July 6th: The Section 174 Deadline You Cannot Miss

July 6, 2026, is not a soft deadline. It is not a date that can be extended by filing a form or requesting an accommodation. For eligible small businesses that were forced to amortize their research and development expenses under Section 174 during tax years 2022, 2023, and 2024, July 6th represents the last day to amend those returns and undo the damage. Miss it, and the opportunity disappears permanently.

The One Big Beautiful Bill Act (OBBBA) restored immediate R&D expensing for 2025 and forward—welcome relief, but it left many small businesses nursing wounds from three years of artificially inflated tax bills. For those companies, the retroactive relief provision is the only path to recovering those overpayments. Understanding what is at stake, what options remain, and what most people do not know about the law is critical before this window closes.

Why the Amortization Created a Permanent Problem

Many tax advisors initially framed the Section 174 amortization as a timing issue: yes, you could not immediately deduct your R&D, but eventually you would use 100% of the expense across the amortization schedule. On that narrow point, they were not wrong. For a C-corporation with a flat 21% tax rate, the math often does even out over time.

But for pass-through entities—S-corporations, partnerships, and sole proprietorships—the timing argument collapses under the weight of bracket inflation. By forcing more income into the current year and denying the immediate deduction, Section 174 amortization pushed many business owners into significantly higher marginal tax brackets in 2022, 2023, and 2024 than they would have had under expensing.

For example, consider an engineer-to-order company with $2 million in revenue and $1 million in Section 174 R&D expenses. With full expensing, taxable income—including the owner’s W-2 wages—might total roughly $550,000, resulting in an effective tax rate of approximately 20% and a tax bill of around $110,000. Under amortization, where only 10% of the expense is usable in year one, taxable income swells to $1.45 million, producing a tax liability closer to $450,000—an effective rate of 31%. Played out across 2022 through 2024, that bracket inflation generates between $150,000 and $200,000 in extra taxes that cannot be recovered simply by waiting for the remaining amortization to flow through. The only remedy is to go back and amend those returns before July 6th.

What Retroactive Relief Allows

The OBBBA carves out retroactive relief for small businesses with average annual gross receipts under $31 million, with the reference year being 2025. Qualifying taxpayers can amend their 2022, 2023, and 2024 returns to convert amortized R&D expenses back to immediate deductions. This will generate much-appreciated refunds.

Two additional benefits are worth highlighting when amending. First, taxpayers can revoke their 280C reduced credit election. Many businesses accepted the 21% credit haircut during those years because they were pushed into much higher tax rates. But in some cases, undoing the amortization drops taxable income below the threshold where that tradeoff made sense—meaning the reduced credit cost them more than they realized. The OBBBA specifically allows eligible taxpayers to unwind that election on amended returns, which would otherwise be irrevocable.

Second, retroactive relief frees up credits that can be carried back rather than only forward. This matters because a carryback generates a refund now rather than a future offset. Based on tax court precedent distinguishing between reassessing and recomputing tax liability, the recomputation triggered by the retroactive relief opens the door to carry those credits back—even to a closed year like 2021 in the case of 2022 excess credits.

Don’t Forget to Review Your Original R&D Study

Before amending, it is worth getting a second opinion on the original R&D study underlying those returns. It is not unusual for initial studies to miss qualifying activities or underestimate the scope of eligible expenses. In some cases, the amounts left unclaimed are significant. Amending those returns is an opportunity to get the study right—and to maximize the refund—not just to reverse what was already on the return.

What Happens If You Miss the Deadline

For internal R&D incurred in 2022 through 2024, the answer is straightforward: if the deadline passes, the amortization stays. There is no fallback provision, no late amendment option, and no administrative remedy. The bracket inflation resulting in the excess taxes paid during those years cannot be undone.

Exception for Research & Development Performed Under Contract

However, there is one important helpful aspect that most people are unaware of. For companies that performed R&D under contract—think specialized custom-machine engineering firms and defense contractors providing bespoke solutions under fixed-fee arrangements—there is a separate avenue that the OBBBA did not foreclose. These companies can go back and reclassify those expenses from Section 174 treatment to cost of goods sold under Section 471, regardless of whether they miss the July 6th deadline.

This is not a workaround as it is rooted in the statutory language that the OBBBA itself preserved. The OBBBA changed the treatment of Section 41 R&D expenses prospectively. For tax year 2025 and forward, the bill amended the “may be treated” language in Section 41(d) to “are treated,” removing the taxpayer’s discretion and locking expenses into Section 174 treatment. But for pre-2025 tax years, the original “may” clause was preserved.

That “may” clause is significant. As our earlier analysis established (see our articles in Bloomberg Tax and on our website), Section 41(d)(1)(A) specifies that qualifying expenses are those that “may be treated as specified research or experimental expenditures under section 174.” The word “may” was not accidental—it affirmed that expenses meeting the R&E definition can be recorded under other code sections. Treasury Regulation 1.471-11(c)(2)(ii) reinforces this, expressly permitting R&E expenses to be included in inventory and therefore COGS. The IRS has accepted this interplay for decades.

The TCJA modified Section 174’s treatment—it required amortization rather than immediate deduction—but it did not change the scope conditions governing when expenses must be recorded under Section 174. For contract R&D where expenses flow through COGS, that pathway remained open through 2024. The OBBBA did not eliminate it. Only OBBBA’s change to “are treated” closed the door in 2025 and beyond.

This distinction matters enormously to companies that perform custom engineering or contract manufacturing. For those taxpayers, even a missed July 6th deadline does not necessarily mean the damage is permanent. The reclassification analysis requires careful review of the specific facts, contract terms, and expense records—but the legal basis is well-grounded.

A Word on Amended Returns

In the old days, pre-COVID, it took the IRS 6–9 months to process an amended return. Currently, the average time is at a historic level—12–18 months and potentially longer, given ongoing staffing challenges. The refund is real, but patience is required.

The Bottom Line: Act Now

July 6th is a hard stop. For small businesses that overpaid taxes in 2022 through 2024 due to Section 174 amortization and were not doing contract work, this is the last chance to recover those dollars. The retroactive relief is not just a refund mechanism—it is an opportunity to correct an inequity that never should have existed for pass-through entities in the first place.

The more immediate constraint is your tax preparer’s calendar. Most CPAs with business clients are still neck-deep in filing extended 2025 returns. Now is your time to engage your CPA to amend past years, since we are after the busy April 15th deadline and before the summer crush of extended-return filings. It is essential to engage your CPA now to have enough time to complete the amendments before the window closes.

Please remember, for companies that performed contract R&D, the analysis extends beyond the deadline. The “may” clause that Congress preserved for pre-2025 years constitutes a legally distinct avenue that warrants examination as long as companies amend returns before the regular 3-year statute of limitations runs out. For many who extended their 2022 returns, the hard stop is the day in 2023 they filed that return. Returns for tax years 2023 and 2024 will be open for one and two more years, respectively.

In either case, the time to act is now.

Author Information

Rick Kleban is the founder and president of Sycamore Growth Group, an Ohio-based firm specializing in securing economic incentives that maximize cash flow and minimize risk.

Jenna Tugaoen is a tax attorney at Sycamore Growth Group, an Ohio-based tax advisory firm specializing in assisting businesses to attain and substantiate public economic incentives such as R&D and energy credits.

James Bean, CPA, is a senior researcher and R&D tax controversy specialist at Sycamore Growth Group.