The R&D Credit has long been a
big boost for companies involved across several STEM fields such as engineering,
biology, computer science, and many others. Companies who incur Qualified
Research Expenses (QREs) such as wages, supplies, and contractors relating to
qualifying research have been able to use it as a healthy offset to tax
liability and in certain instances, payroll taxes.
Based on newly proposed reporting
requirements, The R&D Credit Form 6765 will likely undergo significant
changes in the 2024 tax year. The
proposed changes are intended to improve the information received by the IRS
and should assist the IRS in meeting goals relating to improved transparency
and processing more accurate claims.
Companies will be required to
provide more specific information for the expenses being claimed. Companies
will be required to provide specific information for each “Business
Component”, which can be defined as any product, process, invention,
computer software, technique, or formula which is to be held for sale, lease,
license, or used in trade or business.
For example, a software developer
is building a pipeline of three innovative and distinct products. Each product
would be deemed a separate business component, and therefore the associated
QREs should be reported by each product per the new reporting requirements. In
the event the software developer creates a substantial upgrade or enhancement,
that could and likely would be an additional and separate business component.
In addition to the quantitative reporting, there are also qualitative reporting
requirements included with the newly proposed form.
For each business component, the
IRS’s proposed changes will require additional information that was not
previously required to be reported in such form:
–
Total number of business components
–
Total officers compensation included
–
The type(s) of business component
–
Whether the business component is new or improved
–
A description of the information sought to be discovered
–
The business component’s use
–
Qualifying wages by type (supervision, support, research)
We are meeting with clients daily
regarding the proposed R&D credit form changes as well as R&E
capitalization requirements which were introduced recently in 2022. To ensure
2024 returns are timely filed, we strongly encourage clients to be prepared to
provide this information accurately and concisely for filings due in 2025. The
best time to get ahead of the curve is now and our team is available to assist
with your questions.
Jeffrey Berlowitz, Audit & Tax Senior at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.