Although the new Form 6765 R&D tax credit/research credit form is technically not mandatory until tax year 2025, many of our clients are preparing for these changes which are summarized below
In 2024, the IRS released a revised Form 6765, which introduces significant changes to the Research Credit reporting process. Key changes include the addition of a new section requiring detailed information about research activities, including business component names, types, and expenses. This new section aims to improve data collection and analysis for the IRS.
While the number of business components required to be reported has been reduced (must report business components on the new R&D form for 80% of your QREs), the revised form still necessitates more detailed information than previous versions. The new reporting requires the name of each business component, the type (product, process, software, etc.) and allocating specific expenses (wages, supplies, computer rental, contract research) to each of the identified business components. The form 6765 also requires a brief description of the type of information sought to be discovered for each business component.
To ease the transition, the IRS has implemented a phased-in approach. Section G, which includes the new business component information, will be optional for tax year 2024 and mandatory for tax year 2025. Certain taxpayers, such as Qualified Small Businesses and those with limited research expenses, are exempt from some of the new reporting requirements. More details from IRS will likely be coming before this new form takes effect for tax years 2025 but companies should ensure their systems and reporting mechanisms are capable of pulling at least some of this information; then with the assistance of your R&D tax credit provider, start collecting and reviewing this information this year for tax year 2024 reporting to be fully ready for this major change next year.