R&D Tax Credits: Exploring the New Sections on Form 6765

On September 15, 2023, the IRS released proposed changes to Form 6765, which is the form used by businesses to claim R&D tax credits. The changes to this form are expected to take effect at the start of the 2024 tax year. The changes aim to achieve consistent tax reporting, improve the information necessary for tax administration and examination, and increase transparency for the IRS while ensuring accurate processing of claims.

Changes to Form 6765

• New Section E:

A new Section E on Form 6765 requires taxpayers to answer five additional questions to gather extra information about their business. These questions include:

• The quantity of business components that generate the credit.
• The amount of the officer’s salary that is included in the taxpayer’s reported wage.
• Whether most of a trade or business has been acquired or disposed of in the tax year.
• Whether the QREs for the current year consist of new categories of expenditures.
• Whether the QREs adhere to the ASC 730 Directive.

• New Section F:

The new Section F of Form 6765 requires taxpayers to provide detailed information for each business component associated with the computation of the R&D tax credit. Here are some of the questions included in Section F are as follows:

• The descriptive names of business components.
• A description of the information sought and alternatives evaluated during experimentation.
• Whether the business component is new or improved.
• The business component type.
• The use of the business component.

• Location of the Reduced Credit Questions:

The proposed Form 6765 relocates the questions concerning the reduced credit election and controlled groups or businesses under common control to the top of the form for enhanced visibility. This change in layout aims to facilitate easier identification and comprehension of the R&D credit election choices for both the IRS and taxpayers.

Getting Set for Regulatory Compliance

With these changes being implemented for credit claims, businesses must quickly adjust to the new requirements to ensure that documentation practices meet IRS standards. Here are some best practices to help businesses comply with the new requirements:

• Enhance Document Management and Recordkeeping: Centralizing all essential documents in a single, easily accessible location for the team is beneficial in reducing the time spent gathering necessary materials.
• Consistent Documentation Process: Everyone involved in filing for tax credits must be fully aware of the documentation process to ensure consistency.
• Regular Communication with the Team: Have regular communication among the R&D, tax, and finance teams to maintain a consistent method for recording QRAs and QREs.
• Utilization of Technology: Incorporating technology can help streamline the process and improve the accuracy of R&D tax credit claims.
• Consult with Experts: Consult with experts specializing in R&D tax credits for guidance on meeting the new form requirements.
• Stay Updated on Regulatory Changes: Regularly check for any changes in R&D activities to ensure compliance with the IRS.

Gain deeper insights into R&D Tax Credits at our webcast: Maximizing Your Innovation ROI: R&D Tax Credits in 2024 and Beyond