The Internal Revenue Service (IRS) has announced important revisions to Form 6765, “Credit for Increasing Research Activities,” and modifications to the R&D credit refund process.  

These changes will impact taxpayers claiming research credits and are set to take effect for the tax year beginning after December 31, 2024. The revisions aim “to enhance the consistency and quality of information provided for tax administration purposes while addressing stakeholder feedback on proposed documentation requirements.” 

Form 6765 

The following are some of the key changes to Form 6765: 

Section E: “Other Information”  

• Requires additional details such as the number of business components generating the R&D credit and the amount of officers’ wages included in qualified research expenses (QREs). 
• Includes yes/no questions about business acquisitions/dispositions, new expenditure categories and use of Accounting Standards Codification (ASC) 730 for identifying QREs. 

Section G: Business Component Detail (previously Section F in an earlier draft) 

• Requires detailed reporting of business components, covering the top 80% of business components by QRE amount, up to a maximum of 50 components. 
• Large taxpayers can report ASC 730 QREs as a single line item. 
• Asks for “information sought to be discovered” for each business component. 

Exemptions for Section G for certain taxpayers 

• Qualified Small Business (QSB) taxpayers opting for a reduced payroll tax credit. 
• Taxpayer with QREs equal to or less than $1.5 million and gross receipts under $50 million. 

Additional modifications  

• Removed questions about whether business components were new or improved and how they were used. 
• Reduced options for types of business components to product, process, computer software, technique, formula or invention. 

R&D credit refund claims process 

Effective June 18, 2024, the IRS has modified the information required for R&D credit refund claims: 

No longer required:

• Names of individuals who performed each research activity. 
• Information each individual sought to discover. 

Now required: 

• Business components related to the R&D credit claim for that year.
• Research activities performed for each business component. 
• Total qualified employee wage expenses, supply expenses, and contract R&D expenses for the claim year.

Note: Taxpayers may still need to provide previously required information if their refund claim is selected for examination. 

Taxpayer implications 

The IRS’s revised approach to R&D credit documentation represents a significant shift in reporting requirements. The following are implications to consider: 

1. Documentation and reporting: Taxpayers will need to review and potentially revise their current processes for identifying, qualifying and documenting R&D credits to align with the new requirements. 
2. Increased detail: The revised Form 6765 requires more detailed reporting on business components and research activities, necessitating more thorough record-keeping. 
3. Transition period: While some taxpayers are exempt from completing Section G for now, it’s advisable to prepare for full compliance by 2025. 
4. Refund claims: The simplified refund claim process may expedite submissions, but taxpayers should be prepared to provide additional information if selected for examination. 
5. Planning and consultation: Given the significance of these changes, taxpayers should consider consulting with tax advisors to understand the impact on their specific situations and to develop strategies for compliance. 

BPM’s Research and Development Tax Credit Services  

While the changes to Form 6765 and the refund process may initially increase the administrative burden for some taxpayers, they also provide an opportunity to strengthen R&D credit claims and potentially streamline the refund process.  

Proactive planning and thorough documentation will be key to successfully adapting to these new requirements and maximizing R&D credit benefits. Fortunately, BPM’s Specialty Tax Service Group has a wealth of experience assisting companies across various industries and sizes. We evaluate qualified R&D expenses, calculate credit claims for filing and, if needed, defend positions before the IRS.  

Contact us to learn more about maximizing R&D credits while meeting newly revised IRS reporting requirements.