In September 2023, the IRS released information about their proposed changes to Form 6765, the “Credit for Increasing Research Activities”, which businesses must file when claiming their Federal R&D Tax Credit. 

The proposed form asks for more detailed accounting of your qualified expenses, which will make the process of filing even more time-consuming and stringent. A newly introduced Section E will feature five questions, while the proposed Section F will require taxpayers to report both quantitative and qualitative information for each qualified business component. 

This kind of granular information used to only be required by the IRS during an audit; this change would mean that tax strategy and the collection of internal data will be all the more pressing for innovative businesses who plan to claim the hugely advantageous R&D credit they’re entitled to. 

We'll dive into the specifics of what you'll need to collect, collate, and share in order to file for an R&D credit should the proposed form be adopted, but the big takeaway is this: accuracy, supported by quantifiable data, has become essential for those filing for the R&D credit. 

Luckily, Neo.Tax’s automated filing LLM connects directly to your project-management and payroll & GL software to create a data-backed filing that already meets the proposed higher IRS standard. And best of all, you can be confident that your R&D credit filing is backed by contemporaneous data and audit-ready.

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Here’s what you’ll need to report in the newly added Section E and Section F should the proposed form be adopted:

Section E

You must include the amount of:

1. Business components that generate the credit
2. Officers’ wages included in QREs

And you must answer whether you:

1. Acquired or disposed of a major portion of a trade or business
2. Identified any new categories of expenditures in the current year that had not been included in the base year
3. Determined any of the QREs following the ASC 730 directive

Section F

In Section F, you’d need to provide the controlled group member’s name, employee identification number, and principal business activity code as well as the following information for each business component (in all likelihood, this information would be a substantial attachment, similar to the R&D Tax Credit Study that Neo.Tax already automatically creates for taxpayers):

• A description of the information sought to be discovered and the alternatives evaluated in the process of experimentation (using space provided).
• Whether the business component was new or improved.
• Business component type (product, process, computer software, technique, formula, or invention).
• Business component use (sale, lease, license, or used by the taxpayer).
• Software type, if applicable. 
• A breakdown of QREs for each business component by direct research wages, direct supervision wages, direct support wages, supplies, and contract research expenses.

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For controllers, accountants, or Heads of Tax attempting to file R&D credits the old-fashioned way, this change will add countless hours and may lead to an entirely new methodology of how QREs are identified and collected throughout the tax year. But, for those ready to simplify the process, just get in touch with a tax expert at Neo.Tax. 

We’ve used machine learning to streamline the process, replacing After-the-Fact Interviews with calculations based on Contemporaneous Data, just as the IRS prescribes. The R&D credit is a hugely valuable tool to incentivize innovation; we’ve innovated the way you can claim it.