The IRS has taken significant steps to reduce the burden on taxpayers claiming the Credit for Increasing Research Activities, commonly known as the Research Credit, by releasing a revised draft of Form 6765 on June 21, 2024. This update follows the initial draft released in September 2023 and is based on feedback from various stakeholders.
Optional Reporting for Section G
One of the most notable changes in the new draft is the optional reporting of Section G – Business Component Information. This section, previously referred to as Section F in the 2023 draft, will now be optional for:
- Qualified Small Business (QSB) taxpayers who elect to claim a reduced payroll tax credit by checking the box in Section D of Form 6765.
- Taxpayers with total qualified research expenditures (QREs) equal to or less than $1.5 million and gross receipts of $50 million or less during the current tax year.
This change aims to reduce the compliance burden on smaller entities and those with lower research expenditures.
Reduction in Reporting Requirements
The revised draft also simplifies the reporting requirements for Section G:
- Number of Business Components: Taxpayers are now required to report 80% of total QREs in descending order, but no more than 50 business components. This is a significant reduction from the original draft.
- Detail Reduction: The amount of information required at the business component level has been decreased. The IRS has eliminated the need to report whether a business component is new or improved, its status regarding sale/license/lease, and the narrative requirement describing the information sought to be discovered.
- Simplified Selections: The options for the type of business component have been reduced, and the definitions for officers, controlled group reporting, and business component descriptive names will be clarified in the form’s instructions.
Implementation Timeline
The revised Section G will be optional for all filers for the tax year 2024, providing a transitional period for taxpayers to adjust to the new format. It will become mandatory for the tax year 2025.
Background and Stakeholder Feedback
The IRS's decision to revise Form 6765 stems from a September 2023 preview of proposed changes, which included the introduction of a new Business Component Detail section. This preview was shared to solicit feedback from the public on whether the detailed reporting should be optional for certain taxpayers. The feedback highlighted concerns about the increased complexity and reporting burden, prompting the IRS to reconsider and simplify the form.
Conclusion
The IRS's updated draft of Form 6765 reflects a commitment to easing taxpayer burden while maintaining effective tax administration. By incorporating stakeholder feedback and making strategic changes to the reporting requirements, the IRS aims to create a more manageable process for taxpayers claiming the Research Credit. This revised draft marks a significant step towards a balanced approach that supports both compliance and taxpayer convenience.
