The IRS issued guidance last week allowing businesses to reverse or make certain tax elections affected by changes in the One Big Beautiful Bill Act, giving some companies a way to revise positions taken under earlier rules.
Revenue Procedure 2026-17 covers three areas. It allows eligible businesses to withdraw elections to be treated as excepted trades or businesses under Section 163(j)(7), make late elections related to bonus depreciation under Section 168(k)(7), and let controlled foreign corporation groups make or revoke certain group elections without meeting the usual 60-month requirement.
The guidance follows changes in the new law that affect how some businesses calculate interest deductions and depreciation. Those changes may alter the value of elections that had previously been treated as irrevocable.
One of the main changes involves the business interest expense limitation under Section 163(j). Under prior rules, the deduction limit was based on a measure closer to earnings before interest and taxes, or EBIT. The new law shifts that calculation to earnings before interest, taxes, depreciation and amortization, or EBITDA.
Because EBITDA adds back depreciation and amortization, it can produce a larger base for calculating the deduction cap. That may allow some businesses to deduct more interest expense than they could under the prior method.
Before the change, some businesses elected out of the Section 163(j) limitation by choosing treatment as excepted trades or businesses under Section 163(j)(7). Revenue Procedure 2026-17 allows eligible taxpayers to withdraw those elections and instead apply the revised limitation under the new EBITDA-based approach.
The guidance also addresses bonus depreciation under Section 168(k). The One Big Beautiful Bill Act restored 100 percent bonus depreciation after the deduction had been scheduled to phase down in recent years. Under the earlier schedule, the deduction had fallen to 60 percent for 2024 and 40 percent for 2025.
Some businesses had previously made elections under Section 168(k)(7) to opt out of bonus depreciation. The new revenue procedure provides rules for late elections in that area and also allows related depreciation adjustments when taxpayers withdraw Section 163(j)(7) elections.
That coordination is intended to let taxpayers align their interest deduction treatment with their depreciation treatment after the law change.
Ed Zollars of Thomas, Zollars & Lynch said the procedure allows eligible taxpayers to withdraw previously irrevocable elections following the legislative changes and to benefit from restored adjusted taxable income add-backs and permanent 100 percent bonus depreciation.
The third part of the guidance concerns controlled foreign corporation groups. Controlled foreign corporations are foreign subsidiaries controlled by U.S. shareholders and are subject to special tax rules.
Under existing regulations, CFC groups generally must satisfy a 60-month requirement before making or revoking certain group elections under Section 1.163(j)-7(e)(5)(ii). Revenue Procedure 2026-17 waives that requirement for the elections covered by the guidance, allowing eligible groups to act without waiting the usual five years.
The IRS said the relief applies to businesses affected by the statutory changes and is meant to address situations in which prior elections may no longer produce the same tax result under the revised law.
The guidance is likely to be most relevant for capital-intensive businesses that carry significant debt or claim large depreciation deductions. That can include companies in real estate, manufacturing, utilities and infrastructure.
For example, a business that previously elected out of the interest limitation when the calculation was less favorable under EBIT may now find that remaining subject to the limitation under an EBITDA-based formula produces a better result. A business that opted out of bonus depreciation when the deduction was reduced under the phase-down may now reevaluate that decision after the return of 100 percent bonus depreciation.
The revenue procedure does not, in the summary provided, specify all timing details for elections or withdrawals. Businesses and tax advisers reviewing earlier elections may need to compare prior filings with the new rules to determine whether changes are available and whether they would affect current or future tax years.
The IRS often issues this type of administrative relief after major tax legislation changes the effect of elections taxpayers made under prior law. In such cases, the guidance can allow taxpayers to revisit positions that were reasonable when made but may now lead to less favorable outcomes because of later statutory revisions.
Revenue Procedure 2026-17 arrives as businesses prepare returns influenced by the new law and assess how the updated rules on interest deductions, depreciation and international group elections apply to their operations. For companies that made elections under earlier rules, the guidance provides a mechanism to review whether those choices should remain in place.
Tax professionals said the impact will depend on each company’s facts, including debt levels, asset purchases, depreciation schedules and international structure. The guidance gives eligible taxpayers a path to revise prior elections, but the tax effect will vary based on the business’s overall position under the new law.
Source: IRS offers flexibility on tax deduction elections | Accounting Today