Blog · 15 October 2026

Form 3115 Under Rev. Proc. 2026-32: §174A Domestic R&E, DCN 275 Residential Contracts and What US CPA Firms Should File

By Keshav Bansal, CA

Form 3115 work for research and residential construction methods got a fresh automatic-change playbook in Rev. Proc. 2026-32, released by the IRS on September 4, 2026 and published in Internal Revenue Bulletin 2026-39. It modifies sections 7 and 19 of Rev. Proc. 2025-23 (as modified by Rev. Proc. 2025-28) for automatic consent changes covering OBBBA §174A domestic R&E, foreign R&E under §174, and new DCN 275 for certain residential construction contracts under §460(e). For US CPA firms, the questions are which DCN applies, how §481(a) is timed, and which transition dates still matter now.

What Rev. Proc. 2026-32 changes

Per the text of Rev. Proc. 2026-32 (corroborated by KPMG TaxNewsFlash, September 4, 2026, and EY Tax News, September 17, 2026), the procedure coordinates the §481(a) adjustment for domestic R&E changes with the OBBBA recovery-of-unamortized-amount transition for 2022–2024 capitalized costs; extends the Rev. Proc. 2015-13 §5.01(1)(d) and (f) eligibility waiver for the listed R&E automatic changes to any taxable year beginning before January 1, 2028; removes the foreign R&E automatic-change sunset that had limited section 7.03(1)(a)(iii) to taxable years beginning before January 1, 2026; and adds new section 19.03 (DCN 275) for residential construction contracts entered into in taxable years beginning after July 4, 2025. Section 6.01 makes the modified sections 7, 19.01 and 19.03 generally effective for a Form 3115 filed after September 4, 2026.

Accounting methods, Form 3115 and §481(a)

An accounting method is the timing of when income or deductions count—cash versus accrual, or expensing domestic R&E under §174A versus capitalizing it. Under IRC §446(e) and Treas. Reg. §1.446-1(e), changing a method generally needs the Commissioner’s consent on Form 3115. Automatic changes follow Rev. Proc. 2025-23 (as modified) under Rev. Proc. 2015-13; non-automatic changes require a user fee and a national office ruling. When the new method would otherwise double-count or omit an item, IRC §481(a) requires a catch-up adjustment as of the beginning of the year of change. Per the Instructions for Form 3115 (Rev. December 2022), that period is generally one tax year for a negative (taxpayer-favorable) §481(a) adjustment and four tax years for a positive adjustment, with shorter periods under examination or the under-$50,000 de minimis election.

§174A domestic R&E and foreign R&E under §174

IRC §174A (added by P.L. 119-21 §70302) allows a deduction for domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024. Taxpayers may instead elect under §174A(c) to capitalize and amortize those domestic costs over not less than 60 months. IRC §174, as amended by the same OBBBA section, still requires foreign research or experimental expenditures to be charged to capital account and amortized ratably over 15 years beginning with the midpoint of the year paid or incurred.

Rev. Proc. 2026-32’s section 7 modifications are the Form 3115 path. EY notes a remaining limit: while the foreign R&E pre-2026 sunset was removed, the automatic §174A domestic change under section 7.02(3) of Rev. Proc. 2025-23 is still available only for a tax year beginning before January 1, 2026. Match the DCN (265, 273 or 274) to the year of change. When a taxpayer also uses the OBBBA recovery-of-unamortized-amount method, section 7.01(3)(a) as modified can shorten the usual four-year positive §481(a) spread to match the one-year or two-year recovery period—model that before concurrent versus sequential filings.

DCN 275: residential construction contracts

New section 19.03 of Rev. Proc. 2025-23 (DCN “275”) applies to residential construction contracts under §460(e)(4)(B) entered into in taxable years beginning after July 4, 2025. Per section 19.03(1), a taxpayer may change from the percentage-of-completion method or the percentage-of-completion/capitalized-cost method to an exempt contract method, or start capitalizing costs under §263A for contracts that fail the §460(e)(1)(B)(i) and (ii) tests. The change is cut-off for contracts entered into on or after the first day of the year of change; no §481(a) adjustment is permitted. Section 19.01 (DCN 236) is separately expanded so small-business taxpayers can stop capitalizing under §263A for qualifying residential contracts entered into after that same date.

Transition dates still open on October 15, 2026

• September 21, 2026 (passed). Under section 19.03(5), a taxpayer that filed a federal return for a taxable year beginning after July 4, 2025 on or before that date is deemed to have complied with the §19.03 procedures if it properly applied the new methods for that year. Conversion of a pending non-automatic Form 3115 under section 6.03 requires that Form 3115 to have been properly filed before September 21, 2026 and still pending with the national office on that day.
• October 21, 2026 (upcoming). To convert a qualifying pending non-automatic request, notify the national office contact before the later of October 21, 2026 or the issuance of a letter ruling granting or denying consent. The national office returns the user fee; resubmit the automatic Form 3115 within 30 calendar days of the acknowledgment letter (or by the normal duplicate-copy due date, if earlier).
• November 15, 2026 (upcoming). Under section 6.02, if the duplicate copy of a Form 3115 for a section 7 or 19.01 change under the pre-modification (Old) procedures is properly filed on or before November 15, 2026, that Form 3115 is not forced onto the September 4 effective date. A taxpayer that has not yet filed the year-of-change return may choose Old or New (but not both); a New-procedures resubmission must be marked “FILED UNDER REV. PROC. 2026-32, AS PROVIDED IN SECTION 6.02(2)(b) OF REV. PROC. 2026-32”.

A Form 3115 checklist for US CPA firms

1. Inventory clients with domestic R&E, foreign R&E, or residential construction contracts entered into after July 4, 2025, and map each to DCN 265, 273, 274, 236 or 275.
2. Confirm the year of change is inside the automatic window (especially the pre-2026 limit for §174A domestic changes under section 7.02(3)).
3. Compute the §481(a) adjustment, including any recovery-of-unamortized-amount coordination that compresses a positive spread, and document the period on Form 3115 Part IV.
4. For DCN 275 / 236 cut-off changes, plan two contract methods in parallel for in-progress pre-change contracts versus new post-change contracts.
5. If a non-automatic Form 3115 was filed before September 21 and is still pending, calendar the October 21 notification; if you filed a duplicate under the Old Procedures, decide by November 15 whether to stay on Old or resubmit under New.

Method timing also touches other client conversations this season, from the QBI deduction §199A 2026 thresholds to year-end diligence in our S corporation reasonable compensation guide and the overlapping deadlines on the October 15 extension checklist.

Where this fits for Tax Brew readers

Most of the work is method mapping, Form 3115 assembly and §481(a) math. If your team needs extra capacity for R&E or construction-contract workpapers, outsourced bookkeeping and tax support for US CPA firms can pull the schedules while your professionals choose the DCN and signing position. Email info@taxbrewglobal.com.

Sources: Rev. Proc. 2026-32 (irs.gov/pub/irs-drop/rp-26-32.pdf; IRB 2026-39); Rev. Proc. 2025-23 as modified by Rev. Proc. 2025-28; Rev. Proc. 2015-13; IRC §§174, 174A, 446, 460, 481 (Cornell LII); Instructions for Form 3115 (Rev. December 2022); KPMG TaxNewsFlash (September 4, 2026); EY Tax News 2026-1977 (September 17, 2026). General information, not tax or legal advice. Sources as of 15 October 2026.