The IRS recently issued significant updates to Form 6765 - Credit for Increasing Research Activities, used to claim the federal credit for increasing research activities. With a focus on improving transparency and compliance, these changes will go into effect for the tax year 2025. Taxpayers claiming the Research & Development (R&D) Tax Credit will need to provide much more detailed documentation than in prior years, particularly related to qualified research expenses (QREs), employee roles, and business components.

At Trout CPA, we encourage taxpayers and business leaders to familiarize themselves with these changes and take steps now to prepare.

What’s New in the Updated Form 6765?

The IRS released a draft of the revised form in late 2024, followed by new draft instructions in early 2025. The redesigned form brings a higher level of scrutiny to R&D claims. Businesses will now need to categorize wages and directly tie them to specific research activities and business components—an effort that may require significant process changes.

Here’s a closer look at the key changes.

A New Pre-Section A Summary

Form 6765 now includes a short summary section before Section A, containing two previously embedded questions:

• Are you electing the reduced credit under Section 280C?
• Are you part of a controlled group or group under common control?

While these questions aren't new, their placement emphasizes their importance and ensures clearer, quicker identification by the IRS.

Section E: Expanded Questions, Greater Insight

Several new questions appear in Section E, each of which may prompt deeper review:

• Officer Wages: The IRS now requires taxpayers to disclose whether officer wages are included in QREs. Since the term “officer” depends on state law, companies should clarify designations in advance.
• Trade or Business Acquisitions/Dispositions: If your company bought or sold a significant part of a trade or business during the year, this must now be disclosed.
• New Expense Categories: If a new type of cost is included in the current year’s QREs, it could trigger additional review. Taxpayers should document methodology updates and be prepared to explain any changes.
  
  

Section G: A Major Shift in Reporting Requirements

Section G is arguably the most complex change on the revised form. It introduces strict reporting around business components and associated research activities.

Who Needs to Complete Section G?

Section G is required unless you are a qualified small business, and you claimed a reduced payroll credit or your gross receipts are under certain thresholds ($50 million with some nuances).

Key Highlights:

• 80%/Top 50 Rule: Companies must report either all business components that make up at least 80% of their total QREs or their top 50 business components, whichever is fewer.
• Business Component Details: For each component, companies must provide:
  • Employer Identification Number (EIN) of the research-performing entity
  • Principal Business Activity (PBA) code
  • Component name or unique identifier
  • Component type (product, process, etc.)
  • Whether it involves software development
  • Description of the research purpose (Section 41(f) requirement)

• Breakdown of Wages: Wages now must be segmented into:
  
  • Researchers performing the work
  • Supervisors overseeing the research
  • Employees supporting the research

This level of granularity is unprecedented and may require companies to update or create time-tracking systems that differentiate by role and task.

Why Is the IRS Making These Changes?

The IRS has placed increasing emphasis on the importance of detailed, contemporaneous documentation for R&D credit claims. These revisions align with recent court decisions and IRS guidance, reinforcing the need for companies to demonstrate that "substantially all" of the research effort meets the definition of qualified research under IRC Section 41.

This can be particularly challenging for supervisory and support roles, which is why the new form requires a more detailed wage allocation.

How Businesses Can Prepare

Getting ready for the 2025 tax year means starting now. Here are a few tips from our tax professionals at Trout CPA:

• Review current R&D documentation and processes
• Implement or upgrade time-tracking tools to capture data by role, activity, and project
• Train key personnel on new documentation standards and IRS expectations
• Start R&D studies earlier than in previous years—these changes may extend the timeline

While these updates bring additional complexity, they also provide an opportunity to strengthen your R&D credit processes and ensure long-term compliance. At Trout CPA, our tax professionals are closely monitoring IRS guidance and are ready to assist clients with planning, documentation, and credit calculation strategies under the new requirements.

Have questions or need help navigating the new Form 6765?
Contact us today to speak with one of our tax experts.