On September 15, the Internal Revenue Service shared proposed revisions to Form 6765, “Credit for Increasing Research Activities,” requesting stakeholder comments by October 31. These modifications might result in significant changes to the R&D Tax Credit from 2024 onwards, adding to the hardship faced by taxpayers filing to claim the federal credit.
The agency released an adjusted version of Form 6765 to gather feedback from stakeholders before the official draft release process for form revisions. According to the IRS, some of the proposed modifications reflect past comments from people and tax professionals, which noted that the changes would be effective beginning with tax year 2024.
What is Form 6765?
Form 6765 is used to submit qualified research expenditures (QREs) and related claims for the R&D Tax Credit when filing an original or modified federal tax return. Because the amendments need a large amount of specific quantitative and qualitative information at each business component level, business owners must adapt the technique to identify and record QREs efficiently.
New Credit-Reporting Requirements Added to the Form
While the IRS revised the R&D Tax Credit in 2022, requiring taxpayers to supply equally cumbersome information with R&D tax refund claims submitted on adjusted federal tax returns, the proposed changes to Form 6765 require taxpayers to identify, collect, and record new data before completing their tax returns.
The revisions include:
- A new ‘Section E’ has five questions requesting various company information.
- Another addition, ‘Section F,’ requires extensive quantitative and qualitative information for each company component.
- The “reduced credit” election question (line 17) and the “controlled groups or businesses under common control” question (line 34) moved to the top of the form.
The IRS is also seeking input on whether Section F should be optional for some taxpayers, such as those who have:
- Eligible R&D expenditures of less than a specified dollar amount at the controlled group level;
- An R&D Tax Credit of less than a specific dollar amount at the controlled group level,
- Statutorily designated eligible Start-Up Businesses claiming the Payroll Tax Credit
More work to claim R&D credit?
The IRS investigates numerous R&D Tax Credit concerns yearly, a tedious task that drains enormous resources from the service and taxpayers’ pockets. On top of that, these proposed modifications may disincentivize taxpayers from conducting vital research, negating the aim of the Section 41 credit. To provide more effective tax administration, the IRS must ensure taxpayers genuinely understand the program’s requirements (including the newer additions) to support the claim process.
These proposed regulations, if implemented, will put a significant cost on taxpayers and preeminent firms with substantial R&D spending. With possibly hundreds of components, the impact on those taxpayers might be enormous. Whether or not the IRS adopts these suggested adjustments, it’s clear that the service will continue scrutinizing R&D tax credit submissions to ensure accurate refunds.