Important Changes to R&E Tax Credit Reporting
Published on by Jared Hilling in Tax Services
On September 15, 2023, the IRS released proposed changes to Form 6765 to solicit responses from taxpayers and practitioners. These proposed changes included two new sections intended to improve information received by the IRS and provide more consistent tax reporting for the taxpayer. The proposed changes better align with the IRS requirements for valid refund claims.
Although these revisions can be burdensome, the IRS has allowed an adjusting period for the taxpayers to improve their documentation and substantiation methods before the changes are effective for the 2025 tax year.
Revised Form 6765 announced
On June 21, 2024, the IRS released a revised draft of Federal Form 6765 for review by taxpayers and practitioners. This came just days after the IRS released updated guidance easing the information burden for those taxpayers amending returns to claim a refund for the research credit. Notable revisions to Form 6765 include:
New Section G – business component information
The revised form’s Section G would require additional information for each identified business component:
- Business component name.
- Business component type.
- If the business component is computer software, identification of the computer software category.
- Description of the information being sought.
- Identification of wage qualified research expense (QRE) by business component, based on whether they are direct research wages, direct supervision wages, or direct support wages for qualified services by business component.
- Identification of supply costs, rental or lease of computer costs, and contract research expenses by business component.
Fortunately, the revised draft reduced the scope of business component details required:
- Taxpayers only need to report 80% of total QREs in descending order by the total QREs per business component, but no more than 50 business components.
Section G will be optional for the following taxpayers:
- Qualified Small Business taxpayers who claim a reduced payroll credit and taxpayers with total QREs less than $1.5 million and less than $50 million of gross receipts.
The revised Section G will be optional for ALL filers in the tax year 2024, effective for tax year 2025.
New Section E – other information
Section E poses five questions seeking information on:
- The number of business components generating the credit.
- The amount of the officers’ wages included in wages for qualified services.
- Whether the taxpayer acquired or disposed of any major portion of a trade or business.
- Whether the taxpayer identified any new categories of expenditures included in the current QREs.
- Whether the taxpayer determined any of the QREs following the ASC 730 Directive.
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