On September 15, 2023, The IRS released a preview of proposed changes to Form 6765, Credit for Increasing Research Activities. Some of the proposed changes are in response to feedback regarding previous versions of Form 6765, while others would require taxpayers to provide more detailed information when claiming the research credit.
The IRS released this preview in order to solicit feedback from stakeholders in advance of the official Form 6765 release. If these changes are implemented, the IRS states they will be effective beginning with the 2024 tax year.
The proposed changes include:
- Section E - five questions seeking miscellaneous information, including identifying the number of business components generating the credit and the amount of officers’ wages that have been included as qualified research expenditures
- Section F - comprehensive and detailed reporting requirements for qualitative and quantitative information for each business component, required under Section 41 of the Internal Revenue Code.
- Moving the reduced credit election under Section 280C election and the identification of whether the taxpayer is a member of a controlled group or business under common control from lines 17 and 34 to the top of Form 6765.
The proposed changes are intended to:
- Provide taxpayers with a consistent and predefined format for tax reporting.
- Improve information received for tax administration.
- Build upon ongoing efforts to manage research credit issues and resources in the most effective and efficient manner possible.
Additionally, the IRS is requesting feedback on whether Section F of Form 6765 should be optional for certain taxpayers including those with:
- Qualified research expenditures less than a certain dollar amount at a controlled group level,
- Research credit less than a certain dollar amount at a controlled group level; or
- Claim Qualified Small Business for the Payroll Tax Credit.
The release clarifies that even if Section F were optional for certain taxpayers, it would not affect the requirement to maintain supporting documentation. Section F information should be readily available in a similar format, if requested, and would not apply to amended returns for the research credit.
The IRS is requesting feedback for each suggested change to Form 6765, potential Section F items, and any questions regarding the proposed changes. Feedback and questions on the proposed changes are to be submitted to Lbi.email@example.com with the subject line: "Feedback/Questions F6765" by Oct. 31, 2023. Any and all comments submitted by the deadline will be taken into consideration before any changes are finalized and implemented for Form 6765.
The IRS expects that the potential changes to the form will ultimately help the agency accomplish some of the objectives in its Inflation Reduction Act Strategic Operating Plan. The IRS annually receives thousands of returns from taxpayers claiming the Research Credit. To provide effective tax administration for this area, the IRS must ensure taxpayers understand what is required to support claiming the Research Credit.
Chief Counsel Memorandum CCM 2021410F was released in October 2021, outlining the requirement for taxpayers to provide additional detail on refund credit claims. These requirements included identification of business components to which the Research Credit claim relates for the tax year, identification of all research activities performed, identification of the individuals who performed each activity as well as the information sought to discover for each employee.
While there had previously been uncertainty as to whether the Chief Counsel Memorandum applied to timely filed tax returns with a refund for the Research Credit or only to amended refund claims, the new proposed sections in Form 6765 clarify that this information is to be provided on all research credit claims.
This further emphasizes the necessity of taxpayers to maintain contemporaneous documentation and complete a detailed annual research credit study to ensure all required qualitative information is documented and maintained for the research credit, in addition to calculating a credit and placing it in the tax return.
Please contact your Mazars professional for additional information.
Ryan Vaughan, Partner
Andrew Kosoy, Senior Manager
Kayla Cancel, Senior
The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.