An Update to the Research & Development Credit (Form 6765) Changes

The IRS has issued an update to previously announced changes to the Research & Development Credit Form 6765. Schedule G of the form will require taxpayers claiming the Research & Development credit to report more specific information about expenses being claimed as individual “Business Components.” Business Components are defined as any product, process, invention, computer software, technique, or formula that is to be held for sale, lease, license, or used in trade or business. 

For the tax year 2024, Schedule G, as recently proposed, will now be optional for all taxpayers instead of mandatory as previously announced. For tax year 2025 and forward, the Business Component Information schedule is required, however, there are some exceptions.

A taxpayer is not required to file Schedule G if either of the following criteria are met:

  • The taxpayer meets the Qualified Small Business test of less than $5 million gross receipts in the current tax year and no gross receipts in the preceding 5 years, or
  • Qualified Research Expenditures (“QREs”) are equal to or less than $1.5 million in the current year and equal to or less than $50 million of gross receipts.

Another exception is for taxpayers that follow ASC 730, have GAAP Certified Audited Financial Statements, and file a Schedule M-3 with their tax return. In this situation, the taxpayer may report all QREs as a single business component. 

Additionally, the IRS has relaxed the amount of business components required. Taxpayers should report 80% of total QREs but no more than 50 business components. Additionally, the IRS eliminated the requirement to include information about whether a business component is new/improved or a sales/license/lease. The narrative describing the information sought to be discovered requirement has also been removed for original returns. The narrative is still a requirement for amended returns claiming the R&D Credit.

To ensure that the preparation process runs smoothly for 2024 returns, we strongly encourage clients to be prepared to provide this information accurately and concisely for filings due in 2025. We will continue to monitor future proposals or changes to the form. Our team is available to assist should you have any questions or concerns. 

Elijah Wendel, Audit & Tax Associate 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.

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