On September 15, 2023, the IRS previewed proposed changes to Form 6765 (Credit for Increasing Research Activities) in attempts to solicit feedback from stakeholders in advance of a formal draft release. In response to this, the AICPA provided their feedback to the Commissioner and the Deputy Commissioner of the IRS on these proposed changes.
The key proposed changes were two new sections of additional reporting requirements. Below are the proposed changes by the IRS and the AICPA’s response to those proposed changes.
Section E “Other Information”
Proposed Section E would require taxpayers to respond to new questions relating to the number of business components, amount of officers’ wages, acquisition or disposal of a major portion of a trade of business, new categories of expenditures not previously claimed, and if Directive ASC 730 was followed.
The AICPA requested that the IRS further clarify the proposed Section E to consider a multitude of taxpayer fact patterns as opposed to simply the addition of three “yes” or “no” questions and two amount reporting questions. The AICPA suggested that this would help gather more relevant data for the IRS to prepare a credit claim risk assessment.
Section F “Business Component Information”
Proposed Section F would require taxpayers to report detailed information on the “business component test” associated with their qualified research activities (“QRAs”). This test necessitates that the information derived from research activities be intended for use in developing a new or improved business component. The proposed changes mandate taxpayers to provide detailed information by business component, including:
The AICPA requested that the information requested in Section F be fewer targeted questions with more focused and controlled responses, allowing the IRS higher quality information for risk assessment.
The AICPA also requested that the IRS provide further clarifications and instructions related to Section E and Section F for taxpayers who use statistical sampling to determine qualified research expenditures (“QREs”).
With the IRS considering making these changes effective for the 2024 tax year, it is imperative that taxpayers work to implement information gathering tools as they move forward this year to capture as much of this information as possible on a contemporaneous basis.
Smith + Howard is closely monitoring all administrative guidance released to stay abreast of the latest developments surrounding the proposed changes to Form 6765 and is available to support with a range of research & development tax credit services. To learn more, contact Brad Pittman at email@example.com
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