Businesses that claim the Credit for Increasing Research Activities under Internal Revenue Code Section 41 are facing a new compliance requirement: Section G of Form 6765, “Business Component Information,”.
The requirement has been optional, however, it will become mandatory for tax years beginning after December 31, 2025.
What Section G Requires
Section G represents a major change to Form 6765’s reporting framework. Rather than reporting qualified research expenses (QREs) as high-level totals, taxpayers must now itemize QREs on a business-component basis.
For each qualifying business component, wage-related QREs must be broken out into three distinct categories: direct research, direct supervision, and direct support.
Taxpayers required to complete Section G must report business components that represent at least 80% of total QREs, subject to a cap of 50 business components.
For members of a controlled group filing separate returns, the 80% threshold applies to that member’s own QREs rather than the group’s combined total.
The Timeline to Requirement
The IRS first mentioned Section G reporting requirements back in June 2024, initially targeting the 2025 tax year for mandatory compliance.
However, after extensive taxpayer feedback expressing concerns, the IRS pushed the effective date back.
In October 2025, the IRS confirmed that Section G would remain optional for tax years beginning in 2024 and 2025, with a public comment period on the related instructions extended through March 31, 2026.
The IRS released finalized instructions for Form 6765 on February 5, 2026: Section G is optional for all filers for tax years beginning before 2026, and required for tax years beginning after 2025, meaning it applies starting with the 2026 tax year.
Who Is Exempt
Not every filer will need to complete Section G. The finalized instructions carve out exceptions for certain smaller taxpayers, including:
- Qualified small businesses (QSBs) that elect to claim the research credit against payroll tax liability
- Taxpayers whose total QREs determined at the controlled group level are equal to or less than $1.5 million, average annual gross receipts for the prior three tax years are equal to or less than $50 million and are reporting a research credit on an original return
Businesses that don’t clearly fall into one of these carve-outs should assume Section G applies to them.
Why It Matters
This change coincides with other significant developments affecting research expense reporting.
The One Big Beautiful Bill Act introduced new Internal Revenue Code Section 174A, altering how domestic research and experimental expenditures are treated for tax years beginning after December 31, 2024.
Combined with Section G’s business-component detail requirements, the IRS is moving toward a “project-specific disclosure” model designed to give examiners more granular visibility into the basis for research credit claims.