Written by: Zachary D. Miller & Nick Drago
In June 2024, the Internal Revenue Service (IRS) released a revised draft of Form 6765, the research and development (R&D) credit form, introducing new requirements and proposed changes. This updated draft follows the initial version released in September 2023. After receiving feedback from stakeholders and taxpayers, the IRS made adjustments to the form to reduce the burden of some reporting requirements.
Schedule G: New Reporting Requirements for QREs
Among the most significant proposed form changes includes the introduction of Schedule G, requiring companies to include detail around the business components generating the qualified research expenses (QREs). Within Schedule G, taxpayers must report up to 80% of total qualified research expenditures, listing them in descending order by the amount of QREs per business component, with a maximum of 50 business components included.
Schedule G will be optional for all taxpayers in the 2024 tax year, providing time to adjust to the new schedule. Starting in the 2025 tax year, it will be mandatory for certain taxpayers.
Per the current guidance, Schedule G will always be optional going forward starting in the 2025 tax year for the following taxpayers:
- Qualified small business taxpayers are defined under Section 41(h)(1) & (2) as taxpayers with less than $5 million of gross receipts who check the box to claim a reduced payroll tax credit; or
- Taxpayers with total QREs of $1.5 million or less and gross receipts of $50 million or less, claiming a research credit on an originally filed return.
Detailed Reporting: Business Component Information Required
Taxpayers must also include additional information for the business components listed, including the component type, activity code, and other informational items that qualify the expenses as QRE. More clarification will be provided with the new form instructions when they are released around the “business component descriptive names” and “officers,” as well as other terms included in the new schedule. This guidance is expected to be released before or at the start of the 2025 filing season for the 2024 tax year.
Schedule E and F are also new sections included in the draft Form 6765. Schedule E requires taxpayers to report additional information, including summarizing the number of business components, entering the amount of officer’s wages, and other informational questions regarding business changes. Schedule F is a summary of QREs similar to how they were reported on versions of the Form 6765 from previous years.
Documentation is Key: Navigating Increased IRS Audit Activity
The Form 6765 is still in draft and is expected to be finalized by the IRS along with additional guidance in the near future.
With this new focus on the R&D credit along with an increase in IRS audit activity, it is more important than ever for companies to have detailed and comprehensive documentation over the expenses they use to claim the credits.
If your company’s credits are large enough and your activities are detailed, it may be in your best interest to have an R&D tax credit study done. If you have any questions, please reach out to your Wolf & Company tax team to learn more.
