IRS Releases Final Form 6765 for 2024: Key Updates for R&D Tax Credit Filings
On February 10th this year, the IRS released the final version of Form 6765, on which taxpayers claim the Credit for Increasing Research Activities for tax years 2024 and onward. The calculation of the credit under either the Traditional Method in Section A, or the Alternative Simplified Method in Section B, remains the same as in past years. The effect of the 280(C)-election method and the mechanisms for the payroll tax election also remain the same. The significant changes for tax year 2024 filings are:
Added Section E reporting requirements:
- Line 37: Number of total business components (or qualified R&D projects).
- Line 38: Total amount of qualified officer wages.
- Line 39: Acquisitions or dispositions of a majority portion of a trade or business.
- Line 40: Any newly claimed cost categories as current year QREs (i.e. wages, supplies & materials, contractor costs, or computer leasing expenses that have never been claimed as a category in the past).
- Line 41: Election on whether the company determined QREs following the ASC 730 directive; it is recommended that tax preparers and CPAs answer this directly, as third-party providers and consultants may not be privy to such information.
Added Section F is where QREs per cost category now must be reported. This is a presentational change compared to the previous Form 6765.
The most notable update to the Form is Section G, which is not mandatory for taxpayers to populate until tax year 2025. This, much like the prior version of the attached statement for amended research claims, requires that each individual business component be listed. The information sought to be discovered must be briefly described for each business component. In addition, taxpayers must report qualified costs under each eligible category per business component, where qualified wages need to be discerned between direct, supervisory, or support level involvement.
IRS Tightens R&D Credit Reporting Requirements to Combat Fraud
The current and soon to be in effect changes to the Form 6765 emphasize the IRS’ goal to minimize fraudulent or ‘back of the napkin’ R&D credit claims, even with the capitalization requirements under the TCJA still in effect. The extensive reporting around R&D claims requires technical expertise and granular, project-by-project activity and cost analysis, and an understanding of how each and every qualified person contributed to such. As the new administration continues overhaul policy in all capacities, and a repeal to the requirement to capitalize R&D costs under Section 174 is again gaining momentum, the IRS is likely to continue requiring as much up-front reporting as possible on credit claims in order to expedite its screening, reviews and audits of tax returns.
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