Section G: Why R&D Tax Credit Claims Are Getting More Complicated

Claiming research and development (R&D) tax credits will get more complex in 2026 as more involved reporting requirements take effect.

The IRS unveiled the overhauled Form 6765, Credit for Increasing Research Activities, for the 2024 tax year, but the most onerous part of the new form, Section G, has been optional — until now. Beginning with the 2026 tax year, Section G is now required for taxpayers with more than $1.5 million in qualified research expenses (QREs) or more than $50 million in average annual gross receipts, signaling the IRS’s shift away from accepting a high-level overview of research activities and toward requiring in-depth, business-component-specific reporting.

These heightened reporting requirements will give the IRS more information to scrutinize your R&D tax credit claim. Plus, enforcement has only been growing; the U.S. Tax Court has already seen several high-profile R&D tax credit cases this year alone. Taken together, it’s more important than ever to have accurate reporting backed by documentation.

Here’s what you need to know about new reporting requirements for the R&D tax credit.

What’s New in Section G 

Section G requires taxpayers to report QREs on a business-component basis rather than on a companywide basis. A business component is the product, process, software, technique, formula, or invention that the research is intended to develop or improve.

For each business component, taxpayers must report the following details:

• Identification information about the controlled group member
• A narrative explanation of the information sought to be discovered
• The type of software, if the business component is software
• Wage QREs split into direct research, direct supervision, and direct support categories
• A QRE breakdown by wages, supplies, rental or lease of computers, and contract research

Taxpayers must report business components in descending order of cost until they reach either 80% of total QREs or 50 components. Any remaining components are reported in aggregate.

2 Exceptions to Section G Reporting

Section G becomes mandatory for tax years beginning after 2025 for most filers. However, these two groups will not have to fill out Section G:

• Qualified small businesses that elect a reduced payroll tax credit
• Taxpayers with QREs of no more than $1.5 million and gross receipts of no more than $50 million (measured at the controlled group level), on an originally filed return

It’s worth emphasizing that the second exception does not apply to amended returns. Any taxpayer filing an amended return to claim the R&D credit must complete Section G, regardless of whether they’d otherwise qualify for the exemption.

What You Can Do Now To Prepare for Section G Reporting

Section G poses a significant new compliance burden for businesses with robust R&D activities. And given the recent uptick in IRS enforcement activity, R&D tax credit claims built on anything except contemporaneous documentation are increasingly exposed.

For businesses claiming the R&D tax credit, now is the time to ensure data collection and documentation processes capture all the information needed to comply with Section G when it becomes mandatory in tax year 2026 (for calendar-year taxpayers, that means returns filed in 2027). Here are some ways an R&D tax credit advisor can help businesses prepare:

• Categorize business components according to Internal Revenue Code rules
• Build procedures to track qualifying wages, supplies, and contract research costs in real time
• Track and manage your progress toward the exemption thresholds for filling out Section G ($1.5 million in QREs or $50 million in gross receipts)

Smith + Howard: Your Partner in Section G Compliance

With Section G becoming mandatory for tax year 2026, R&D businesses need to take steps now to ensure they have the right documentation practices in place.

Smith + Howard’s Specialty Tax Services team helps businesses map business components, structure contemporaneous documentation, and build R&D credit studies that hold up to IRS scrutiny. Whether you’re claiming the credit for the first time or preparing for the new Section G requirements, our advisors help you substantiate every dollar of the credit you’re entitled to.

Reach out to Jackson Moore to start a discussion about your R&D tax credit claims.