IRS unveils revised draft Form 6765 for Research Credit following public feedback
The IRS has announced the release of a revised draft of Form 6765, known as the Credit for Increasing Research Activities.
This update follows valuable feedback from various external stakeholders, aimed at reducing taxpayer burden and improving the consistency and quality of information received for tax administration.
Key changes to Form 6765
The IRS has made several notable revisions to Form 6765 to streamline the process and reduce the burden on taxpayers.
These changes focus on simplifying the reporting requirements and providing clearer guidelines for compliance.
Optional reporting of Section G
The updated draft includes significant changes to Section G, previously labeled as Section F.
This section, which requests Business Component Detail, will now be optional for specific groups:
- Qualified Small Business (QSB) taxpayers: Defined under section 41(h)(1) & (2), who opt to claim a reduced payroll tax credit.
- Taxpayers with total qualified research expenditures (QREs) under $1.5 million: At the control group level, and gross receipts under $50 million, claiming a research credit on an originally filed return.
Reduced scope of Business Component Detail and other revisions
In response to stakeholder feedback, the IRS has simplified the reporting requirements for Section G:
- Reduced number of business components: Taxpayers now need to report 80% of total QREs in descending order by amount per business component, but no more than 50 components.
- Simplified information requirements: The IRS has eliminated certain details, such as whether a business component is new/improved, a sale/license/lease, and the narrative requirement for original returns describing the information sought.
Additionally, the selection types for business components have been reduced, and definitions for officers, controlled group reporting, and business component descriptive names will be clarified in the instructions.
Transition Period
For tax year 2024 (processing year 2025), the revised Section G will be optional for all filers, providing taxpayers time to adjust to the new format. It will become mandatory for tax year 2025 (processing year 2026), subject to the guidelines noted above.
Public feedback and proposed changes
On September 15, 2023, the IRS released a preview of the proposed changes to Form 6765 and solicited public comments.
The preview included:
- New Business Component Detail Section: For reporting both quantitative and qualitative information for each business component.
- Additional questions: New questions were added seeking various information, along with reordering some of the existing questions on the form.
- Solicitation of feedback: Feedback was requested on whether the new Business Component Detail section should be optional for certain taxpayers.
Implications and next steps
The updated Form 6765 is expected to significantly impact taxpayers by simplifying the process of claiming the research credit and ensuring more accurate reporting.
Benefits for taxpayers
The revisions are designed to reduce the reporting burden on taxpayers, providing a consistent and predefined format.
This not only simplifies the filing process but also improves the quality of information received by the IRS, facilitating better tax administration.
Future guidelines and implementation
Taxpayers are encouraged to review the revised draft and prepare for the upcoming changes. The IRS will continue to seek feedback to further refine the form, ensuring it meets the needs of all stakeholders.
Additionally, the transition period provides ample time for taxpayers to familiarize themselves with the new requirements and integrate them into their tax preparation processes.
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