What is the New IRS Form 6765?

The IRS changes to Form 6765 ask for much more granular information from the taxpayer. Now, filers must provide substantially more quantitative and qualitative information about their Qualified Expenses, including detailed information about up to 50 business components where you’ve made research expenditures. As we’ve mentioned in other posts, this appears in line with the IRS’s shift towards more contemporaneous documentation which is now much easier to access via integrated systems such as Jira and GitHub.

This new form underlines the need for businesses to utilize these new datasets. With the introduction of stricter reporting requirements, businesses and their accountants are being asked to take a proactive approach to compliance.

What’s Changed?

Alright, let’s get specific.

Before completing Section A, taxpayers must now answer two questions: 

1. Is your organization part of a controlled group or under common control? There are R&D credit limitations and aggregation rules that apply at the group level.

2. Will you be electing for the reduced 280C credit? The 280C credit allows companies to claim the R&D credit without reducing their deductible expenses by the credit amount.

The IRS has also introduced Sections E and F which ask for more transparent reporting of expenses. 

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Section E: Other information: 

Filers must now include information on…

• Number of business components used in the credit calculation, which helps ensure compliance with the four-part R&D test
• Officer compensation included in the wage qualified research expenses
• Acquisitions and dispositions that may impact the R&D credit calculation, ensuring that changes in business structure are properly reflected
• New categories of expenditures added to the current year’s QREs to identify inconsistencies year over year in credit claims
• Use of the ASC 730 Directive, which is relevant for companies with assets over $10 million using certain financial reporting methods

Section F: Qualified research expenses summary: 

This section mandates that filers…

• Indicate whether they are required to complete Section G
• Provide a breakdown of qualified research expenses by type (e.g., wages, supplies, contract research), offering the IRS greater transparency into qualified R&D activities

And the most significant change of all…

Most significantly, the IRS has added a Section G, which requires several categories of info about the taxpayer’s business components. For Tax Year 2024, completion of Section G is optional for all taxpayers. But by Tax Year 2025, Section G will be required for everyone except qualified small businesses claiming the payroll credit and taxpayers with qualified research expenses of <$1.5 million and gross receipts of <$50 million (provided they are claiming the research credit on an original return).Taxpayers will now need to report 80% of their total qualified research expenses in descending order per business component (up to 50 business components in total). Rather than claiming your total R&D expenditure, you will now need to list each qualified expense at the time of filing.