Changes that affect research and experimentation (R&E) tax credits claimed on Form 6765, the traditional application used to request credit for increasing research activities, may be on the horizon. These changes may require businesses to implement new documentation and substantiation practices.
There have been concerted efforts by the IRS to increase documentation and attestation requirements related to R&D tax credit claims. For example, the IRS released the Chief Counsel Memorandum, effective Jan. 10, 2022, to increase information reporting requirements related to R&D tax credit claims for refunds on amended tax returns. Continuing with this trend of growing requirements, in September 2023, the IRS released a draft preview of proposed changes to the traditional Form 6765
In June 2024, the IRS published a second draft of Form 6765, an update to its “preview” of changes to Form 6765, released in September 2023. The second version of Form 6765 illustrates qualitative and quantitative information requirements about business components for which a taxpayer claims qualified research expenses and information regarding a taxpayer’s R&D-controlled group members. An example of these new requirements includes disclosing, by business component, the information sought to be discovered and identifying one or more alternatives evaluated in the process of experimentation.
This substantial increase in the information requested on Form 6765 would be a new obligation for taxpayers claiming R&E credits. This would be effective for the tax year 2024, though some changes related to business components will be optional until the 2025 tax year. Some entities are exempt from these reporting requirements, including businesses claiming the qualified small business payroll credit and those with qualified research expenses (QREs) less than $1.5 million and less than $50 million in revenue on a controlled group basis.
Taxpayers must understand these proposed changes — even those claiming smaller R&E tax credits — and be prepared to comply with new requirements to ensure their claims are complete, accurate and contain the information required for reporting.
To learn more about IRS updates to R&D credit form 6765, connect with our R&D Tax Credit team.
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