Changes to the R&D Tax Credit Form 6765

Businesses that claim a research and development (R&D) tax credit must file Form 6765, Credit for Increasing Research Activities. The IRS has introduced significant changes to Form 6765 which will require more detailed information to be reported when filing a credit claim. These changes are intended to present more qualitative data than was previously reported on prior versions of Form 6765. The changes begin to take effect in the 2024 filing season.

What’s New?

Two Yes/No Questions

Taxpayers must now answer two preliminary questions:

A) Will the business elect the reduced credit under Section 280C

B) Is the taxpayer part of a controlled group or a business under common control?

New Section E

This section asks taxpayer to provide:

• The total number of business components generating qualified research expenditures (QREs)
• Total qualified wages for officers of the company
• Acquisitions or dispositions of any major portion of a trade or business during the tax year
• New categories of expenditures included in QREs
• Whether any QREs were determined by following the ASC 730 directive

New Section G

The most noteworthy reporting requirements for this section include:

• Listing all business components that cumulatively account for 80% of total QREs. No more than 50 business components should be listed (80%/Top50).
• Classifying software development activities as either internal use software, non-internal use software, or dual function software
• Categorizing all qualified wages as either direct performance, direct supervision, or direct support of qualified activities
• Defining the information that is being sought for discovery, in the case of amended returns.
• Providing the statistical sampling methodology if applicable

Who’s Exempt from the New Section G Reporting?

• Qualified small business (QSB) taxpayers who elect to claim the payroll tax credit.
• Taxpayers with total QREs less than or equal to $1.5 million, determined at the controlled group level, and with $50 million or less in gross receipts.

Next Steps

Section G is optional for tax year 2024 returns to allow taxpayers adequate time to transition to the new format. However, companies that won’t qualify for an exemption in future years should start preparing now. Establishing a system to track qualified activities will help avoid problems later.

We Can Help

Have questions? Contact your Elliott Davis tax advisor to ensure your business is prepared to comply with these changes. Our team can help you navigate the new R&D Tax Credit reporting requirements.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.