Preparing Revised Form 6765 for the R&D Credit: Completing New Sections E, F, and G, Withstanding IRS Challenges

Stated simply, the R&D tax credit, codified under Section 41 of the Internal Revenue Code, is a credit for increasing research activities. The credit incentivizes businesses to develop new or improved products, processes, formulas, techniques, inventions, or software. The regular R&D credit equals 20 percent of the smaller of current QREs (qualified research expenses) that exceed a threshold amount or 50 percent of the current year QREs. In addition to the regular credit method, there is an alternative simplified credit method. Choosing the most beneficial method is critical. The calculated amount based on the method chosen may reduce a company's federal income tax liability dollar for dollar.

In response to improperly filed claims and to target questionable claims, the IRS expanded the information required to be submitted when filing for an R&D tax credit. Newly added Section E – Other Information, requires taxpayers to respond to five questions, the first asking "the number of business components generating the QRE." Section F – Qualified Research Expenses Summary, includes a summary of QREs by cost types. The most comprehensive and troublesome addition is Section G – Business Component Information. Section G requires listing 80 percent of the total QREs for business components in descending order. Perhaps due to its complexity, Section G reporting is optional for 2024 but required for 2025.

Eligible businesses can use the R&D credit to offset up to $500,000 of payroll liabilities. With either a federal income tax offset or payroll liability offset, completing Form 6765, Credit for Increasing Research Activities, properly is key.

Listen as our panel of tax credit experts explains the R&D credit and provides step-by-step calculations, including completion of the newly revised Form 6765.