Podcast Summary: "How Tax Works"
Episode 38: Updates to Qualified Small Business Stock and R&E Expensing Under OBBBA
Host: Matthew Foreman, Co-Chair of Taxation Practice Group, Falcon Rappaport & Berkman LLP
Date: October 27, 2025
Brief Overview
In this episode, host Matthew Foreman demystifies major recent tax law changes from Public Law 119-21 (nicknamed “OBBBA” or "OB Thrice"). The discussion zeroes in on two headline items:
- Updates to the Qualified Small Business Stock (QSBS) Exclusion under IRC Section 1202
- Key modifications to the deduction and amortization of research and experimental (R&E) expenditures under IRC Section 174
Matt's tone is energetic, approachable, and peppered with pop culture references—he aims to arm tax professionals, business owners, and advisors with practical insights and strategic considerations for navigating these complex legislative updates.
Key Topics & Discussion Points
1. The "OB Thrice" Naming and Episode Setup
[05:40]
- Matt affectionately refers to the new tax law (Public Law 119-21) as "OB Thrice", a tongue-in-cheek reference to rapper Obie Trice and the convoluted naming of tax laws.
“I like to make pop culture references that are not that common... So I thought this would be funny because...these tax bills lose their names and get these really long and weird names." — Matt ([05:40])
2. Section 1202: Qualified Small Business Stock (QSBS) — Major Changes
[10:35]
Effective Date Headaches
[11:45]
- All changes apply to stock acquired “on or after July 4, 2025.”
- The timing creates transition headaches—especially for assets or compensation that vest around the cutoff.
"This is going to create a monstrous headache... Any time you have phase-ins, phase-outs, cliffs.” — Matt ([11:54])
83(b) Election Chaos
[13:25]
- 83(b) elections accelerate the "vesting" for tax purposes to the grant date.
- The cutoff can mean identical grants just days apart are subject to different rules.
“If it was granted on July 3rd... [the] grant date and vesting date is July 3rd. So you get one set of rules. But if it was granted...on July 4th, you might get the new stuff." — Matt ([13:35])
Increased Aggregate Gross Asset Limit
[15:45]
- Previous $50M threshold raised to $75M.
- This could cause companies to dip in and out of eligibility as their asset value changes.
“You're going to have companies that go out and come back in... it's forcing it on people.” — Matt ([16:20])
- Matt notes he “never really thought $50 million was all that small anyway.”
Increased Exclusion Cap
[18:15]
- Cap per taxpayer has gone from $10M to $15M (or 10x basis, if greater).
- Requires careful attention to vesting dates and aggregate limit for proper exclusion.
“We're definitely going to run into situations where stuff's going to get a little bit funky... 0 stars. Do not recommend.” — Matt ([18:55])
No Clean-up on “Stacking” and Trust Ambiguities
[20:10]
- Congress did not clarify the stacking rules involving non-grantor trusts or ambiguities from earlier law.
“Congress knows it's there... and just left it. I think that gives a lot of credence to the idea that you can do stacking.” — Matt ([20:16])
Overall: More Complexity, Little Simplification
[21:40]
- Despite some thresholds moving, much remains un-addressed.
- Matt predicts Congress will revisit these QSBS rules again soon due to their limited use and ongoing confusion.
"This is going to be a mess. I actually think this is going to get changed again sometime soon." — Matt ([21:50])
3. Section 174: R&E Expensing and Amortization — What's New?
[26:25]
Historical Context
[26:30]
- Before 1954, unclear if R&E was deductible or amortizable; Section 174 (1954) allowed either immediate deduction or amortization over 60 months.
- TCJA (2017) removed immediate deduction: as of 2022, all R&E must be amortized (60 months for U.S., 180 months for foreign).
TCJA Created Major Cash Flow Pressures
[28:10]
- Public companies managed, but small businesses and pass-throughs were “hit hard”—lost immediate write-offs, had to budget for multi-year deductions.
OBBBA (OB Thrice) Brings Partial Relief
[30:12]
- For U.S. R&E, still amortized over 60 months, but some one-time elections allow acceleration.
- Foreign R&E remains 180 months.
Acceleration & Election Mechanics (Rev. Proc. 2025-28)
[33:15]
- Form 3115 is needed for election.
- Taxpayers can elect to "dump" all prior and current amortized R&E into 2025, or split between 2025 and 2026.
"You can elect to accelerate the amortized R&E expenses to deduct in 2025. Put it all...just dump everything into 25." — Matt ([33:18])
- Strategic consideration: Taking all deductions in one year may trigger a loss that's hard to use.
“If you drive your income below zero, that’s kind of pointless..." — Matt ([34:00])
- Staging deductions may be preferable for pass-throughs and owners with AMT issues.
Special Rule for Small Businesses
[36:20]
- Small businesses ($25M avg. receipts, indexed; $31M for 2025) can retroactively apply immediate expensing from 2022-2024.
- Allows a superseding 2024 return within six months, avoiding messy amendments.
“I suspect most taxpayers are just going to dump their R&E expenses into 2025 and have zero tax. They're not going to want to do amended returns or ARs or anything else crazy.” — Matt ([37:45])
Modeling is Key
[39:04]
- Taxpayers should forecast and model scenarios before deciding; don't wait until next year’s deadlines.
"My biggest concern is always when people are like, 'oh, we'll leave that to next year' and then you hit September and you're making this decision." — Matt ([39:28])
Matt’s Personal Take
[41:25]
- The complexity is unnecessary; he'd prefer a simpler system.
“I would just have lower rates overall. That’s how I'd do it.” — Matt ([41:39])
Notable Quotes & Memorable Moments
-
On pop culture and tax law:
"Life’s short. Let’s have some fun." — Matt, explaining his "OB Thrice" nickname ([06:30])
-
On the transition headaches:
"This is going to be a monstrous headache...as is tradition with, again, tax bills over the last 10 years.” ([11:54])
-
On the limited, uncertain value of QSBS planning:
“QSBS is something you’re chasing... you can be a C corp, you can grow for long enough, it won’t be adverse... and that someone will be willing to buy the stock. There’s so many things that have to happen.” ([22:38])
-
On the 174 acceleration for small businesses:
"I sort of had this conversation with someone and I think that like the important thing to understand is we're currently in year four of the five year cycle, right? So basically they've largely evened out." ([36:38])
-
On modeling and being proactive:
"I actually think this is one where you want to sort of estimate what the number is going to be...don't leave that to next year.” ([39:10])
-
On over-complexity of the Code:
“While this is definitely not the IRS code, it’s definitely not Matt’s code. Right? My code—much simpler.” ([41:32])
Timestamps for Major Segments
- Episode and OBBBA Background: [00:00]–[07:20]
- QSBS Changes Begin: [10:35]
- Effective Date Chaos: [11:45]
- 83(b) Nuances: [13:25]
- $75M Asset Limit: [15:45]
- $15M Exclusion Limit: [18:15]
- Stacking/Trust Issues: [20:10]
- General QSBS Observations: [22:38]
- R&E Amortization and Expensing: [26:25]
- Historical Context: [26:30]
- TCJA Rule: [28:10]
- OBBBA Fixes: [30:12]
- Rev. Proc. 2025-28 and Elections: [33:15]
- Planning for Losses: [34:00]
- Special Small Business Rules: [36:20]
- Modeling/Practical Advice: [39:04]
- Matt's Policy Preferences: [41:25]
Summary Takeaways
- Recent tax law changes (“OB Thrice”) have scrambled the landscape for QSBS and Section 174 R&E expensing—planners must pay close attention to effective dates, elections, and technical definitions.
- The new $75M asset limit and $15M exclusion cap for QSBS raise opportunities and planning challenges, particularly around grant/vesting dates and 83(b) elections.
- For R&E, recent law shifts allow for immediate or split-year deductions of previously-amortized expenditures, but optimal use requires advance modeling (especially for small businesses).
- Despite updates, many ambiguities and complications persist—Matt recommends caution, modeling, and consulting with tax professionals.
Useful for: CPAs, lawyers, business owners, tax professionals, and advisors fielding questions about the changing U.S. tax rules for startup equity and research expense deductions. The episode provides real-world examples, practical advice, and a clear-eyed view of current and likely future pitfalls.