IRS drafts revised Research Credit form

The Internal Revenue Service released a revised draft version of Form 6765, the Credit for Increasing Research Activities, on Friday after hearing comments about an earlier version of the form, only days after the IRS relaxed some of the documentation requirements for claiming the tax credit.

The Credit for Increasing Research Activities is also known as the Research Credit or the R&D tax credit. Since 2021, the IRS has tried to impose stricter documentation requirements to back up claims for tax refunds using the credit in an effort to reduce fraudulent claims, but that provoked a backlash among taxpayers and tax professionals who found the requirements too onerous. Earlier this week, the IRS relaxed some of those requirements. The IRS repeatedly gave taxpayers extra time to “perfect” their claims for refunds tied to the credit, with the date now extended until Jan. 10, 2025.

Along with the documentation requirements, the tax form itself has been under revision as well. Last September, the IRS released a preview of proposed changes to Form 6765 and asked for comments from interested parties. The preview included a new Business Component Detail section for reporting quantitative and qualitative information for each business component, new questions seeking various information and reordering some of the existing questions on the form. The solicitation asked for feedback on whether the new Business Component Detail section should be optional for certain kinds of taxpayers.

The IRS said Friday it received helpful comments from various outside stakeholders that have informed the revisions it’s now making to reduce taxpayer burden. The feedback and changes promise to alleviate at least some of that burden, giving taxpayers a more consistent, predefined format while improving the information received for tax administration.

 The changes include:

 Optional reporting of Section G

 Section G, which was labeled “Section F” in the version of the form that the IRS shared last fall, asks for the Business Component Detail. The instructions will provide that Section G will be optional for:

• Qualified Small Business (QSB) taxpayers, defined under section 41(h)(1) & (2) who check the box to claim a reduced payroll tax credit; or
• Taxpayers with total qualified research expenditures (QREs) equal to or less than $1.5 million, determined at the control group level, and equal to or less than $50 million of gross receipts, as determined under section 448(c)(3) (without regard to subparagraph (A) thereof), claiming a research credit on an original filed return.

Reduced scope and other changes

In response to stakeholder feedback, the IRS decreased the number of business components that have to be reported on Section G. Taxpayers should report 80% of their total QREs in descending order by the amount of total QREs per business component, but no more than 50 business components (with special instructions for taxpayers using the ASC 730 directive who can report ASC 730 QREs as a single line item on Section G).

The amount of information that needs to be provided about the reduced number of business components on Section G has also declined. For instance, the IRS eliminated whether a business component is new/improved, a sale/license/lease and the narrative requirement (for original returns) that describes the information sought to be discovered. The selections for the type of business component are fewer, and the definitions for officers, controlled group reporting and business component descriptive names will be clarified in the instructions. 

The revised Section G will be optional for all filers for tax year 2024 (processing year 2025) to give taxpayers more time to transition to the new format. Section G will be effective for tax year 2025 (processing year 2026), subject to the guidelines noted above.  

The final Form 6765 instructions will be released at a later date, according to the IRS.