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September 21, 2023

IRS previews proposed changes to Form 6765 and requests comments

  • The previewed changes to Form 6765, Credit for Increasing Research Activities, would significantly increase in the amount of information requested, as compared to the current form, and could pose a burden for all taxpayers.
  • For the first time, the Form 6765 would request information that appears related to a taxpayer's qualification, not quantification, of the credit.
  • Although one of the IRS's stated goals in requesting additional information is to make tax reporting more consistent, some of the new information being requested is open to interpretation, and may lead to inconsistent responses.
  • The previewed changes to Form 6765 are intended, when the form is published in final form, to be effective beginning with the tax year 2024.

The IRS has issued a preview of proposed changes to Form 6765, "Credit for Increasing Research Activities," which taxpayers must file to claim the research credit under IRC Section 41. According to the press release announcing the preview, the proposed changes are intended to make tax reporting more consistent, improve the information received for tax administration and build on ongoing efforts to manage resources in an effective and efficient manner. The IRS is considering making the proposed changes effective beginning with tax year 2024.

Proposed changes

Updated Sections A and B

The proposed changes would update Sections A and B by moving the "reduced credit" election question and the "member of a controlled group or business under common control" question to the top of the form.

New Section E

The IRS would add a new Section E with five questions seeking information on:

  • The number of business components generating the credit
  • The amount of the officers' wages included in wages for qualified services
  • Whether the taxpayer acquired or disposed of any major portion of a trade or business
  • Whether the taxpayer identified any new categories of expenditures included in the current qualified research expenses (QREs)
  • Whether the taxpayer determined any of the QREs on line 9 or line 28 following the Accounting Standards Codification (ASC) 730 Directive

Regarding the question on new categories of expenditures, the IRS stated it is seeking that information because of consistency requirements (if a taxpayer included new categories or recharacterized categories of expenditures in the current year, the taxpayer must include those expenditures in the base year when calculating the research credit).

EY insight: Some of the information sought in Section E might be helpful to the IRS in risk-assessing a return with a research credit claim or identifying the resources that would be required to examine a return. For example, acquisitions or dispositions of trades or businesses may influence the base year QREs, as annualization or de-annualization of a base year's costs may be necessary. This exercise can be complex, particularly when the tax years are not identical.

The explanation for new Section E did not provide information about which "officers'" wages are covered in Line 46. Different business types may use different terms to identify "officers" or executives of the business, and more clarity would be useful if the IRS wants the information reported by taxpayers to be comparable (for risk assessment). Additionally, without greater context about the roles of the "officers" or the size of the business, the amount of officers' wages included as QREs does not provide a reliable indication of risk. For example, if the two founders of a biotech start-up are performing all the research and development activities for the company, and have the titles of President and CEO, the fact that 100% of the wage QREs are "officers' wages" would not indicate risk. The repeal of IRC Section 174(e)'s limitation on unreasonable research expenses, furthermore, reduces the likelihood that a taxpayer's answer to this question would be helpful to assess risk, as wage amounts are limited only by Treas. Reg. Section 1.41-2(d)(1) (IRC Section 41 does not have an independent "reasonableness" requirement).

Similarly, the explanation of new Section E did not provide a definition for the term "new categories of expenditures." The phrase is vague and open to different interpretations, which will result in inconsistent responses. For example, if the taxpayer did not incur any supply costs (or did not have any supply costs that were QREs) in the previous tax year for which a credit is taken, but in the current year incurs supply costs that are QREs, the taxpayer could conclude that supplies are a "new category of expenditures," even though they would not be QREs in the prior year.

Similarly, if a taxpayer included wages from Department A as QREs in the prior year but includes wages from Department A and Department B in the current year as QREs, a taxpayer could determine that Department B's wages are not a "new category of expenditures," because "wages" were included in the prior year. Additionally, if the taxpayer acquired a trade or business, would the acquired trade or business' expenditures be "new categories"? As expressed in the preview document, the IRS's intent in asking about "new categories" relates to the consistency requirement (i.e., the statutory and regulatory requirement for the base period QREs to be consistent with the credit year QREs). An affirmative answer to this question, however, does not provide any information about whether a taxpayer has adjusted the base period QREs to account for any "new categories" or recharacterization of costs that are included as QREs in the credit year. This question does not seem to fulfill the purpose of assessing the risk that the taxpayer did not adjust its base period for expenditures included as QREs in the credit year but not in the base years.

New Section F

The proposed changes include a new Section F, which would require reporting for each business component generating the credit on lines 50 through 57. Specifically, Section F would require the following:

  • The business component's descriptive name
  • A description of the information sought to be discovered and the identification of one or more alternatives evaluated in the process of experimentation
  • Whether the business component is new or improved
  • The business component type (i.e., whether the business component is a product, process, computer software, technique, formula or invention)
  • The business component's use (i.e., sale, lease, or license or used by the taxpayer in a trade or business)
  • The identification (if the business component is computer software) of what category of computer software it is (e.g., internal use software (IUS), non-IUS, dual function software, or software excepted from IUS treatment)

EY insight: Line 50(c) asks for the business component's descriptive name. Many companies do not use descriptive naming conventions, but numeric or other conventions to identify development efforts. As a result, the IRS should clarify that the business component's name should reflect how the taxpayer identifies the business component for its own purposes.

Line 50(d) requests a description of the information sought to be discovered and the identification of one or more alternatives evaluated in the process of experimentation, but requests the information to be given in "the space provided." Given the limited space provided, it may be difficult for taxpayers to provide the level of detail requested by the IRS.

The draft form provides specific response options that must be used for certain items in Section F. Section F also would require taxpayers to enter the sum of all wages, supplies, the rental or lease cost of computers and contract research on lines 58 through 61. Taxpayers would have to complete the business component totals for the specific expense on lines 58, 59, 60, 63 and 64 and then enter those totals on lines 5 through 9 of Section A or lines 24 through 28 of Section B, depending on which credit methodology the taxpayer is using.

EY insight: The information sought in Section F is similar to information sought by the IRS for amended return research credit refund claims, based on Field Attorney Advice (FAA) 20214101F (published October 15, 2021). FAA 20214101F advised that, to evaluate whether a refund claim related to the IRC Section 41 research credit met the specificity requirement in Treas. Reg. Section 301.6402-2(b)(1), and is therefore a valid claim, the IRS needed to receive five pieces of information with the amended return. The five pieces of information include (1) the identification of each business component to which the credit claim relates, (2) all research activities performed, (3) the identity of all individuals who performed each research activity, (4) the information each individual sought to discover, and (5) the total qualified employee wage expenses, total qualified supply expenses and total qualified contract research expense for the claim year. See Tax Alerts 2021-2063 and 2022-0090 relating to the FAA.

The information requested for Section F, lines 58-64 duplicates information that taxpayers currently report on lines 2 and 5-9 of Section A or Lines 19 and 24-28 of Section B of Form 6765. It is unclear why this information is needed in Section F, but presumably instructions to the form will clarify the purpose of this duplication.

If a taxpayer is eligible and chooses to follow the ASC 730 Directive, the taxpayer would be required to report the "'Adjusted ASC 730 Financial Statement R&D QRE Amounts' as a single business component and identify it as 'ASC 730.'"

EY insight: The ASC 730 Directive referenced in the preview of proposed changes to Form 6765 is an administrative solution to allow the IRS to accept, as sufficient evidence of QREs under IRC Section 41, certain amounts of research and development expenditures reflected on the taxpayer's financial statements (a taxpayer's Adjusted ASC 730 Financial Statement R&D, as defined in the ASC 730 Directive). The ASC 730 Directive is, therefore, an alternate means of identifying QREs that the IRS apparently finds reliable. See Tax Alert 2020-2323 relating to the ASC 730 Directive.

In light of the proposed changes to Form 6765 and the additional reporting burden for research credit claims that do not rely on the ASC 730 Directive, taxpayers may want to consider if the ASC 730 Directive applies and provides a less burdensome method for calculating and reporting the research credit.


The IRS requests comments on whether Section F should be optional for certain taxpayers (specifically small taxpayers). The IRS, however, clarifies that making Section F optional "would not affect the requirement to maintain books and records and to provide Section F information in similar format, if requested."

Comments should be submitted to with the subject line: "Feedback/Questions F6765" by October 31, 2023.


The proposed changes to Form 6765 will increase the compliance burden on most taxpayers, and significantly increase the amount of data that a taxpayer sends to the IRS with an original return. The detailed nature of the information requested suggests that the IRS intends to use Form 6765 as a risk-assessment tool or to conduct a "pre-audit" of the taxpayer's research credit. These detailed requests seem better suited for the subject matter of information document requests (IDRs), after an examination has begun. Some taxpayers may be unable to complete Form 6765, as the requested information could be proprietary or information subject to non-disclosure under the terms of their contracts (for example, under a government contract). The preview of the proposed changes to Form 6765, however, makes no exception for these circumstances. Additionally, taxpayers generally would not keep records of research activities and costs in the manner identified in the proposed Form 6765.

The specific response options identified for Section F of the proposed Form 6765 assume that there is only one answer for each business component; that, for example, a business component that is a "product" cannot be developed to be used by a taxpayer in its own trade or business and licensed to another party.

Neither the preview of the proposed changes to Form 6765 nor the press release mention how a taxpayer using statistical sampling that complies with the requirements of Revenue Procedure 2011-42 would report all the requested information for business components that are not sample units selected for evaluation. Additional clarification for taxpayers that use statistical sampling would be helpful.

This preview of the proposed changes to Form 6765 will be followed by a formal release of the draft Form 6765, and subsequently the release of the form for taxpayer's use. Although the changes to Form 6765 are anticipated to be made to a form for use in the 2024 tax year, the nature and volume of the comments received could cause the IRS to reevaluate the need for all the information requested and delay a formal release. Comments relating to circumstances under which the information in Section F should not be required would be particularly important, as those were specifically requested.


Contact Information
For additional information concerning this Alert, please contact:
National Tax – Accounting Periods, Methods, and Credits
   • Alexa Claybon (
   • Craig Frabotta (
   • Josh Perles (
   • Rayth Myers (

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor