The IRS Is Raising the Bar on R&D Credits: Are You Ready for Schedule G?

The federal research and development (R&D) tax credit, also known as the research and experimental (R&E) credit, continues to generate significant tax savings for companies investing in innovation. However, beginning with tax years after Dec. 31, 2025, taxpayers claiming the credit will face the most significant reporting and documentation changes in decades.

New Schedule G reporting requirements under Form 6765 will require many businesses to provide detailed business component-level information that historically was not reported directly to the IRS.

The IRS has finalized expanded reporting requirements through Schedule G (Business Component Information) of Form 6765. While Schedule G remained optional for tax years 2024 and 2025, it becomes mandatory for tax years beginning in 2026, dramatically increasing the level of detail required to support R&D credit claims. According to the IRS, the objective is to improve reporting consistency, enhance administrative efficiency, and increase transparency surrounding research credit claims.

Taxpayers must move from aggregate Qualified Research Expense (QRE) reporting to business component-level disclosure, requiring project-specific cost allocations and stronger supporting documentation.

Why Schedule G Matters

Schedule G is more than an additional reporting form. It represents a significant transformation in how the IRS evaluates R&D credit claims.

Historically, taxpayers could report wages, supplies, and contract research expenditures on a consolidated basis. Under the new requirements, taxpayers must identify business components that collectively account for at least 80% of total QREs, subject to a maximum of 50 business components. Remaining activities may be reported in an aggregate category.

For each reportable business component, taxpayers may be required to disclose:

• Business component name or identifier
• Type of business component
• Software classification, where applicable
• Legal entity conducting the research
• Description of the information sought to be discovered
• Detailed QRE allocations

In addition, wage expenses must be separately categorized between direct research, direct supervision, and direct support activities, creating greater documentation requirements than those historically associated with the credit.

Increased Scrutiny and Audit Risk

The expanded reporting requirements provide the IRS with unprecedented visibility into the projects, costs, methodologies, and employee activities supporting an R&D credit claim. CBIZ experts believe Schedule G will function as a risk-assessment tool that enables the IRS to evaluate claims before examination resources are deployed. As a result, taxpayers should expect greater scrutiny of business component identification, wage allocation methodologies, project-level documentation, and the nexus between QREs and reported expenditures.

Companies that historically relied on estimates, broad project groupings, or limited contemporaneous documentation may face increased compliance and examination risk under the new reporting framework.

The Operational Challenge

For many organizations, the greatest challenge may not be tax compliance but operational readiness.

Most eligible taxpayers do not track R&D costs by business components, and R&D data is often disconnected from accounting and tax systems.

Schedule G effectively requires organizations to bridge those gaps by integrating:

• Project management systems
• Payroll and human resource data
• Time tracking processes
• Cost accounting records
• General ledger information
• Tax documentation procedures

Companies that wait until return preparation begins in 2027 may find it difficult, if not impossible, to reconstruct the required information accurately.

A New Standard for R&D Documentation

Schedule G is expected to heighten the IRS’s focus on contemporaneous documentation.

Future R&D studies will increasingly require taxpayers to demonstrate:

• Technical uncertainty
• The process of experimentation
• Technological information evaluated
• Employee participation by project
• Project-level expenditure support

Taxpayers that develop systematic documentation processes today will be in a much stronger position to sustain credits during future examinations.

Who Is Exempt?

Certain taxpayers remain exempt from mandatory Schedule G reporting, including:

• Qualified small businesses electing the payroll tax offset; and
• Taxpayers with controlled-group QREs of $1.5 million or less and gross receipts of $50 million or less claiming the credit on an originally filed return.

However, many middle-market and large taxpayers will be subject to the new requirements and should begin preparing immediately.

Schedule G Reflects a Broader IRS Trend

Schedule G is not occurring in isolation. Over the last several years, the IRS has increased its focus on research credit substantiation through amended return claim requirements, expanded information requests, and enhanced documentation expectations. Schedule G continues that trend by shifting key information that historically was requested during an examination directly onto the tax return itself.

Preparing for 2026: What You Need to Do

Organizations expecting to exceed the exemption thresholds should use 2025 and 2026 as a preparation period to:

• Conduct a Schedule G readiness assessment
• Establish business component naming conventions
• Evaluate technology solutions for project-level tracking
• Identify documentation gaps before the 2026 tax year begins
• Coordinate tax, finance, engineering, and operational stakeholders

Key Takeaways

Organizations that use 2026 as a preparation year will be significantly better positioned to comply with the new reporting requirements, defend their credit claims during examination, and continue maximizing the value of available R&D tax incentives. Taxpayers that delay implementation may find that reconstructing the required data after year end is costly, disruptive, and potentially incomplete. The time to build the necessary processes, documentation, and reporting infrastructure is now.

Schedule G represents a fundamental shift from aggregate R&D credit reporting to detailed business component-level disclosure. While the federal R&D credit continues to provide substantial tax savings, taxpayers will be expected to support those benefits with significantly more detailed information beginning with tax years starting Jan. 1, 2026.

CBIZ Perspective

The companies most likely to succeed under the new reporting regime are those that view Schedule G not as a tax form change, but as a business process change requiring coordination among tax, finance, engineering, software development, operations, and executive leadership.

Organizations that use 2026 as a preparation year will be significantly better positioned to comply with the new reporting requirements, defend their credit claims during examination, and continue maximizing the value of available R&D tax incentives. Taxpayers that delay implementation may find that reconstructing the required data after year end is costly, disruptive, and potentially incomplete. The time to build the necessary processes, documentation, and reporting infrastructure is now.

If you have questions about Schedule G or would like to understand how the new reporting requirements may impact your company, contact a CBIZ professional today to discuss your specific facts and circumstances.