Revised Form 6765 for R&D Tax Credit
On Friday, June 21, 2024, the Internal Revenue Service (IRS) released a revised Form 6765 to report the Section 41 Credit for Increasing Research Activities (R&D Tax Credit). This is proposed to be effective for tax years beginning after December 31, 2024. Within the new form, certain taxpayers are required to provide more detail regarding the research and development (R&D) projects being performed. This will require more project information to be filed with the tax return, which is in line with how the IRS has been examining research credit calculations.
Changes and Requirements for Accurate Filing
Filling out the form requires attention to detail and accurate calculations. This guide will break down the different sections of Form 6765, highlighting key changes and requirements, to help businesses accurately claim their R&D Tax Credit.
Beginning of Form 6765
At the beginning of the form the taxpayer must show whether it is electing the reduced tax credit under Section 280C. Since 2022, it is recommended that most taxpayers analyze whether it makes sense to make the election for the reduced tax credit. Section 280C only applies when the R&D Tax Credit exceeds the amount allowable as a deduction for qualified research expenses (QREs) or basic research expenses.
The taxpayer is required to elect whether they are part of a group of businesses under common control. This can be found at the start of the form.
- Under Section 41(f)(1) and Section 1.41-6(b) of the Income Tax Regulations, all members of a controlled group are treated as a single taxpayer for purposes of computing the research credit.
- Section 1.41-6(b) provides that the group credit is computed by applying all of the Section 41 computational rules on an aggregate basis.
Section A – Regular Credit
No longer contains line items to show the qualified research QREs.
Section B – Alternative Simplified Credit
No longer contains line items to show QREs.
Section C – Current Year Credit
There were no significant changes.
Section D – Qualified Small Business Payroll Tax Election and Payroll Tax Credit
Available for companies with $5,000,000 or less in gross receipts in the five years beginning with the first year the taxpayer had gross receipts.
Section E (New) – Other Information
The taxpayer must enter the number of business components generating QREs, the wages attributable to officers, whether any trades or businesses were disposed of or acquired, whether there are any new categories of QREs and whether the ASC 730 Directive was used to calculated QREs.
Section F – Qualified Research Expenses Summary
This is now a separate section that flows back into Section A or Section B.
Section G (New) – Business Component Information
The taxpayer must furnish the controlled group member conducting the research, the business component names, the business component type, information regarding software being developed, the information sought to be discovered, related to the business component, the wage QREs by business component and whether they are for the direct performance of research, the direct support of research, or the direct supervision of research.
- Section G is optional for Qualified Small Businesses that are using the credits to offset payroll tax.
- Section G is optional for taxpayers with total QREs equal to or less than $1,500,000 and $50,000,000 or less of gross receipts.
- Taxpayers should report 80% of their QREs in descending order by the amount of total QREs by business component, but no more than 50 business components.
The IRS will release instructions for the new form will become available at a later time.
Your Guide Forward
Filing Form 6765 for the R&D tax credit can be complex and time-consuming. However, getting it right can provide significant benefits for businesses investing in innovation. Cherry Bekaert’s R&D Tax Credit team is here to help with this process. Our team of experts can provide guidance and support to help businesses accurately claim their R&D tax credit and maximize their benefits. If you have any questions or need assistance, please don’t hesitate to reach out to us.
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