Key changes include :

• Expanded controlled group reporting requirements.
• New instructions for business component detail in Section G.
• Specific guidance for taxpayers using the ASC 730 Directive and statistical sampling to determine QREs.

Timeline

Below is a visual representation of the timeline for the updates related to Form 6765 :

Notable Provisions

1. Controlled Group Reporting: The draft instructions require detailed reporting for each member of a controlled group, including entity identification numbers, QRE categories (wages, supplies, etc.), and the group’s total QREs and credit allocation.
2. Business Component Reporting (Section G): Section G introduces a requirement for taxpayers to report QREs by business component. Taxpayers must provide information on up to 50 business components or 80% of their QREs.
3. Sections E and F Updates:
   • Section E requires additional details on QREs, including the number of business components and officer wages.
   • Section F consolidates QRE categories previously reported in Sections A and B.
4. Guidance for Specific Reporting Scenarios:
   • The draft instructions clarify reporting requirements for taxpayers using the ASC 730 Directive to determine QREs.
   • Guidance for taxpayers using statistical sampling includes attaching sampling plans and labeling sampled business components.
5. New Questions in Section E: Taxpayers must answer new questions related to business acquisitions, new expense categories, and the use of the ASC 730 Directive.

Why This Matters

The draft instructions represent a significant departure from previous reporting requirements, increasing the complexity and burden of compliance for taxpayers claiming the research credit under IRC Section 41. Taxpayers and preparers must familiarize themselves with the new requirements to ensure accurate reporting and avoid penalties. Key challenges include:

• Increased data collection and reporting obligations for controlled groups.
• Complex reporting requirements for business components, which may not align with existing record-keeping practices.
• The need for additional clarity on ambiguous instructions, such as the definition of “new categories of expenses” and the treatment of officer wages.

Next Steps

The IRS’s changes to Form 6765 and its instructions will require significant operational adjustments for taxpayers claiming the research credit. Early preparation and proactive engagement with the IRS through public comments will be crucial in navigating these changes.

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