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California’s corporate climate disclosure litigation now turns on a question bigger than climate policy: how far a government can go in drafting corporate speech for regulated businesses. The Ninth Circuit has set oral argument for January 9, 2026, in Chamber of Commerce of the United States of America, et al. v. Sanchez, No. 25-5327 (9th Cir.). For companies building 2026 compliance calendars, board oversight narratives, and disclosure controls, that argument will shape planning even while SB 261 remains paused.

The Ninth Circuit has already enjoined enforcement of the Climate-Related Financial Risk Act (SB 261) pending appeal. It declined, however, to enjoin the Climate Corporate Data Accountability Act (SB 253). Meanwhile, the California Air Resources Board (CARB) continues developing implementing regulations and guidance for SB 253.

Where things stand

SB 261 (Climate-Related Financial Risk Act). SB 261 requires covered companies to publish a biennial climate-related financial risk report. The first reports otherwise would have been due January 1, 2026.

SB 253 (Climate Corporate Data Accountability Act). SB 253 requires covered companies to report greenhouse gas emissions.

On November 18, 2025, the Ninth Circuit issued a short order enjoining SB 261 enforcement pending appeal while leaving SB 253 in place. The order offered no reasoning. CARB has acknowledged the injunction and said it won’t enforce Health and Safety Code section 38533 during the appeal.

Why the January argument matters

The Ninth Circuit’s split approach—pause SB 261, leave SB 253—signals the panel may view the statutes as constitutionally distinct even though both mandate disclosure. Because the court did not explain its rationale, several interpretations remain plausible. Still, SB 261’s structure highlights why it presents sharper compelled-speech risk than an emissions reporting regime.

SB 261 does not operate like a “report the metric” statute. It requires a public report describing “climate-related financial risk” and the measures the company has adopted to mitigate and adapt to that risk. The statute organizes the report around Task Force on Climate-related Financial Disclosures categories: governance, strategy, risk management, and metrics and targets.

Compliance with SB 261 demands judgment calls with no single correct answer. Companies must decide which risks matter, pick time horizons, explain uncertainty, describe board and management oversight, and present strategy and transition planning. They must also select metrics and targets that best communicate their approach. Those choices create a narrative that blends fact, inference, and prediction.

That blend matters for First Amendment doctrine. Courts tend to uphold compelled commercial disclosures when the government requires “purely factual and uncontroversial” information, especially where the disclosure resembles a standardized label or an objective statement about the speaker’s own operations. SB 261 compels a forward-looking management narrative about risk, governance, and strategy. Once published, the report can’t be pulled back, which can sharpen claimed injury at the injunction stage and push courts toward more demanding scrutiny.

At argument, the panel is likely to test where SB 261 fits doctrinally. The core question: does SB 261 fall within the more deferential compelled-disclosure framework associated with Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), or does it trigger intermediate scrutiny because it compels interpretive, judgment-laden speech? The district court treated SB 253 as a Zauderer-type compelled factual disclosure and analyzed SB 261 under intermediate scrutiny. The Ninth Circuit’s decision to halt SB 261 enforcement, while allowing SB 253 to proceed, tees up a clearer line between compelled data and compelled narrative.

Timing may have influenced the injunction posture too. SB 261’s statutory deadline arrived first. CARB staff, by contrast, have recently proposed an initial August 10, 2026, deadline for SB 253 Scope 1 and Scope 2 reporting. That gap can affect irreparable-harm analysis because compelled public speech, once issued, can’t be undone.

What to watch at the January 9 argument

Expect the panel to press on three themes: (1) whether SB 261 compels “factual and uncontroversial” information or forces companies to adopt the State’s framing of climate risk and response, (2) how much discretion SB 261 leaves companies in selecting assumptions, time horizons, and mitigation narratives, and (3) whether investor-protection and market-transparency goals justify the mandated public report format. The answers to those questions will help predict whether SB 261 returns in its present form, returns with constraints, or stays blocked.

Practical implications for covered companies

SB 261 remains paused, not repealed. CARB says it won’t enforce SB 261 while the injunction remains in effect. Companies that accelerated work solely to meet the January 1 publication deadline can slow that workstream.

Keep governance and risk work moving where it adds value. Even with the pause, many companies face overlapping expectations across voluntary reporting, investor engagement, and international frameworks. Work on board oversight descriptions, risk registers, and disclosure controls can still pay off, even if the legal timetable shifts.

SB 253 remains a live workstream. Companies that likely fall within SB 253 should keep building Scope 1 and Scope 2 inventories and internal controls, aligning methods with the GHG Protocol, and planning for assurance. CARB’s proposed August 10, 2026, deadline still demands near-term architecture and process decisions.

Align narratives across channels. The litigation reinforces a discipline point: align climate-risk narratives across sustainability reports, investor communications, and other jurisdictions. If SB 261 returns after a merits decision, inconsistent narratives can create avoidable compliance and litigation risk.

Bottom line

The January 9, 2026, argument may mark the point when the Ninth Circuit begins defining the constitutional limits of climate-risk disclosure. The court’s earlier decision to pause SB 261 but not SB 253 suggests it may recognize a First Amendment difference between compelling data and compelling narrative. That distinction will shape compliance strategy, disclosure drafting, and litigation risk well beyond California. For more information, please contact the author or any attorney with the firm’s Environmental Practice Group.

Key takeaways:

• • • Immediate R&D deductions — The One Big Beautiful Bill Act introduces Section 174A, which restores immediate deduction of domestic research and experimental expenditures starting in tax years beginning after December 31, 2024, reversing the controversial five-year amortization requirement that took effect in 2022.

    • Retroactive tax changes — Small business taxpayers with average annual gross receipts of $31 million or less (for tax years beginning in 2025) will generally be permitted to apply this change retroactively to taxable years beginning after December 31, 2021, offering significant opportunities for amended returns and potential refunds.

    • Planning considerations needed — The legislation modified Section 280C, which now requires that domestic R&E expenditures be reduced by the amount of research credit, creating new planning considerations for businesses claiming R&D tax credits alongside Section 174 deductions.

The Tax Cut and Jobs Act (TCJA), enacted in December 2017, brought significant changes to Section 174, impacting how businesses account for research and development (R&D) expenditures. With the passage of the One Big Beautiful Bill Act earlier this year, the landscape has shifted dramatically once again, requiring tax departments to engage in strategic planning and proactive tax management.

Section 174: From immediate expense to amortization

First enacted in 1954, Section 174 allowed for the deduction of expenditures related to R&D in the year the expense occurred. The TCJA eliminated the ability to deduct R&D costs as an expense in the year incurred, requiring costs to be amortized over five years for domestic research and 15 years for research outside of the United States.

Over the years, the IRS released guidance several times on how best to approach Section 174’s R&D capitalization. The most recent substantive guidance came in Notice 2023-63 (in September 2023), which provided interim guidance on the capitalization and amortization of specified research or experimental expenditures; and Notice 2024-12 (December 2023), which clarified the earlier guidance. Additionally, Revenue Procedure 2025-8 (December 17, 2024) provided updated procedural guidance for taxpayers filing automatic accounting method changes related to Section 174 expenditures.

Since the changes to Section 174 took effect in 2022, businesses have struggled to track R&D costs, including what should be excluded or included. This shift created cash flow challenges for innovation-driven industries, leading to widespread calls for reform.

The One Big Beautiful Bill Act: A game-changer for R&D expensing

The One Big Beautiful Bill Act (OB3) that was signed into law by President Trump on July 4th, brought sweeping changes to the tax treatment of domestic R&D expenditures. Under a new addendum, Section 174A, capitalization is no longer required for qualified domestic research activity for tax years beginning after December 31, 2024.

This represents a major victory for businesses that have been lobbying for relief from burdensome amortization requirements. For many businesses, this change will simplify tax compliance, improve cash flow, and reduce overall tax liability.

Importantly, amounts paid or incurred in connection with software development are treated as R&E expenditures eligible for immediate expensing, which can provide particular relief to technology companies and startups. However, research or experimental expenditures attributable to research conducted outside the United States must continue to be capitalized and amortized over 15 years, creating a bifurcated system that requires careful tracking of domestic R&D activities, compared to foreign activities.

The OB3 legislation also includes particularly generous provisions for small businesses. Small taxpayers — those defined by a gross receipts threshold established in Section 448(c) — can amend tax returns as far back as 2022 to reverse the capitalization of R&E expenses. The Section 448(c) threshold is adjusted annually for inflation; and currently, for tax years beginning in 2025, the threshold is $31 million in average annual gross receipts over the prior three tax years.

For all taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate the remaining deductions for such expenditures over a one-year or two-year period, providing flexibility in managing taxable income.

Planning for the new landscape

While the OB3 provides welcome relief, corporate tax professionals must remain vigilant and proactive. The legislation introduces new complexities, particularly around Section 280C interactions. The change mirrors the Section 280C rules that were in place prior to the enactment of TCJA in 2017, although taxpayers still have the option to make an election under Section 280C that would reduce their research credit by the maximum corporate tax rate (21%) in lieu of reducing their domestic R&E expenditures.

Here are other key considerations for corporate tax department leaders navigating the new Section 174A landscape:

Understanding qualified research — Tax departments must understand what is considered qualified research and development under the new rules. This involves staying current on all guidelines issued by tax authorities and working closely with the company’s R&D team. Critically, teams must now distinguish between domestic and foreign R&D activities, as the tax treatment differs significantly. This information should be communicated to upper management when considering product expansion or enhancements.

Documentation & recordkeeping — Concise documentation of any expense activity remains essential. Tax departments should capture now and decide later — because it’s better to have the data than not. For any R&D activity that takes place outside of the US, all data should be captured separately from domestic activities. Corporate tax departments should systemize documentation, collection, and storage of R&D expense-related information.

Amended return opportunities — Small businesses should immediately evaluate whether they qualify for retroactive relief and assess the potential benefits of amending their returns for the years 2022 through 2024. Even larger taxpayers should analyze whether electing to accelerate remaining unamortized amounts into 2025 or splitting them between 2025 and 2026 provides optimal tax outcomes.

Section 280C planning — Departments must carefully model the interaction between R&D tax credits and Section 174A deductions. The restored reduction requirement means businesses must evaluate whether making the Section 280C election to reduce the credit rather than taking the deduction would provide better overall tax results.

Scenario planning — Departments should develop multiple financial models based on different elections and timing strategies. This will help the company understand the range of impacts these changes will have on cash flow, net operating losses, and overall tax liability.

The OB3 represents a major course correction for R&D tax policy, but it requires tax professionals to adopt a proactive approach to maximize benefits. Corporate tax departments can navigate these changes effectively by staying informed about legislative developments, engaging in continuous learning, and leveraging advanced tax planning strategies. Also, collaboration with internal teams and external advisors will be crucial in identifying opportunities and mitigating risks.

Ultimately, establishing a proactive and nimble mindset will enable corporate tax professionals to optimize their positions and drive business success in this evolving regulatory landscape.