On September 4, 2026, the IRS released Revenue Procedure 2026-32, updating the rules businesses must follow when changing their accounting methods in light of the One Big Beautiful Bill Act (OBBBA). The guidance touches two areas that matter to many of our clients: how companies account for research and experimental (R&E) expenditures tied to R&D tax credits, and how residential construction contracts are treated for tax purposes.
While the procedural details are technical, the practical takeaway is straightforward. The IRS has expanded the number of businesses that can use faster, simpler “automatic” accounting method changes instead of the slower, more burdensome approval process. For companies that invest in research and development or build residential real estate, that can mean less administrative friction and, in some cases, new opportunities to revisit prior filings.
Why This Matters for R&D Tax Credits
The OBBBA restored immediate expensing of domestic R&E costs, retroactive to tax years beginning in 2025, while also giving businesses the option to amortize those costs instead. For companies that rely on R&D tax credits, how those expenditures are accounted for directly affects the size and timing of the benefit.
Previously, some businesses that wanted to change their accounting method for R&E expenditures ran into a roadblock: a “five-year scope limitation” rule that disqualified them from the simpler automatic change process if they had changed the same accounting method within the prior five years. Under the new guidance, that limitation is waived for qualifying domestic R&E, foreign R&E, and OBBBA transition changes, through tax years beginning before January 1, 2028.
In practical terms, this means some businesses that previously had to file a more burdensome, non-automatic request may now qualify for the faster automatic process. Businesses that already have a non-automatic request pending with the IRS National Office may also be able to convert it to an automatic change, though this generally must be requested by October 21, 2026, or when the IRS rules on the request, whichever is later.
What Changed for Residential Construction Contracts
The OBBBA also changed how residential construction contracts are treated under Section 460(e). Previously, only home construction contracts (buildings with four or fewer dwelling units) were exempt from the percentage-of-completion method of accounting, while larger residential projects were required to use a hybrid method known as the percentage-of-completion/capitalized-cost method.
Under the OBBBA, that exemption is extended to residential construction contracts entered into in tax years beginning after July 4, 2025, and the older hybrid method is repealed for those contracts. This also affects when developers and builders must capitalize certain costs under Section 263A. Rev. Proc. 2026-32 provides automatic consent procedures for making these changes, and in most cases, they can be implemented without recalculating prior years’ income, which simplifies the transition considerably.
Key Dates to Know
- September 4, 2026: Rev. Proc. 2026-32 takes effect.
- October 21, 2026: Deadline (or later, if tied to an IRS ruling) to notify the IRS National Office of intent to convert a pending non-automatic accounting method change to an automatic one.
- November 15, 2026: Deadline to file a duplicate Form 3115 for businesses that want to continue relying on the prior procedures rather than the new guidance.
- January 1, 2028: Expiration of the temporary waiver of the five-year and final-year eligibility rules for qualifying R&E and OBBBA transition changes.
What Business Owners Should Do Now
If your business has R&E expenditures, it is worth reviewing whether the expanded automatic change procedures affect a method change you have already made or are planning to make. This is especially relevant if a prior five-year rule kept you from using the simpler process, or if you are recovering unamortized R&E costs and need to confirm your recovery period lines up with the new rules.
If you develop or build residential real estate, it is worth evaluating whether contracts entered into after July 4, 2025 qualify for the expanded exemption from the percentage-of-completion method, and whether your Section 263A capitalization approach needs to change as a result.
And if you already have a pending Form 3115 with the IRS, or have filed a return reflecting an OBBBA-related method change, the transition rules and deadlines above are worth a closer look. The right next step depends heavily on your specific filing history, so this is not a one-size-fits-all decision.
Navigating IRS accounting method changes can be complex, particularly when new guidance intersects with rules you may have already applied. CSSI Services has spent over 23 years helping commercial property owners, developers, and their advisors apply engineering-based, defensible tax strategies, including R&D tax credits. If you would like help evaluating how this guidance affects your business, request a free analysis and one of our specialists will walk you through your options.
Frequently Asked Questions:
What is this guidance?
On September 4, 2026, the IRS updated the procedures for changing accounting methods under the One Big Beautiful Bill Act (OBBBA). It mainly affects businesses with R&D-related research expenditures and residential construction contracts.
Does it create a new deduction or credit?
No. It changes the process for requesting certain accounting method changes, making it easier for more businesses to qualify for the faster “automatic” process instead of a longer, IRS-approval-required one.
How does this affect R&D tax credits?
The IRS removed a rule that previously blocked some businesses from using the automatic process if they had changed the same accounting method in the prior five years. That restriction is now waived for qualifying R&E and OBBBA transition changes through 2027, so more businesses may now qualify for the simpler path.
What changed for residential construction contracts?
Contracts entered into after July 4, 2025 can now qualify for the same exemption from the percentage-of-completion accounting method that previously applied only to small home builders, and the changes can generally be made without adjusting prior years’ income.
What are the key deadlines?
- October 21, 2026: Deadline to convert a pending non-automatic request to an automatic change.
- November 15, 2026: Deadline to file a duplicate Form 3115 to keep relying on the prior rules.
- January 1, 2028: Expiration of the temporary five-year rule waiver.
What should I do next?
Review any recent or pending accounting method changes involving R&E expenditures or residential construction contracts to see if these deadlines apply to you. Request a free analysis and one of our specialists can help you evaluate your options.
