SECTION 3. MODIFICATION OF

SECTION 7 OF REV. PROC. 2025-23

.01 Modification of section 7.01(3)(a) of Rev. Proc. 2025-23 . Section 7.01(3)(a) of Rev. Proc. 2025-23 is modified to read as follows:

(a) Modified § 481(a) adjustment and cut-off .

(i) In general . Except as provided in section 7.01(3)(a)(ii) of this revenue procedure, the change under section 7.01(1) (a) of this revenue procedure is made with a modified § 481(a) adjustment that takes into account only expenditures paid or incurred in taxable years beginning after December 31, 2021, and before January 1, 2025. If the taxpayer previously changed to the recovery of unamortized amounts method described in section 7.02(2)(f) of this revenue procedure for a prior taxable year, the § 481(a) adjustment for the change under this section 7.01 must reflect application of the taxpayer’s recovery of unamortized amount method.

(ii) Exception for negative modified § 481(a) adjustment . If a change described in section 7.01(3)(a)(i) of this revenue procedure results in a modified § 481(a) adjustment that is negative, the taxpayer may instead choose to implement the change on a cut-off basis.

(iii) Section 481(a) adjustment period . (A) Concurrent change to the recov- ery of unamortized amount method . If a taxpayer makes both a change under this section 7.01 and a change to the recovery of unamortized amount method described in section 7.02(2)(f) of this revenue procedure for its first taxable year beginning after December 31, 2024, the § 481(a) adjustment period for any net positive § 481(a) adjustment for the change under this section 7.01 is the same amortization period elected by the taxpayer under the recovery of unamortized amount method; that is, the net positive § 481(a) adjustment is either taken into account in full in the first taxable year beginning after December 31, 2024, or ratably over the 2-taxable year period beginning with the first taxable year beginning after December 31, 2024.

(B) Previous change to the recov- ery of unamortized amount method . If the taxpayer previously changed to the recovery of unamortized amounts method described in section 7.02(2)(f) of this revenue procedure for a prior taxable year, any net positive § 481(a) adjustment for the change under this section 7.01 is taken into account over the amortization period that remains under the taxpayer’s recovery of unamortized amount method.

.02 Modification of section 7.01(5) of Rev. Proc. 2025-23 . Section 7.01(5) of Rev. Proc. 2025-23 is modified to read as follows:

(5) Certain eligibility rules inapplica- ble .

(a) In general . The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a change described in section 7.01(1)(a) of this revenue procedure for any taxable year beginning before January 1, 2028.

(b) Changes made in successive tax- able years . A taxpayer may make a change described in section 7.01(1)(a) of this revenue procedure for which it has used an impermissible method of accounting for only one taxable year (that is, for which it has used an impermissible method of accounting in the taxable year prior to the year of change).

.03 Modification of section 7.02(7) of Rev. Proc. 2025-23 . Section 7.02(7) of Rev. Proc. 2025-23 is modified to read as follows:

(7) Certain eligibility rules inapplica- ble . The eligibility rules in section 5.01(1) (d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a change described in section 7.02(3) of this revenue procedure for any taxable year beginning before January 1, 2028.

.04 Modification of section 7.03(1)(a) of Rev. Proc. 2025-23 . Section 7.03(1)(a) of Rev. Proc. 2025-23 is modified to read as follows:

(1) Description of change . (a) In general . This change applies to a taxpayer (applicant) that wants to change its method of accounting for foreign SRE expenditures or foreign research or experimental expenditures, as applicable, paid or incurred in taxable years beginning after December 31, 2021, to:

(i) comply with TCJA § 174 for expenditures paid or incurred in taxable years beginning before January 1, 2025;

(ii) rely on interim guidance provided in section 3, 4, 5, 6, or 7 of Notice 202363, 2023-39 I.R.B. 919, as modified by Notice 2024-12, 2024-5 I.R.B. 616; or

(iii) comply with the changes made to § 174 by the OBBBA for expenditures paid or incurred in taxable years beginning after December 31, 2024.

.05 Modification of section 7.03(5) of Rev. Proc. 2025-23 . Section 7.03(5) of

Bulletin No. 2026–39 409 September 21, 2026