New Form 6765 reporting requirements for research credit claims

Section E – other information

Section E on Form 6765 requires taxpayers to provide information regarding aspects of the overall methodology used to compute the research credit. Specifically, taxpayers must provide:

• The number of business components under development during the tax year (not limited to the number of business components taxpayers are required to report in Section G)
• The amount of officer wages included as QREs, the determination of which is made under the laws of the state where the taxpayer is incorporated
• Confirmation if a major portion of a trade or business was acquired or disposed of during the year
• Confirmation if any new categories of expenditures were incurred
• Confirmation whether any of the QREs were determined under the ASC 730 directive

Section F – Qualified Research Expense Summary

This section does not require taxpayers to report any new information. However, taxpayers are now required to report the amount of QREs by category in Section F, rather than at the beginning of Form 6765 as in the prior version. The Form 6765 instructions clarify that members of a controlled group or business under common control filing separate tax returns should only report their QREs and not the combined group QREs.

Section G – Business Component Information

Section G on Form 6765 requires taxpayers to provide detailed information regarding business components associated with the research credit claim. Importantly, Section G is optional for tax years beginning in 2024 and is required for tax years beginning in 2025. Taxpayers that meet the following criteria are not required to complete Section G:

• Qualified small business (QSB) taxpayers, as defined under Section 41(h)(1) and (2) who check the box to claim a reduced payroll tax credit
• Taxpayers with QREs equal to or less than $1.5 million and gross receipts equal to or less than $50 million, as determined at the control group level

Taxpayers that are required to complete Section G must provide the following information:

• Controlled group member information and principal business activity codes
• Qualitative information for business components that make up 80% of total QREs, but no more than 50 components, such as,
  • Business component name.
  • Business component type: Taxpayers report business components as (i) product, (ii) process, or (iii) all others.
  • Software type: Taxpayers report software type as (i) internal use software (IUS), (ii) dual function software (DFS), (iii) excepted from IUS treatment, or (iv) Non-IUS.
  • Information sought to be discovered: The Form 6765 instructions clarify that this information is only required for taxpayers claiming a research credit on an amended return.
• Aggregate reporting of business components that do not make up 80% of total QREs.
• Reporting of QREs from members of controlled groups or businesses under common control that are filing separate tax returns.
• Reporting of wage QREs such as direct research, direct supervision and direct support by each business component.
• Reporting of QREs for the cost of supplies, rental or lease cost of computers and contract research expenses by each business component.

Taxpayers that use a statistical sampling methodology must still fulfill the Section G reporting requirements, irrespective of which business components are used for the statistical sample. Further, taxpayers that use statistical sampling are required to attach their statistical sampling plan.

The additional information required to be reported in Section G raises important questions about how the information may be used, such as:

• What are the IRS's expectations for reporting business component detail, particularly around the “all information sought to be discovered,” on Form 6765?
• How do the business component reporting requirements impact statistical sampling and the guidance provided under Rev. Proc. 2011-42?
• How will the breakout of direct supervision and direct support of research be leveraged by the IRS? 

Next steps

The most fundamental change with the Form 6765 is the requirement to report information at the business component level, and the new reporting could impose significant new burdens. The Form 6765 and associated instructions reflect various changes to the reporting requirements that were implemented based on taxpayer feedback on the September 2023 draft release. Taxpayers should evaluate their current methodology for computing the research credit to identify what changes need to be implemented both to file 2024 returns and to collect the required information for claiming the research credit for 2025 and future years.

Taxpayers are encouraged to continue submitting feedback on the Form 6765 and instructions through June 30, 2025 to be considered for the 2025 tax year.