On September 15, the IRS unveiled a proposed revision to Form 6765, which is used to report research credit claims on both original and amended tax returns. The revised form is published on the IRS website. According to the IRS press release accompanying the revised form, the revisions "will provide taxpayers with a consistent and predefined format for tax reporting and improve the information received for tax administration. They will also build on ongoing efforts to manage Research Credit issues and resources in the most effective and efficient manner possible."
There are several changes proposed to Form 6765. The most significant of these is a new Section F, which mandates considerable additional detail never before required on Form 6765 and requires taxpayers to list every business component as to which they claim a research credit. As to each business component, taxpayers would have to include detailed information, including a narrative "information sought to be discovered" and the identification of "one or more alternatives evaluated in the process of experimentation." These requirements largely track the requirements for research and experimentation (R&E) refund claims that the IRS sought to impose in audits of such refund claims through the October 15, 2021 Chief Counsel memorandum. The IRS the imposed these requirements by amending the instructions to Form 6765 to mandate inclusion of this information, but for refund claims only. Our prior coverage of the R&E Chief Counsel memorandum and revisions to the Form 6765 instructions can be found here. The proposed revised form will impose these new requirements on refund claims on original and amended returns.
If adopted, these new requirements will impose a considerable burden on taxpayers, particularly large enterprises with considerable investments in R&E. The burden on those taxpayers, with potentially thousands of business components, is potentially immense. This burden may disincentivize taxpayers from engaging in critical research activities, thereby defeating the very purpose of the section 41 credit. The IRS requested comments on the proposed form by October 31, 2023.
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