For some time, we’ve known that an update to Section G of Form 6765 (Credit for Increasing Research Activities) was coming. But in February, the IRS delivered guidance that the change will be mandatory for 2026 filers to deliver a much more in-depth breakdown of the R&D work they’re doing in order to claim the credit.
With the addition of Section G, the IRS now asks for a lot more detail — including a project-by-project breakdown of research spending. That means guestimates are no longer acceptable in R&D credits; the ability to utilize your contemporaneous data has never been more essential. Luckily, Neo.Tax is built to do just that.
Here’s what’s changed and what you need to know for 2026 and beyond:
What’s Changed With Form 6765
The changes begin right at the start of the form. 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? Electing the reduced 280C credit lets you keep your full deduction for research expenses — but the credit itself is reduced to a net-of-tax amount. Skip the election, and you can take the full credit, but you’ll have to reduce your deduction by the credit amount.
From there, the IRS has also introduced Sections E and F which ask for more transparent reporting of expenses.
For Section E, 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 to highlight qualified work performed by company executives, which can be quite rare at mid- to large-size companies
- 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
And for Section F, filers must show the breakdown of qualified research expenses by employee wages, outside contractors, supplies, and cloud-hosting. Filers must also indicate whether they are required to complete Section G.
The Section G Addition is Massive
Those changes were all preludes to the big one: the addition of Section G.
Since Section G was announced as an addition to Form 6765 in 2024, it has been optional to complete for all tax payers. But starting with the 2026 Tax Year, it will be mandatory for almost all businesses.
This new section completely changes the way businesses file for R&D credits. Before, filers could claim a credit and only have to back it on a project-by-project basis (i.e. listing each Business Component) in the event of an audit. But Section G changes the impetus from the auditor to the filer: now, almost every business needs to list out their Qualified Expenses tied to specific Business Components as part of their initial filing. Not every Business Component has to be listed — only the largest ones that together account for 80% of total QREs, up to a maximum of 50.
What that means, practically, is that the burden to file for an R&D credit has been raised substantially. Now, tax teams need to find a way to track R&D expenditures throughout the year, keeping them organized by project, so that they can successfully file the Form 6765.
With this update coming at a moment when the IRS increasingly disfavors and has ramped up audit challenges to after-the-fact reconstruction and expects contemporaneous support, companies will need to understand and use their internal systems to track R&D work for future filings.
Neo.Tax Was Built For This Moment
Luckily, Neo.Tax’s AI-powered system already works at a project-by-project level, sorting R&D work based on your internal project management and payroll systems in real time.
Our theory from the start was that in a moment when contemporaneous data exists, we had to find a way to utilize it when creating an R&D credit filing for our customers. With this update, it’s become clear that a system like the one we’ve built may become the standard that the IRS will expect in the near future.
The reason? The level of contemporaneous data created within a modern innovative company is too much for a small tax team or third-party filer to sort through and then create a filing up to the level of detail the IRS now calls for. So, the choices will be: an intelligent tool or a massive team to create the most accurate filings.
To us, the choice is clear. So, get in touch and learn how Neo.Tax has already solved for Section G.