that tax relief often creates more planning value when the compliance work stays hard, and that is exactly where KPMG’s tax teams can add the most value.