Key Change: Project‑specific Reporting and Increased Transparency
The finalized Internal Revenue Service (IRS) Form 6765 instructions, released on February 5, 2026, mark the IRS's move to a project-specific disclosure approach. This change from summary reporting to detailed business component disclosures is intended to improve detection of high-risk claims when filed.
Section G: Business Component Information
The introduction of Section G represents the most significant reporting change. It requires taxpayers to itemize qualified research expenses (QREs) by business component, specifically dividing wages into direct research, supervision and support categories.
While originally proposed as a mandate for 2025, Section G remains optional for the 2025 tax year (processing year 2026) but will become mandatory for most filers in 2026. Starting in 2026, taxpayers must report components in descending order of cost until they reach either 80% of total QREs or a cap of 50 components.
Taxpayers who meet the definition of a qualified small business (QSB) and elect to claim the research credit as a payroll tax offset (rather than an income tax credit) are exempt from filling out Section G.
When Section G Applies
To qualify as a QSB, a business must:
- Have less than $5 million in gross receipts for the current tax year.
- Have no gross receipts for any tax year preceding the five-year period ending with the current tax year.
Section G Exemptions
Additionally, taxpayers filing an original return are exempt from Section G if they meet both of the following financial criteria:
- Total QREs must be equal to or less than $1.5 million at the controlled group level.
- Total gross receipts must be equal to or less than $50 million, as determined under Section 448(c)(3).
Section E: Mandatory Qualitative Disclosures
Section E is required for all taxpayers claiming the credit in the current filing season. This section functions as a risk-assessment dashboard for the IRS and mandates the disclosure of the total number of business components generating the credit and the specific amount of officer wages included in the QREs. Additionally, taxpayers must now indicate if they are using the ASC 730 Directive safe harbor or if the claim is related to a business acquisition or disposition during the year.
Section E Line-by-Line Guidance
This is a completely new instruction section (Section E) detailing how to answer broader questions about a taxpayer’s research credit:
- Line 37: Enter the total number of business components generating the QREs reported — not just the ones detailed in Section G.
- Line 38: Report the total officer wages included in QREs (i.e., officers whose compensation was included in qualified research wages).
- Line 39: Yes/No checkbox for whether any QREs relate to an acquisition or disposition during the tax year.
- Line 40: Yes/No checkbox for whether any new categories of expenses were included in QREs this year (e.g., categories not included in base years).
- Line 41: The draft incorporates reporting related to the ASC 730 Directive (accounting standard for research and development (R&D)), including checklist guidance on when ASC 730 treatment applies.
These items did not appear in prior instructions and reflect the IRS’s effort to expand contextual disclosures alongside numeric calculations.
Business Component Information (Detailed Reporting)
The draft provides expanded guidance for Section G (this is the most substantive change), including:
- Detailed breakdowns within Section G columns: The draft uses several new column definitions for QREs by business component, such as:
- QREs incurred by persons engaged in direct performance of research.
- QREs incurred by persons engaged in direct supervision of research.
- QREs incurred by persons engaged in direct support of research.
- Guidance on how to fill out Section G when filing an amended return or an administrative adjustment request (AAR) that includes research credit claims that were not originally reported.
- Specific naming conventions for attachments related to Section G.
Updated Definitions Impacting R&D Tax Credit Claims
The definitions section is updated to include:
Business Component Definition
A business component now has an explicit IRS definition. It is defined as any product, process, software, technique, formula, or invention used in a taxpayer’s trade or business. The instructions provide examples and clarify that plant processes or machinery for commercial production count as separate business components.
Qualified Research and Section 174A Alignment
The draft revises how qualified research is described to explicitly reference Section 174A deductions and tie them to the “four-part test” used under Section 41 (credit rules).
Domestic Research and Experimental (R&E) Expenditures Under IRC Section 174A
The draft now incorporates references to IRC Section 174A (added by P.L. 119-21) and how it affects the definition of QREs and their treatment, including deduction/amortization choices for domestic R&E expenditures.
Qualified Research Expenses Summary
While Section F existed in prior drafts, the updated instructions revise it to tie Section F more closely to Section G, including:
- Explicit references to reporting QREs by business component when both Section F and Section G are completed.
- Clear instructions on how controlled group members should report QRE totals.
Refund Claims and the Extended Transition Period
The research credit claim transition period for amended returns has been extended through January 10, 2027. This extension preserves the 45-day "perfecting" window, allowing taxpayers to remedy deficient refund claims (such as those missing specific component descriptions) before the IRS issues a formal rejection.
The exemption for taxpayers under the $1.5M/$50M threshold applies only to timely filed original returns. If you are filing an amended return to claim a refund, you must provide the project-level details regardless of the size of the business or the number of QREs.
Your Guide Forward
The finalized Form 6765 instructions materially raise the bar for R&D tax credit documentation and disclosure. With mandatory qualitative reporting now in effect and project‑level detail becoming standard for most filers in 2026, taxpayers should treat the upcoming filing season as a readiness exercise, not just a compliance task.
Now is the time to assess whether your current R&D processes, data tracking and documentation can support component‑level reporting.
Reach out to Cherry Bekaert’s R&D Tax Credits team today for help.
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