Article
Be ready: IRS announces significant Form 6765 changes to research tax credit for 2024
Sept. 13, 2024 · Authored by Brian Short and Travis Riley
The IRS announced the release of a revised draft Form 6765, Credit for Increasing Research Activities, on June 21, 2024.
While the changes are generally seen as improvements over the prior draft the IRS proposed last year, the Form 6765 changes introduce more comprehensive reporting requirements, significantly increasing the workload for taxpayers. These updates reflect the IRS' commitment to enhancing tax administration but also indicate a shift towards more detailed documentation of research activities.
This marks a significant change in the approach to claiming research tax credits, necessitating careful attention and adaptation from taxpayers.
Background on Form 6765 changes
The initial draft of the revised Form 6765 was released on Sept. 15, 2023, introducing a new Business Component Detail section and various other changes aimed at enhancing the reporting process.
After soliciting and reviewing feedback, the IRS made several adjustments, notably reducing the number of business components that must be reported. Now, taxpayers are only required to report components that account for 80% of their total Qualified Research Expenses (QRE), up to a maximum of 50 components.
This approach, while streamlined, still demands a significant amount of data collection and reporting from taxpayers, marking a notable increase in effort from previous years. The revised Section G of the form will be optional for all filers for the tax year 2024, which provides a transition period for taxpayers to adjust to the new requirements. For the tax year 2025, this section will become mandatory, with the streamlined requirements firmly in place.
Exemptions from new reporting requirements
Certain companies will be exempt from some of the new reporting requirements. Specifically:
- Qualified Small Business (QSB) taxpayers, as defined under Internal Revenue Code Section 41(h)(1) and (2), who elect to claim a reduced payroll tax credit, will find Section G optional.
- Companies with total QREs of $1.5 million or less and gross receipts of $50 million or less, as determined under Section 448(c)(3), when claiming a research credit on an originally filed return, will also not be required to complete Section G.
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