Navigating New IRS Changes: Key Updates & Requirements for the R&D Tax Credit

Part I: Changes to IRS Form 6765

On June 21, 2024, the IRS released a new draft version of Form 6765, Credit for Increasing Research Activities, also known as the R&D Tax Credit. Proposed to take effect for 2024 tax filings, the draft is a move aimed to synchronize the requirements for original filings with requirements previously added to amended claims for refund in October 2021. With the new draft form, it is becoming increasingly clear that the IRS is pushing to enhance the accuracy and transparency of research credit claims.

Here’s what you need to know:

Effective for 2024 tax returns, requirements for original filings:

1. Identify Business Components accounting for 80% of Qualified Research Expenses (but no more than 50 Business Components) to which the Section 41 research credit claim relates for that year. 
2. For each business component, identify:
   1. Direct Research Wages for Qualified Services
   2. Direct Supervision Wages for Qualified Services
   3. Direct support Wages for Qualified Services
   4. Total Qualified Wages (sum of 50, 51, 52)
   5. Cost of Supplies
   6. Rental or lease cost of computers
   7. Applicable amount of contract research expenses

Previously, to claim the R&D tax credit on an original filing, taxpayers only needed to provide categorized expenses of qualified wages, supplies, rental or lease costs of computers, contractor costs, and the base period calculation, reported on Form 6765. However, beginning with the rollout of the new draft form, the IRS will require significantly more detailed information

Part II: Updated Requirements for R&D Refund (amended) claims:

In the fall of 2021, the IRS Office of Chief Counsel mandated additional documentation requirements for valid R&D refund claims. Specifically, in a memorandum issued on October 28, 2021, the IRS outlined strict criteria requiring taxpayers to provide additional information pertaining to the R&D activities being claimed. In order to have submitted a valid R&D claim for refund, a taxpayer must:

1. Identify all the business components to which the I.R.C. § 41 research credit claim relates for that year.
2. For each business component:
   • Identify all research activities performed;
   • Identify all individuals who performed each research activity; and
   • Identify all the information each individual sought to discover.
     
3. Provide the total qualified research expenses which include:
   • Employee wage expenses;
   • Total qualified supply expenses; and
   • Total qualified contract research expenses for the claim year.

On June 18, 2024, the IRS announced that it is waiving two of the previously required Chief Counsel Memorandum requirements.

Waived Requirements for Amended Claims for Refund

1. The names of the individuals who performed each research activity and
2. The information each individual sought to discover. The IRS is making this change after significant experience with the Research Credit refund claims process.  

These adjustments are effective for R&D credit claims for refund postmarked June 18, 2024, onward. The IRS also provided a reminder that waived items may still be requested during IRS audits.

The Impact on Businesses

The IRS’ proposed changes to Form 6765 are significant, but they also offer an opportunity for businesses to reassess their current claims and internal processes. By partnering with Omega Accounting Solutions, you can ensure that you are submitting a claim that maximizes your claim while simultaneously prioritizing transparent and meticulous audit support. Reach out to us today to learn how we can assist you in navigating these new requirements with confidence.

For more information or to schedule a consultation, contact us at Omega Accounting Solutions.