Proposed changes to Form 6765 Credit for Increasing Research Activities, also known as the Section 41 research credit or R&D tax credit, are expected to become effective beginning with tax year 2024. The changes to the form, which include the addition of two entirely new sections, are in line with IRS requirements for valid refund claims previously announced in 2021 guidance that went into effect as of January 2022. Taxpayers planning to claim the research credit for 2024 should begin now to analyze and implement processes to gather the information needed for the new reporting requirements in an effort to minimize the burden and impact that will be necessary to comply with these requirements. In addition, taxpayers that have claimed the credit in prior years should be prepared to provide the same support if selected for examination.
The R&D tax credit — generally 20% of qualified R&D spending over a base amount — was established to help U.S. businesses remain competitive in the global market by encouraging long-term investment in innovation within the U.S. Companies across a variety of industries and of all sizes can benefit from the credit. To qualify for the credit, research activities must satisfy specific criteria that can be complicated to navigate and challenging to document. If a business cannot utilize the credit in the current tax year, the credit can be carried back one year or carried forward for up to 20 years.
For more information on R&D credits and qualified expenditures, see BDO’s R&D tax credit FAQs for large and small businesses.