MORE Updates to Form 6765 for Federal R&D Tax Credits

At a glance

• The Main Takeaway: The IRS has released an updated draft version of the Form 6765 filed to claim the Federal R&D Tax Credit, revealing significant updates and reductions in the newly required information, as well as new exemption criteria for some taxpayers.
• Impact on Your Business: The new form, if adopted as-is, will go into effect for the 2025 tax year and, despite the latest updates, still reflects a dramatic increase in the required information to claim the credit.
• Next Steps: Schedule a consultation with an Aprio R&D Tax Credit advisor to understand how (or if) these new requirements will impact your credit.

The Full Story:

On June 21, 2024, the IRS released an updated draft version of a new Form 6765 (the tax form used to claim the Federal R&D Tax Credit), revealing major updates since publishing the first draft of proposed changes in 2023. The nature of the changes, which significantly reduce the amount of newly required information, suggests that the IRS is listening to feedback from taxpayers and tax preparers.

Nonetheless, the latest draft form still represents a significant departure from the current Form 6765 and, if finalized as-is, will dramatically change the process of claiming the Federal R&D credit.

Background

Aprio previously summarized the proposed changes to Form 6765 released in September 2023, which reflected a dramatic increase in the quantitative and qualitative information the IRS planned to require from all taxpayers at the time of filing their tax returns.

This newly requested information would substantially increase the administrative burden associated with claiming the R&D credit. Without a threshold protecting small businesses and startups, many feared the proposed changes would make it infeasible for such companies to claim the credit purely due to the time and resources required to complete the form.

Updated Draft 6765 Rolls Back Required Information

Aprio joined other tax preparers and taxpayers in submitting formal comments to the IRS strongly opposing the proposed changes, and the latest release suggests that our voices were heard. The new draft form eliminates several requirements from the previous draft and implemented a new threshold to protect smaller businesses and startups. Most of the changes pertain to Section G, Business Component Information.

Some of the proposed changes in the newly released draft form include:

• The section requiring business component detail will be optional for the following taxpayers:
  • Qualified Small Businesses using the credit to reduce payroll taxes, and
  • Taxpayers with total QREs of $1.5 million or less and gross receipts of $50 million or less
• The total number of business components taxpayers are required to report has been reduced. Taxpayers must report 80% of total QREs, but no more than 50 business components should be listed.
• The required qualitative information for each reported business component has been reduced for original returns, most notably including the elimination of the requirement to provide a narrative for each business component describing “the information sought to be discovered.” (Amended returns still require additional narrative information, although the amended filing requirements were recently reduced as well.)

What Happens Next

This newest Form 6765 remains in draft form and has not been officially approved for use as-is. Further, the associated instructions have not yet been released to the public. Therefore, additional changes are still possible.

The IRS states they intend for the new Section G to be optional for all taxpayers for the 2024 tax year to help aid in the transition before making the new form a requirement for all applicable taxpayers for the 2025 tax year (excluding those who are exempt according to the new guidelines).

The Bottom Line

Although the recent updates to the draft Form 6765 are favorable for taxpayers, the new form still represents a significant change from the current form that will be difficult for many taxpayers to adapt to. The new form also underscores the continued, growing focus on taxpayers’ ability to properly document and defend their qualifications for the R&D Tax Credit. For these reasons, it is more important than ever to work with a knowledgeable advisor in the preparation of your R&D credits, including both Federal and state incentives. Schedule a consultation with Aprio’s R&D Tax Credit specialists to assess your qualifications and understand the new filing requirements.

Related Resources

• IRS Rolls Back Some Requirements for R&D Refund Claims
• The R&D Tax Credit Form is Getting a Major Update
• Will Claiming the R&D Credit Result in an Audit