In 2024, the Internal Revenue Service (IRS) issued revised Form 6765, “Credit for Increasing Research Activities,” and related instructions that taxpayers can use to claim the R&D tax credit. After requesting taxpayer comments on multiple drafts of the form and instructions, the IRS considered this feedback in the most recent version, yet it continues to solicit feedback on the Form 6765 instructions through March 31, 2026.
The most significant change to the form, as compared to prior years, is the reporting of “business component information,” an area that taxpayers are frequently asked to provide upon IRS examination but haven’t been required to report on the Form 6765 when filing the tax return for an initial credit claim. Many taxpayer comments expressed concern regarding this additional information being required to file the form, resulting in a delay in this particular requirement until the 2026 tax year.
Here’s a summary of how we got to this point, a look at the current changes, and thoughts on some open questions and the potential impact of the new form on initial claims for the credit.
IRS concerns with fraudulent R&D tax credit refund claims
In 2021, in an attempt to curb what the IRS perceived as an increase in fraudulent claims for refunds based on the R&D tax credit, the IRS imposed expanded documentation requirements on amended returns that included a new or modified claim for this tax benefit. It seems likely that officials felt this program was a success, resulting in the current form changes which will require additional supporting documentation for R&D credits claimed on timely filed tax returns.
New information requested and other changes on the new Form 6765
Compared to previous versions of the form, the new Form 6765 includes changes and expanded information requirements. For starters, the reduced credit election under Internal Revenue Code (IRC) Section 280C and the reporting for controlled group filers have been moved to the top of the form for greater visibility. The calculation of the credit under Sections A, B, and C, as well as the qualified small business payroll tax election and the payroll tax credit election under Section D, remain significantly similar to previous versions of the form. From there, the form expands into greater detail to support claims for the credit, such as:
- Section E — Other Information — requires information, including:
- The number of business components generating qualified research expenditures (QREs).
- The amount of officer’s wages included in the calculation of “total wages for all business components.”
- Acquisitions and dispositions of major portions of a trade or business.
- New categories of expenditures included in the calculation of current year QREs.
- Indication of whether reliance on the ASC 730 directive was used (this allows taxpayers with audited financial statements to start with financial statement amounts for research expenses and adjust to conform with federal tax rules).
- Section F — Qualified Research Expenses Summary — requests new information like:
- An analysis of whether the taxpayer must complete Section G on business component information in order to determine which Section F reporting procedures to follow.
- Total wages, supplies, contract research expenses, and rental/lease cost of computers across all business components.
- The applicable amount of all basic research payments.
In addition, the new form includes Section G, which asks for a business component-level breakout of the total costs reported in Section F, by wages, supplies, computer rental or lease costs (typically cloud hosting services for development environments), and contract research expenses. It also requests a written explanation regarding the type of research being performed, which was concerning for many taxpayers. However, taxpayers expressed relief in October 2025 when the IRS announced that the requirement to complete Section G would be deferred until the 2026 tax filing year.
- Section G – Business Component Information — requests detailed information on each business component that the taxpayer is required to report, including:
- The EIN of each controlled group member conducting the activities.
- Each controlled group member’s principal business activity code.
- The business component name or alphanumeric identifier.
- The business component type.
- The software type (if applicable).
- The information that the research sought to discover.
- Direct research wages for qualified services.
- Direct supervision wages for qualified services.
- Direct support wages for qualified services.
- A column for total wages related to qualified services.
The value in preparing for future Section G reporting requirements now
Although the additional Section G reporting isn’t mandatory until the 2026 tax year, taxpayers should prepare now. The revised Form 6765 signals the IRS’ expectation that taxpayers can substantiate their qualifying research activities at the time a claim is filed. Gathering these details early allows taxpayers to proactively build sustainable processes before increased reporting becomes a requirement.
Collecting Section G information now enables taxpayers to develop a deliberate approach to identifying business components. Key considerations include:
- Identifying the appropriate business component type (e.g., product, process, software, technique, formula, invention).
- Applying a consistent annual methodology:
- Identifying aspects of a product, process, or software that independently meet the four-part test.
- Combining interrelated subcomponents into a single business component where appropriate.
- Applying shrink-back principles in a practical and defensible manner.
Having an early focus on Section G encourages taxpayers to build repeatable internal processes to gather the requisite information and support R&D credit claims. Integrating this focus into business operations reduces reliance on retrospective estimates. This may include how to identify qualified employee time whether you use project-based employee time tracking or time allocations to identify time spent performing qualified research activities related to qualified business components. Building a process to identify and maintain project lists that map projects to business components throughout the year will significantly improve documentation.
Furthermore, Section G reporting emphasizes the importance of capturing information while it’s current. Establishing a regular cadence for data collection helps ensure documentation is accurate and complete. Taxpayers should consider:
- Documentation retention policies that ensure information is readily available and that it’ll be maintained for the appropriate time frame.
- Centralized digital storage for technical documents and project records.
- Preserving informal documentation such as internal communications (emails, chats, design notes, etc.) that evidence uncertainty and experimentation.
By beginning to gather this information proactively, taxpayers can establish repeatable processes, align internal teams, and ensure critical details are captured while they’re readily available. When the Section G requirements become mandatory, taxpayers who have taken these steps will be positioned to submit R&D credit claims with complete, consistent, and well-supported information, reducing disruption, minimizing risk, and avoiding the need to prepare documentation under time pressure. Starting now can help transform burdensome Section G reporting from a last-minute compliance exercise into a manageable, well-documented R&D process.
With the IRS ramping up documentation and reporting requirements to substantiate initial and amended claims for the R&D tax credit, it’s clear that annual R&D studies are key to support those claims and effectively document business components and QREs.
