The Internal Revenue Service has released a new draft Form 6765, Credit for Increasing Research Activities, also known as the Research Credit. (https://www.irs.gov/pub/irs-dft/f6765–dft.pdf)

The IRS received helpful comments from various external stakeholders that have informed several revisions the IRS is making to reduce taxpayer burden. The feedback and changes will alleviate taxpayer burden, provide taxpayers with a consistent and predefined format and improve the information received for tax administration.

The changes include:

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Optional reporting of Section G

Section G, which was labeled “Section F” in the version of the form that IRS shared last fall, requests 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 of Business Component Detail and other revisions

In response to feedback from stakeholders, the IRS reduced the number of business components that must be reported on Section G. Taxpayers should report 80% of 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 must be provided with respect to the reduced number of business components on Section G has also been reduced. For example, 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 reduced, 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). This will allow taxpayers time to transition to the Section G format. Section G will be effective for tax year 2025 (processing year 2026), subject to the guidelines noted above.

On Sept. 15, 2023, the IRS released a preview of proposed changes to Form 6765 and solicited 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 requested feedback on whether the new Business Component Detail section should be optional for certain taxpayers.

Taxes