On September 4, 2026, the IRS released Rev. Proc. 2026-32, which modifies the procedures taxpayers must use to change their accounting methods following the amendments enacted by the One Big Beautiful Bill Act (OBBBA) to sections 174, 174A, and 460(e). The guidance addresses accounting method changes involving research or experimental (R&E) expenditures and residential construction contracts, while also providing important transition relief for taxpayers with previously filed Forms 3115, Applications for Change in Accounting Method. 

Key Takeaways

1. Rev. Proc. 2026-32 does not modify existing procedures under Rev. Proc. 2025-28 that allow eligible taxpayers to file a statement in lieu of Form 3115 for certain OBBBA-related section 174 and section 174A method changes.
2. Taxpayers that may not have qualified for automatic accounting method changes involving R&E expenditures due to the five-year scope limitation rule— because they changed the same item within the previous five taxable years— may now qualify for automatic consent and be able to convert a pending non-automatic Form 3115 to an automatic method change.
3. Key dates for taxpayers to consider include:
   • September 4, 2026 – Effective date of Rev. Proc. 2026-32.
   • October 21, 2026 (or the applicable later date) – Date to submit a letter to the IRS National Office to convert Form 3115 to an automatic accounting method change.
   • November 15, 2026 – Deadline to file a duplicate Form 3115 and continue relying on the prior procedural guidance if the taxpayer does not want to apply the procedures as modified by Rev. Proc. 2026-32.
   • January 1, 2028 – Expiration of the temporary waiver of certain eligibility rules (the five-year scope limitation and final year rules) that applies for qualifying domestic R&E, foreign R&E, and OBBBA transition changes.

Previously Filed Forms 3115: Transition Relief and Conversion Opportunities

While Rev. Proc. 2026-32 is effective for a Form 3115 filed after September 4, 2026, taxpayers may rely on the prior revenue procedures for automatic Forms 3115 if the duplicate copy is filed on or before November 15, 2026. Alternatively, taxpayers with a previously filed automatic method change may instead apply the procedures under Rev. Proc. 2026-32, subject to certain requirements. 

Rev. Proc. 2026-32 also permits taxpayers to convert pending non-automatic requests for changes in accounting methods to an automatic change, subject to certain qualifications. However, taxpayers wishing to convert their Form 3115 may need to act before October 21, 2026. Specifically, the taxpayer must notify the IRS National Office that they wish to convert their non-automatic Form 3115 to an automatic method change by the later of (i) October 21, 2026, or (ii) the issuance of a letter ruling granting or denying the method change request, in addition to other procedural requirements.

Research and Experimental Expenditures: Sections 174 and 174A

The OBBBA generally restored the immediate expensing of domestic R&E expenditures, retroactively effective for taxable years beginning in 2025, with an option to amortize these expenditures. Additionally, the OBBBA provides certain taxpayers with transition rules to elect to deduct the unamortized domestic R&E expenditures for amounts paid or incurred before January 1, 2025.

Under prior procedures, method changes involving R&E expenditures were categorized into three different designated changes:

1. Domestic TCJA section 174 expenditures
2. Domestic OBBBA section 174A expenditures
3. International section 174 expenditures

Rev. Proc. 2026-32 retains the substantive method change provisions for these three categories but incorporates two significant items. 

First, the guidance generally provides that taxpayers making a method change for TCJA section 174 expenditures must recover any positive section 481(a) adjustment over the same recovery period as the taxpayer’s elected recovery of unamortized amount method under Rev. Proc. 2025-28 and OBBBA § 70302(f)(2). 

Second, the revenue procedure extends the waiver of the final year and five-year eligibility rules for qualifying domestic R&E, foreign R&E, and OBBBA transition changes through taxable years beginning before January 1, 2028. By extending the eligibility-rule waivers, the IRS expanded taxpayers’ ability to use the automatic accounting method change procedures under Rev. Proc. 2015-13 for section 174 issues, avoiding the need in some cases to pursue non-automatic consent. 

Certain Construction Contracts: Section 460

Prior to the OBBBA, home construction contracts generally were exempt from the percentage-of-completion method (PCM), while residential construction contracts were required to use the percentage-of-completion/capitalized-cost method (PCCM).

The OBBBA amended section 460(e) to extend the exemption from the PCM—historically limited to home construction contracts (i.e., buildings with four or fewer dwelling units)—to all residential construction contracts entered into in taxable years beginning after July 4, 2025, and repealed the PCCM for such contracts. The OBBBA also extended the pre-existing section 263A capitalization requirements for home construction contracts to residential construction contracts. Like home construction contracts, an exception applies for residential construction contracts under section 460(e)(1)(B) if the applicable completion-period requirements (two years for homes, three years for non-home residential contracts) and gross-receipts requirements are satisfied. To implement these amendments, Rev. Proc. 2026-32 modifies existing §19.01 of Rev. Proc. 2025-23 and adds new §19.03, providing automatic consent for taxpayers to: 

1. Change from PCM or PCCM to an exempt contract method under Treas. Reg. §1.460-1(c) for qualifying residential construction contracts
2. Start capitalizing costs under section 263A for residential construction contracts that do not meet the exceptions listed under section 460(e)(1)(B) 
3. Stop capitalizing costs under section 263A for residential construction contracts that do meet the requirements under section 460(e)(1)(B)(i) and (ii)

Each change is implemented on a cut-off basis, meaning no section 481(a) adjustment is permitted or required. Rev. Proc. 2026-32 also provides targeted transition relief for the two new changes in §19.03: if, on or before September 21, 2026, a taxpayer filed a federal income tax return for a taxable year beginning after July 4, 2025, and the taxpayer properly applied the applicable method permitted under §19.03, the taxpayer is deemed to have complied with the automatic change procedures. There is no equivalent deemed-compliance rule that applies to the §19.01 “stop section 263A” change.

What Taxpayers Should Do Now

Taxpayers with R&E expenditures should evaluate how the expanded automatic change procedures in Rev. Proc. 2026-32 affect both planned and previously implemented accounting method changes under sections 174 and 174A. In particular, taxpayers should consider whether the extended waiver of certain eligibility rules makes automatic consent available for a change that otherwise would have required a non-automatic Form 3115, and taxpayers recovering unamortized domestic R&E expenditures under the OBBBA should confirm that any section 481(a) adjustment from a prior section 174 method change is properly coordinated with the applicable one- or two-year recovery period. Taxpayers with foreign R&E expenditures should also consider the expanded availability of the automatic change procedures following the removal of the prior limitation on changes for taxable years beginning after December 31, 2025.

Taxpayers with residential construction contracts should evaluate whether the OBBBA amendments to section 460(e) change the methods used to account for those contracts or the application of section 263A. In particular, taxpayers should identify contracts entered into in taxable years beginning after July 4, 2025, determine whether the applicable requirements in section 460(e)(1)(B) are satisfied, and consider whether an automatic method change under the revised procedures is appropriate.

Finally, taxpayers that have already filed a return implementing an OBBBA-related accounting method change, or that have a non-automatic Form 3115 pending with the IRS National Office, should review the transition rules and applicable deadlines in Rev. Proc. 2026-32. Because those rules differ depending on the particular method change and procedural posture, taxpayers should determine whether additional action is required—including whether a pending non-automatic request may be converted to the automatic change procedures or whether transition relief applies to a change already implemented on a filed return.

Alvarez & Marsal Tax advisors are available to assist you in reviewing and assessing existing accounting methods, identifying opportunities and compliance requirements under the revised procedures, and implementing accounting method changes.