IRS previews changes in R&D tax credit form

The Internal Revenue Service released a sneak peak Friday of some of the changes it’s hoping to make to the form for claiming research tax credits.

The preview shows a number of proposed changes to certain sections of Form 6765, Credit for Increasing Research Activities, also known as the Research Credit, or the R&D or R&E tax credit for research and development or research and experimentation. The IRS said it wants to solicit feedback from stakeholders in advance of the formal draft release process for form changes. Some of the proposed changes address feedback the agency has already heard from taxpayers as well as tax professionals. The IRS is considering making the changes effective starting in tax year 2024.

Some tax professionals complained in 2021 after the IRS released a memorandum from the IRS’s Office of Chief Counsel saying it wants more detailed information about the business components on which the research credit is claimed when applying for tax refunds (see story). Companies were required to supply far more information than they were accustomed to offering in the past as the IRS sought to make sure the claims were legitimate. The IRS has sometimes included inflated claims for the R&D tax credit on its annual list of the Dirty Dozen tax scams (see story).

The new tax form is arriving as more companies are also adapting to how to account for research and development expenses after Congress failed to amend the tax laws to reverse or at least further delay changes from the Tax Cuts and Jobs Act of 2017 requiring companies to start amortizing R&D expenses. Last week, the IRS released a notice providing interim guidance on the capitalization and amortization of specified research and experimental expenditures.

When it comes to the proposed changes to Form 6765, the IRS said Friday they would provide taxpayers with a consistent, predefined format for tax reporting and improve the information received for tax administration, while also building on the agency’s “ongoing efforts to manage research credit issues and resources in the most effective and efficient manner possible.”

The proposed changes include:

• A new Section E with five questions seeking miscellaneous information;
• A new Section F for reporting quantitative and qualitative information for each business component, required under Section 41 of the Tax Code; and,
• Moving the “reduced credit” election question and the “controlled groups or businesses under common control” question from line 17 and line 34 to the top of Form 6765.

The IRS is also asking for feedback on whether Section F should be optional for certain taxpayers, including those:

• With qualified research expenditures less than a certain dollar amount at a controlled group level;
• With a Research Credit less than a certain dollar amount at a controlled group level; or,
• That are a Qualified Small Business for the Payroll Tax Credit.

The IRS said the feedback it receives for each suggestion should address the justification, limitation amounts, as well as the pros and cons.
The IRS pointed out that if Section F were optional for some taxpayers, it still wouldn’t affect the requirement to maintain books and records and to provide Section F information in a similar format, if requested; and it wouldn’t apply to amended returns for the research credit.

Feedback should be emailed to Lbi.rt.team@irs.gov with the subject line: “Feedback/Questions F6765” by Oct. 31, 2023. The IRS said it would consider all the feedback it receives by then before it finalizes any changes to the form.