R&D Tax Credit Reporting: New Rules, New Requirements

The federal research and development (R&D) tax credit, while a valuable incentive, has long been known for its complexity. The tax return itself has historically been relatively straightforward, the IRS is introducing significant changes to Form 6765, the form used to claim the R&D tax credit. The recently released final version of Form 6765 (dated December 2024) represents the most significant revision since 2009. These changes, particularly the introduction of Section G, will require more detailed project information to substantiate claims, adding a new layer of complexity for taxpayers.

Key Changes

Form Structure and Administrative Updates

• Section 280C Election: Now made at the top of Form 6765 (Item A) rather than within subsections
• Controlled Group Reporting: Enhanced disclosure requirements for group members, including names, EINs, and calculation methodologies
• New Section E – Added questions about officer wages, business acquisitions/disposals, and use of the ASC 730 Directive
• New Section F: Consolidates all QRE reporting (wages, supplies, computer costs, contract research)

Section G

This new section requires detailed information about the taxpayer’s business components, including names, descriptions, and the allocation of expenses (wages, supplies, etc.) to each component.

• While initially requiring reporting on all business components, the IRS has revised this to require reporting on 80% of total qualified research expenditures (QREs), with a limit of 50 business components.
• Section G is optional for tax year 2024, allowing taxpayers time to adjust. However, it will become mandatory for most taxpayers in subsequent years.

Exemptions: Certain taxpayers, such as qualified small businesses claiming payroll tax credit and businesses with QREs less than $1.5 million and gross receipts less than $50 million, will be exempt from Section G reporting. Additionally, there are special instructions for taxpayers that use statistical sampling.

Other Changes: The revised form includes new line items for officer wages, inquiries about business acquisitions/disposals, and the use of the IRS ASC 730 Directive for determining QREs.

Preparing for the Changes

Even if not required for 2024, companies should begin compiling the information necessary for Section G reporting. This information should be part of a well-documented R&D tax credit study in any case.

Consider involvement from departments beyond tax, including legal and technology teams, to address potentially sensitive information disclosures.

Conclusion

These changes to Form 6765 underscore the increasing importance of detailed record-keeping and documentation for R&D tax credit claims. Proactive planning and adherence to best practices are crucial for navigating this evolving landscape and maximizing the benefits of the R&D tax credit.

For specific advice, please connect with your KBF contact or get in touch with our R&D tax credit team here.