Note that other sections are still required such as identifying your business components and listing how many business components you incurred during the tax year, reporting total amount of officer wages claimed for the R&D credit and other data to be reported on Form 6765 (similar to the requirements for calendar year taxpayers on 2024 tax returns).

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If you have already filed your 2024 tax return, you can file a ‘superseded’ return which is still considered an original tax return. Important dates: if your company is an S Corporation, Partnership or LLC (any entity with an original due date of 3/15/25) then the superseded return needs to be filed no later than September 15, 2025. If your original due date was 4/15/25 (C Corporations and Sole Proprietorships), then if you choose the superseded return option, that superseded return needs to be filed by 10/15/25. In some cases such as fiscal year filers, the last date to file a superseded return per the Rev. Proc. is 11/15/25.

If you choose this option (deduct R&D costs on either original 2024 return or 2024 superseded return), then you also must file amended tax returns for years 2022 and 2023 to deduct R&D expenses if you had R&D costs on those returns. For the 2022 taxable year, eligible calendar-year small taxpayers are subject to the standard three-year statute of limitations period to file a refund claim. For the 2023 taxable year, taxpayers only have until July 6, 2026, to amend their returns to apply this election. There is a specific statement your CPA needs to file with the returns.

Another option for both small and large businesses (so all taxpayers) is to deduct any remaining amortized R&D costs from 2022-2024 on your 2025 tax return or spread across your 2025 and 2026 tax returns.Because there are several options depending upon your income and tax projections, we strongly recommend that you meet with your CPA or tax preparer soon to review your options for what is best for your particular situation.

If you are not an eligible small business, then this change in the law (OBBB Act) does allow you to start deducting R&D costs again starting with your 2025 tax return for calendar year taxpayers (i.e., no longer a requirement to amortize R&D costs starting with your calendar year 2025 tax return).

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The OBBB Act brings significant changes to how businesses can handle Research & Development (R&D) costs and these changes will affect your 2025 tax returns (for calendar year taxpayers) and offer opportunities for immediate expensing and potential recapture of prior R&D costs.

Immediate Expensing of R&D Costs
Starting with tax years after 12/31/24, businesses can immediately expense all R&D costs. This means that for calendar year taxpayers, these changes apply to 2025 tax year returns.

Benefits for “Small Businesses”
If your business qualifies as a “small business” under the Section 448(c) definition—meaning your average annual gross receipts for the prior three years (generally 2022-2024) are $31 million or less—you can:

Recapture and deduct all previously amortized Section 174 costs on your 2025 tax return. This allows you to claim these expenses that were previously spread out over your amortization schedule.

Benefits for Larger Businesses
Businesses that do not meet the “small business” definition can still benefit by:

Accelerating (deducting) any remaining Section 174 costs in 2025.

Alternatively, these businesses have the option to spread these remaining deductions over two years if preferred.

While these businesses cannot retroactively expense costs already amortized, they can deduct all outstanding amounts as of 2025 (or spread over 2 years).

Software Development Costs
A significant simplification is that software development costs are now explicitly classified as Section 174 items, making them eligible for immediate expensing. This eliminates the need to consult Rev. Proc. 2000-50 and related IRS guidance for these costs, potentially allowing clients to deduct more than previously claimed by a careful review of all software development costs.

Retroactive 280C Election and Amended Returns
The bill allows for a retroactive Section 280C election within one year of the bill’s enactment. This provision enables taxpayers to make changes on amended returns. Notably, businesses, especially small businesses looking to recapture Section 174 expenses, can change their original election decision (revoke a prior election) regarding Section 280C.

Undoubtedly, there will be IRS guidance issued along the way prior to the 2025 tax return season and we will post further updates but the expensing of R&D costs once again is welcome news and should encourage retaining R&D jobs here in the U.S.

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The OBBB Act also requires ERC promoters to comply with due diligence requirements and states a penalty of $1,000 for failing to comply, including excessive refund claims.

There are still constitutional concerns and potentially challenges to barring Q3 and Q4 2021 claims legitimately filed and those challenges may work their way through the courts.

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• New Procedure for Closed Tax Years (2020/2021):
  • Taxpayers receiving Employee Retention Credit (ERC) refunds for prior, closed tax years (2020/2021) who haven’t amended their returns must now include the overstated wage expense amount as gross income in the tax year the refund was received.
  • For example, a 2024 ERC refund related to 2021 wages means the 2021 overstated wages are added to 2024 gross income.
• Options for Open Tax Years:
  • Taxpayers with open tax years can amend their returns, file an Administrative Adjustment Request (AAR), or a protective claim for refund to deduct the wage expense in the year the ERC was claimed.
  • Alternatively, they can choose to report the refund as income in the year it’s received.
• Handling Disallowed ERC Claims:
  • If the IRS disallows an ERC claim, taxpayers who previously reduced wage expenses can increase those expenses on their current tax return by the amount originally reduced, in the tax year the disallowance is finalized.
• Addressing Returned Tax Payments:
  • The IRS clarified that taxpayers whose payments for amended closed year returns were returned can now use those refunded payments to cover the tax liability arising from including the overstated wages in the income of the year they received the ERC refund.

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Key Changes and Their Impact:

The initial draft of the revised form, released in September 2023, led to a round of some changes based on taxpayer feedback where the IRS streamlined the reporting of business components, now requiring taxpayers to detail only those components that account for 80% of their total Qualified Research Expenses (QRE), with a cap of 50 components.However, this still represents a substantial increase in reporting compared to previous years. The new Section G—Business Component Information demands detailed breakdowns of expenses, activities, and software designations for these key components. To ease the transition, Section G will be optional for the 2024 tax year, becoming mandatory in 2025 (for example tax years ending 12/31/25).

Exemptions for Smaller Businesses:

Recognizing the burden on smaller entities, the IRS has provided exemptions. Qualified Small Businesses (QSBs) electing a reduced payroll tax credit and companies with QREs under $1.5 million and gross receipts under $50 million (when claiming the credit on an originally filed return) are exempt from completing Section G.

New Reporting Sections:

The revised form includes:

• Section E—Other Information: Captures data on the number of business components, officer wages, acquisitions/dispositions, and the use of ASC 730 directives.
• Section F—Qualified Research Expenses Summary: Provides a detailed breakdown of total wages, supplies, computer rental/lease costs, and contract research expenses.
• Section G—Business Component Information: Requires detailed reporting on controlled group members, business component names and types, software designations, research objectives, and expense breakdowns by component.

Implications for the 2024 Tax Year:

For the 2024 tax year, companies claiming the R&D tax credit must to complete Sections E and F. While Section G is optional, understanding its requirements is crucial for the mandatory implementation in 2025.These revisions, while intended to improve reporting accuracy, increasing the requirements for claiming the R&D credit. Businesses should familiarize themselves with the new requirements and ensure they have robust data collection processes in place to comply.

The post IRS Revamps Form 6765, Bringing Significant Changes to R&D Credit Reporting Sec. 41 Research Credit Form appeared first on Warner Robinson, LLC.

In 2024, the IRS released a revised Form 6765, which introduces significant changes to the Research Credit reporting process. Key changes include the addition of a new section requiring detailed information about research activities, including business component names, types, and expenses. This new section aims to improve data collection and analysis for the IRS.

While the number of business components required to be reported has been reduced (must report business components on the new R&D form for 80% of your QREs), the revised form still necessitates more detailed information than previous versions. The new reporting requires the name of each business component, the type (product, process, software, etc.) and allocating specific expenses (wages, supplies, computer rental, contract research) to each of the identified business components. The form 6765 also requires a brief description of the type of information sought to be discovered for each business component.

To ease the transition, the IRS has implemented a phased-in approach. Section G, which includes the new business component information, will be optional for tax year 2024 and mandatory for tax year 2025. Certain taxpayers, such as Qualified Small Businesses and those with limited research expenses, are exempt from some of the new reporting requirements. More details from IRS will likely be coming before this new form takes effect for tax years 2025 but companies should ensure their systems and reporting mechanisms are capable of pulling at least some of this information; then with the assistance of your R&D tax credit provider, start collecting and reviewing this information this year for tax year 2024 reporting to be fully ready for this major change next year.

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On the Democratic side, the bill mentioned above was sponsored by Democrats, so they could perhaps introduce that same bill depending upon the composition of Congress after the election. Or they could include the Section 174 issue as part of a separate bill not tied with the child tax credit since that was the controversial issue which killed the bill last time around.

So although there is bipartisan support for restoring immediate expensing and postponing the capitalization requirement for domestic research expenditures. The future of the bill, including the fate of Section 174, depends on the outcome of the upcoming election and the priorities of the new Congress, as well as including in R&D expensing in any budget since originally disallowing expensing of R&D costs was a revenue raiser and currently still is with short term impact of higher taxable income to companies who previously deducted R&D costs.

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The proposed law seeks to delay the application of this rule for research costs related to domestic activities until tax years starting after December 31, 2025, while no change is proposed for activities outside the U.S. While the bill outlines transition rules, no specifics on how to handle R&D costs amortized on a 2022 tax return. Retroactive deductions may require amended returns unless the IRS provides an alternative.

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