After proposing updates to Form 6765 in September 2023 and collecting a wealth of feedback, the United States Internal Revenue Service (IRS) released a new draft of Form 6765 last week. The goal: make it easier for businesses to claim R&D tax credits in the US.
To start, Form 6765 is your company’s application for the US federal Credit for Increasing Research Activities—commonly called the Research Credit.
As we recently discussed on our blog, businesses claiming the Research Credit have already been adapting to Form 6765 changes introduced in 2021. These included the requirement to provide a written statement (not just submitting documents)—in other words, explaining your innovation story to the IRS—plus detailed, project-by-project breakdowns of your R&D return on investment.
With these latest updates, the IRS has eased some of the burden of proof for smaller businesses claiming the Research Credit, while also clarifying key criteria for tax administration.
Section G reporting now optional for QSBs
One of the main changes you’ll notice: the Business Component Detail has moved from Section F (September version) to Section G in the June 2024 version of Form 6765.
Previously, Section F required extensive detail (both quantitative and qualitative) for each qualifying business component. Now, this level of detail is only optional for:
- Qualified Small Business (QSB) taxpayers who choose to claim a reduced payroll tax credit
- Taxpayers with total qualified research expenditures (QREs) of $1.5 million or less, and gross receipts of $50 million or less, claiming a research credit on an original filed return.
The IRS also responded to concerns about the sheer number of business components that must be reported in Section G: While you must report 80 percent of your total Qualified Research Expenditures (QREs) by business component, you now only need to report up to 50 business components in total.
Small note: There are special instructions for taxpayers using the ASC 730 directive, who can report ASC 730 QREs as a single line item in Section G.
The IRS has also reduced the level of detail required for each business component. You no longer need to specify whether a component is new or improved, whether it’s for sale, license, or lease, or provide a narrative describing the information you aimed to discover in the revised Section G.
Because these changes represent a major shift, the entire revised Section G will be optional for all filers for tax year 2024 (processing year 2025). This gives both claimants and the IRS time to get comfortable with the new requirements.
While the new Form 6765 will make it somewhat easier for many businesses to claim the Research Credit, navigating the IRS tax code remains complex and can slow down any finance or R&D team.
Boast helps your team organize and qualify R&D activities year-round, syncing key workflow, payroll, and financial data into a single R&D intelligence platform. This lets you clearly see where your R&D investments are paying off, while proactively gathering everything you need to claim the innovation tax credits your team deserves.
To learn more about how Boast can help you maximize your R&D tax claim while optimizing your processes, talk to an expert today.
Form 6765 June 2024 FAQ
- What are the latest changes to IRS Form 6765 for the Research Credit? The IRS has released a new draft of Form 6765 designed to simplify the R&D tax credit claim process. Key changes include moving the Business Component Detail to Section G and making this section optional for certain businesses. The IRS has also reduced the level of detail required for each business component.
- Which businesses can now choose whether to report in Section G? Section G reporting is now optional for:
- Qualified Small Business (QSB) taxpayers who choose to claim a reduced payroll tax credit
- Taxpayers with total qualified research expenditures (QREs) of $1.5 million or less, and gross receipts of $50 million or less, claiming a research credit on an original filed return
- What’s changed about the number of business components you need to report? While you must report 80% of your total Qualified Research Expenditures (QREs) by business component, you now only need to report up to 50 business components in total.
- How has the required level of detail for each business component changed? The IRS has reduced the detail required. You no longer need to specify whether a component is new or improved, whether it’s for sale, license, or lease, or provide a narrative describing the information you aimed to discover in the revised Section G.
- When do these changes take effect? The revised Section G will be optional for all filers for tax year 2024 (processing year 2025). This gives both claimants and the IRS time to get used to the new requirements before they become mandatory.
