IRS Issues Revised Draft Form 6765, Credit for Increasing Research Activities

The IRS on June 21 announced in IR-2024-171 a revised draft version of Form 6765, Credit for Increasing Research Activities. These revisions, influenced by comments received from external stakeholders, come after the IRS’s ongoing efforts to impose stricter documentation requirements on taxpayers claiming the research credit.

Background

The IRS on September 15, 2023, released a preview of proposed changes to Form 6765 and solicited comments from taxpayers. For prior coverage, see Preparing for New Section 41 R&D Tax Credit Requirements. 

The changes to the form made in late 2023 included the addition of two entirely new sections, which sought detailed information about business components for both quantitative and qualitative reporting, added new questions seeking various information, and reordered some of the existing fields on the form. While aiming to enhance the consistency and quality of information provided for tax administration purposes, comments by taxpayers revealed that the reporting of such information would be overly burdensome. Some commenters suggested that the new information requirement should be optional for certain taxpayers. 

Updated Draft Form 6765 Revisions

Section E of the revised draft form remains unchanged from the previous draft issued in September. However, this section requires additional information from taxpayers that has not previously been required in the current Form 6765. 

The “Business Component Detail” section, which was labeled “Section F” in the prior version of the draft form, has now been updated to become “Section G.” This section poses the most significant informational burden change to the credit; however, the new draft form now makes Section G optional for: 

• Qualified Small Business (QSB) taxpayers, as defined under Internal Revenue Code 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 with $50 million or less in gross receipts, as determined under Section 448(c)(3), who claim a research credit on an original filed return.
  
  

Additionally, the IRS reduced the number of business components that must be reported on Section G. Taxpayers are instructed to report 80% of total QREs in descending order by the amount of total QREs per business component, but no more than 50 business components. Special instructions for taxpayers using the ASC 730 directive will be provided, allowing for ASC 730 QREs to be reported as a single line item on Section G.

The selections for the type of business component are reduced, and the definitions of the terms “officers,” “controlled group reporting,” and “business component descriptive names” will be clarified in the instructions.

The IRS has made comments that certain components have been removed from this updated revised draft form, but it is still unclear exactly what will be required from taxpayers due to the inclusion of dropdowns in the form and instructions that have not been provided yet.

Next Steps

The revised Section G will be optional for all filers for tax year 2024 to allow taxpayers time to transition to the new format. As outlined by the IRS, Section G will be effective for tax year 2025. Because Form 6765 is still a draft, the final form and instructions are expected to be released at a later date.