Upcoming Changes to Form 6765: What Taxpayers Need to Know About the R&D Tax Credit

Significant enhancements to Form 6765 are on the horizon for taxpayers that claim a research and development (R&D) tax credit.  The changes are optional for 2024 and mandatory for 2025.  Sections E and G have been revamped to compel more detailed qualitative data directly with the originally filed tax return.

Background

The R&D tax credit is a federal benefit that provides companies with dollar-for-dollar cash savings for performing activities related to the development, design or improvement of products, processes, formulas or software.  The credit was enacted in 1981 to stimulate innovation and encourage investment in development in the U.S.  It is incremental and nonrefundable.  The R&D credit is one of the most significant tax credits remaining under federal law.  

Summary of Changes

First, taxpayers must answer two questions:

1. Will the business elect the reduced credit under Section 280C?

2. Is the taxpayer part of a controlled group or a business under common control?

New Section E

Taxpayers are required to disclose:

• Total number of business components generating qualified research expenses (QREs)  

• Total officers’ wages included as wage QREs

• Acquisitions/dispositions of any major portion of a trade or business during the tax year

• Any new categories of QREs that were previously not claimed

• Whether any QREs are being safe harbored under the ASC 730 directive  

New Section G

Optional for 2024 and mandated for tax years beginning 2025 and later

• Identify all business components that account for 80% of QREs or list the top 50 business components (80%/Top50)

• Specify the information that is being sought for discovery if an amended return

• Allocation of the total amount of qualified wages into the categories of direct performance, direct supervision and direct support of qualified research activities

• Classify software development activities as internal use, non-internal use or dual function

• Provide the statistical sampling methodology, if applicable

Exemptions to Section G Reporting

• Qualified small business (QSB) taxpayers, as defined under IRC Section 41(h)(1) & (2), who elect to claim a reduced payroll tax credit

• Taxpayers with total QREs less than or equal to $1.5 million, determined at the controlled group level, and with $50 million or less in gross receipts, claiming a R&D credit on an originally filed return

What's Next?

The IRS has invited feedback on the following items through 6/30/25:

• Section G Business Component information reporting for controlled groups

• Accounting Standards Codification (ASC) 730 Research & Development (R&D) Directive

• Section G Business Component detail

• Statistical sampling

Savvy companies can use the R&D tax credit to implement federal tax planning strategies that maximize their company’s value.  Speak to your tax professional about ways to boost your tax savings by utilizing the R&D tax credit while maintaining compliance with the new requirements of Form 6765.  

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