The IRS has been quietly raising the bar on U.S. R&D tax credit documentation. For many businesses, the clock is already ticking. 

A new section on Form 6765, the form used to claim the federal R&D tax credit under IRC Section 41, is changing how companies must report their qualifying research activities. Section G is optional for tax year 2025, but it becomes mandatory for most businesses in 2026. If you're not already preparing, now is the time to start. 

Here's what you need to know. 

What Is Section G? 

Form 6765 has long been used to calculate and claim the federal R&D tax credit. Historically, companies reported their total Qualified Research Expenses (QREs) (ie. wages, supplies, and contract research costs) in aggregate. Section G introduces a more structured format: businesses must now report up to 50 business components that account for at least 80% of their total QREs, listed in descending order of value. 

For each business component, companies must report the type of component (product, process, software, technique, formula, or invention), the wages broken out by job function (direct research, supervision, and support), and the associated supplies and contract research costs. 

This is a significant departure from the high-level reporting most companies have relied on for years. 

Who Does It Apply To? 

Section G is required for any taxpayer that claims over $1.5M in QREs or has over $50M in annual revenue. If your company falls into either category— and many growing technology, manufacturing, biotech, and software companies do—this requirement will apply to you when it becomes mandatory. 

For tax year 2024, Section G is optional for all taxpayers. The IRS has confirmed that Section G remains optional for tax year 2025 as well. But optional today doesn't mean inconsequential. Companies that start building compliant documentation habits now will be far better positioned when reporting becomes mandatory. 

Why This Matters More Than It Might Seem 

The shift to project-level reporting isn't just administrative. Section G is where your claim gets made or challenged. If you can't clearly define business components or connect them to documented research activities, your claim is vulnerable. If your totals don't align with underlying documentation, the IRS may view the claim as unsubstantiated. 

With passage of the One Big Beautiful Bill Act, full Section 174 expensing has been restored, and additional IRS scrutiny is expected as more taxpayers amend returns and navigate compliance options, making accurate completion of Section G even more critical. 

In short: the IRS is raising the bar on substantiation, and the businesses caught off guard will be the ones that treated Section G as a future problem. 

What Good Documentation Looks Like 

Getting Section G right starts well before tax season. Begin by identifying your top business components, sorted by total QRE value, focusing on real, defined R&D activities rather than generic groupings like "Platform Development." For each component, link to detailed documentation that supports the four-part test: the uncertainty being addressed, what was tested, how it was tested, and the results. 

Wage allocations need to be broken out by job function and tied back to each project. That means your time tracking, project management, and payroll systems need to be capturing data in a way that supports this level of reporting. If they're not, that's the gap to close now. 

Contemporaneous documentation (ie. records captured in real time as work is performed, not reconstructed later) is crucial for demonstrating compliance. The IRS has consistently reinforced that reconstructed records are a red flag. The companies best positioned for Section G are those building documentation as part of their everyday R&D workflow. 

Three Things to Do Before Year-End 

If you're planning to claim the federal R&D tax credit and fall within the revenue or QRE thresholds, here's where to focus: 

  1. Map your business components now. Identify which projects or activities constitute your business components. Avoid vague labels; be specific about what technological uncertainty each project was trying to resolve. 
  2. Audit your time tracking. Do your systems capture employee time by project and job function (direct, supervisory, support)? If not, this is the gap most likely to create problems when Section G is mandatory. 
  3. Start your Section G filing on a voluntary basis. Filing Section G optionally this year gives you a dry run; a chance to catch gaps in your documentation before the stakes are higher. 

The Bottom Line 

The R&D tax credit remains one of the most valuable non-dilutive funding opportunities available to innovative businesses in the U.S., worth up to 20% of qualifying research expenses at the federal level, with additional credits available in most states. But the window to claim it confidently is narrowing for companies that haven't modernized their documentation practices. 

Section G is the IRS signaling that it wants to see the work, not just the number. The businesses that respond to that signal now (before mandatory compliance kicks in) will be the ones that protect their credits when it matters most. 

At Boast, our platform is built around exactly this kind of documentation. We help innovative companies across the U.S. build a comprehensive, audit-ready system of record throughout the year so that when it's time to file, Section G isn't a scramble. It's a summary of work already done. 

If you want to understand how your current documentation stacks up against the new Section G requirements, book a free consultation with our U.S. R&D tax credit team.