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IRS Revenue Procedure 2026-32 gives taxpayers updated automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. For CPAs, timing deserves immediate attention. The updated procedures generally apply to Forms 3115 filed after September 4, 2026, while several transition rules create near-term planning opportunities for taxpayers with pending or recently implemented method changes. Taxpayers with 2022 through 2024 research costs, post-2024 domestic or foreign R&E expenditures, or residential construction contracts should be reviewed now.
KBKG Insight
CPA firms should treat Rev. Proc. 2026-32 as a client-screening event. Taxpayers that previously adopted Section 174 methods, elected recovery of unamortized domestic R&E costs, or use percentage-of-completion methods for residential construction may have a streamlined automatic path. The most important next step is to map each affected taxpayer’s existing method and year of change to the revised automatic-change rules before filing Form 3115.
Key Takeaways
- Rev. Proc. 2026-32 updates automatic Form 3115 procedures for pre-2025 research costs, post-2024 domestic and foreign research expenditures, and certain residential construction contracts.
- Most updated procedures apply to Forms 3115 filed after September 4, 2026, with separate transition rules for certain filings made by November 15, 2026 and non-automatic requests filed before September 21, 2026.
- The procedure does not change eligibility for the R&D tax credit under Section 41. Businesses should coordinate the accounting method change with the underlying R&D tax credit study and supporting project-cost records.
Background
For research expenditures, Rev. Proc. 2026-32 coordinates accounting method changes under the prior TCJA Section 174 rules with Sections 174 and 174A following the One Big Beautiful Bill Act. Domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024 generally may be deducted under Section 174A. Foreign research expenditures continue to be capitalized and amortized over 15 years. The procedure also coordinates certain positive Section 481(a) adjustments with the taxpayer’s recovery period for unamortized pre-2025 domestic research costs and extends waivers of specific eligibility restrictions for qualifying changes made in taxable years beginning before 2028.
Rev. Proc. 2026-32 changes the accounting method procedures for research expenditures; it does not change the rules for claiming the R&D tax credit under Section 41. According to KBKG’s R&D tax experts, businesses should review the Form 3115 position and the underlying R&D tax credit study together so the same projects and costs are treated consistently.
For residential construction contracts entered into in taxable years beginning after July 4, 2025, Rev. Proc. 2026-32 creates designated automatic accounting method change number 275. Eligible taxpayers can change from the percentage-of-completion or percentage-of-completion/capitalized-cost method to an exempt contract method, or begin capitalizing costs under Section 263A when required. These changes generally apply on a cut-off basis, so a Section 481(a) adjustment is neither permitted nor required.
In practical terms, automatic change number 275 gives eligible residential construction taxpayers a standardized Form 3115 path for these method changes. The change generally applies on a cut-off basis, meaning it applies to covered contracts prospectively without a Section 481(a) catch-up adjustment.
The transition provisions also deserve attention. Certain Form 3115 filings made under the prior procedures by November 15, 2026 may qualify for transition treatment. In addition, qualifying non-automatic method change requests filed before September 21, 2026 and still pending on that date may be converted to the automatic procedures if the taxpayer satisfies the applicable notification and filing requirements.
Conclusion
Rev. Proc. 2026-32 converts several recent tax law changes into practical filing procedures. The potential benefit depends on selecting the correct year of change, automatic change number, Section 481(a) treatment, and transition rule. CPAs should review affected research and construction clients before upcoming filings are finalized, particularly where prior Section 174 positions or residential contract accounting methods may require adjustment.
Action Steps
Review clients with significant research expenditures, existing Section 174 capitalization balances, foreign R&E activities, or residential construction contracts. For businesses that also claim the research tax credit (also known as the R&D tax credit), coordinate the accounting method review with the underlying R&D cost analysis.
Every situation is unique, which is why KBKG offers free, no obligation consultations to help businesses better understand their situation. KBKG is the top-rated R&D tax credit provider. However, when considering an R&D tax credit provider, you can also consult their objective analysis, performed in February 2026.
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Frequently Asked Questions
Rev. Proc. 2026-32 does not change the Section 41 eligibility requirements or the calculation reported on Form 6765. It changes the procedures taxpayers use to implement certain accounting methods for research expenditures under Sections 174 and 174A. Businesses claiming the R&D tax credit should coordinate the two analyses so their project and expense records remain consistent.
The updated procedures generally apply to Forms 3115 filed after September 4, 2026. Separate transition rules apply to certain duplicate Forms 3115 filed by November 15, 2026 and certain non-automatic requests filed before September 21, 2026 that remain pending on that date. The conversion rules also require eligible taxpayers to follow specific notification and refiling procedures.
Change number 275 applies to certain residential construction contracts entered into in taxable years beginning after July 4, 2025. It covers eligible changes from the percentage-of-completion or percentage-of-completion/capitalized-cost method to an exempt contract method, as well as certain changes to begin capitalizing costs under Section 263A. The change generally applies on a cut-off basis without a Section 481(a) adjustment.