As of the week of Feb. 10, 2025, on the IRS.GOV page the IRS has replaced the former version of Form 6765 and instructions with the revised Form 6765 that was released in December 2024. This signals to taxpayers that the revised Form 6765 and instructions are now in effect. The IRS will still be accepting feedback on the instructions to Form 6765 through June 30, 2025.
Businesses that perform research and development activities and would like to claim a research (R&D) tax credit for those activities must file Form 6765, Credit for Increasing Research Activities (Form 6765). The IRS has released multiple drafts of Form 6765 and its instructions. The drafts include changes that will require significantly more detailed information that must be included with the Form 6765 in order to assert a credit claim, starting with the 2024 tax return.
When were these changes introduced?
Revisions to Form 6765 were first introduced in a preview period in September 2023. During this time, the IRS solicited comments and feedback on the proposed revised form. After review and consideration of the feedback, on June 20, 2024, the IRS released a new draft version of the revised Form 6765. This revised version contained numerous changes to the requirements to complete Form 6765, including the creation of a new, optional Section G, as well as a reduction in the number of business components required for reporting.
On Dec. 12, 2024, the IRS released an updated revised draft Form 6765. Additionally, on Dec. 20, 2024, the IRS released draft instructions for the revised draft Form 6765.
The IRS announced that the final version of the revised Form 6765 and instructions would be released in late January 2025, but neither had been released as of the date of this article. The IRS will be accepting feedback on the instructions through June 30, 2025.
What are the changes to Form 6765?
The changes to Form 6765 include the addition of new Items A and B, and Sections E, F and G. No changes were made to Sections C and D.
Items A and B
On the first page, Items A and B are two yes-no questions preceding the calculation sections of the form. Item A asks whether the company intends to elect the reduced credit under section 280C. Previously, this question was included toward the end of Section A and repeated toward the end of Section B. Item B asks whether the company is in a controlled group or business under common control.
Sections A and B have also been revised. Previously, these sections included the two types of calculation methods, Regular Credit and Alternative Simplified Credit, as well as separate lines for each type of qualified research expenses (QREs) being included. The qualified research expenses are now delineated in new Section F, with only the total QRE amounts included on Section A, Line 5, and Section B, Line 20.
Sections C and D
Sections C, Current Year Credit, and D, Qualified Small Business Payroll Tax Election and Payroll Tax Credit, are not changed on the revised form.
New Section E
New Section E includes questions regarding the number of business components, the amount of officer's wages included in qualified wages, whether there were any acquisitions or dispositions and whether any new categories of expenses were included in the calculation. Additionally, there is a question for businesses that utilize the ASC 730 Directive to confirm whether their total qualified research expenses were calculated in line with requirements for ASC 730 and to include the amount from Appendix C, Line 19, plus Appendices A, B, C and D (specifically related to the Directive method).
New Section F
New Section F includes the Qualified Research Expenses Summary, which itemizes the total qualified research expenses for wages, supplies, contract research, rental or lease cost of computers and basic research costs for all business components, as previously required in Sections A and B.
New Section G
New Section G requests detailed information on each business component associated with the qualified research expenses included in the calculation. Businesses are required to complete new Section G unless the company is a Qualified Small Business and has checked the box to claim the credit against payroll tax. Businesses are also not required to complete new Section G if the company has equal to or less than $1,500,000 in total qualified research expenses (determined at the controlled group level) and equal to or less than $50,000,000 in gross receipts for credits claimed on an original filed return.
If a company is required to complete new Section G, the company must report on 80% of the total qualified research expenses but no more than 50 business components (80%/Top 50), determined at the controlled group level. The 80%/Top 50 business components must be reported in new Section G in descending order by total qualified research expenses by business component. Additionally, for companies utilizing the ASC 730 directive, the number of business components required to report on is impacted by the amount of ASC 730 expenses asserted. New Section G also has requirements for companies utilizing statistical sampling in determining business components and how those business components should be reported. Business components that remain after identifying the 80%/Top 50 business components will be reported as “aggregate BCs” and the aggregate amounts for each type of expense will be reported in each column for the related expenses in new Section G.
For companies that do not e-file and have more than 15 business components, additional sheets will need to be attached and referenced on the form as “totals from Attachments”.
New Section G requires business components to be listed by entity and company code as well as the type of business component, such as product, process or all others (including formula, technique, invention or software). Additionally, new Section G requires the 80%/Top 50 business components to be listed by name or alphanumeric identifier. For businesses engaged in software development activities, additional information is required in new Section G regarding whether the software is for internal use (IUS), non-internal use, dual function software or an exception to IUS.
Column 49(f) in new Section G requires a description of the information sought to be discovered with the research for each business component. Column 49(f) in new Section G is required if the business is claiming credits or a refund on an amended return but is not required for original filed returns or returns filed on extension.
New Section G also requests additional information regarding wages, supplies, rental or lease cost of computers and contract research, itemized by business component for the 80%/Top 50 business components. For wage expenses in the 80%/Top 50 business components, for each business component these must be further segmented by research conducted inhouse by persons directly engaged in research activities, persons directly supervising research activities, and persons directly supporting research.
What is the impact for companies for the 2024 tax return, processing year 2025?
For all companies filing a research credit claim on the 2024 tax return, processing year 2025, new Section G, the business component section, will be optional. However, Items A and B, as well as all other Sections, are required to be completed.
Making new Section G optional for the 2024 tax return provides companies some temporary relief from the burden of complying with the new Form 6765 requirements for detailing the expenses associated with each business component comprising the 80%/Top 50 business components. However, new Section E will require information about the number of business components to be provided at the time of filing the research claim, as well as completion of other questions pertaining to officer’s wages, acquisitions or dispositions, new categories of expenses and ASC 730.
What is the impact for businesses beyond the 2024 tax return?
For businesses filing a research credit claim on the 2025 tax return, processing year 2026 and beyond, new Section G will be required for all businesses, as well as Items A and B and new Sections E and F. Businesses will continue to be exempt from completing new Section G if the business is a Qualified Small Business claiming the credit against payroll tax or if the business has equal to or less than $1,500,000 in total QREs and equal to or less than $50,000,000 in gross receipts.
For companies who are not exempt, the new Section G will require detailed information related to each business component at the time of filing the research credit claim. Businesses can prepare for this change now by becoming familiar with the draft Form 6765 requirements and planning ahead.
What resources are available for questions on the new Form 6765?
Baker Tilly is your resource to navigate the ever-changing waters with regard to new Form 6765. Our R&D tax specialists are available to assist with planning for a smooth transition to the new Form 6765 for the 2024 tax return and beyond.
Contact our team for more information, or ask your Baker Tilly tax advisor on how this impacts your business.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
