Section G of Form 6765: R&D Tax Credit Reporting Requirements

The R&D Tax Credit has long been one of the most powerful innovation-driven incentives in the tax code. With the restoration of immediate domestic research expensing under Section 174A through the One Big Beautiful Bill Act (OBBBA), the R&D Credit is likely to see even greater use in the coming filing seasons. While the core eligibility rules and definitions of qualified research expenses (QREs) have not changed, the reporting landscape has shifted, particularly with the introduction of a detailed Section G on the redesigned Form 6765.

For many companies, the R&D Credit has historically been a year-end compliance exercise: gather payroll and expense data, apply a reasonable allocation methodology, and calculate the credit. Section G changes that equation. While Section G was optional for the 2024 and 2025 tax years, many taxpayers will be required to provide detailed project-level data in tax year 2026. Taxpayers and their advisors must determine whether their existing records can support the required level of detail and address any gaps before preparing the 2026 R&D Credit claim.

Why the IRS Added Section G to Form 6765

Over the past few years, courts have pushed the IRS on the level of specificity required for R&D credit refund claims. In Harper v. United States, the IRS challenged a taxpayer’s refund claims for lacking sufficient detail. Still, the court declined to accept the IRS’s after-the-fact specificity argument, even after the original Form 6765 was satisfied and the IRS began examining the claim. Responding to this dynamic, the IRS released Memorandum 20214101F, instructing IRS agents to reject R&D Credit refund claims that do not include:

• Clear identification of all business components to which the credit claim relates.
• For each element, a description of research activities, the individuals involved, and the necessary information.
• A breakdown of qualified wage, supply, and contract research expense amounts.

While the required information has evolved since its initial release, this guidance effectively previewed the changes now in Section G of Form 6765.

Who Must Complete Section G

While all taxpayers should expect heightened scrutiny, Section G is not required for everyone. Beginning with tax year 2026, taxpayers with less than $1.5 million in QREs and under $50 million in gross receipts, as well as those electing to apply the credit against payroll taxes, are not required to complete Section G. For larger taxpayers and those with more complex R&D portfolios, Section G is now a non-negotiable element of compliance.

 

Why Section G Matters for CPAs and Taxpayers

The primary challenge is no longer preparing for a future reporting requirement. It is determining whether taxpayers can support the information they must report for tax year 2026. Taxpayers who cannot tie their wage, supply, and contract research expenses to specific projects risk delayed or denied claims. Some approaches taxpayers have used in the past, such as relying on percentages of cost of goods sold, applying blanket allocations for scrap, or using high-level estimates, will not withstand scrutiny.

How to Prepare for 2026 R&D Tax Credit Reporting

The compliance burden is real, but smart systems can manage the work. The key is to integrate R&D tracking into existing business processes rather than layering it on at year-end. For the 2026 tax year, companies should assess available information, close gaps where possible, and implement improved tracking for the remainder of the year. Practical steps include:

• Identify business components contemporaneously. Taxpayers should create and maintain a current list of projects that qualify as business components during the year.
• Revisit methodologies. The Cohan rule still allows for estimates, but only when supported by credible evidence that research actually occurred. Unsupported percentages will not suffice.
• Employee tracking: Allocate wages through time records or supported estimates. For companies without time-tracking systems, establish a cadence for logging research efforts contemporaneously. For staff engaged in multiple projects, weekly or biweekly logs may make sense. For those focused on only one or two projects, monthly or quarterly documentation may be sufficient. Tailor the methodology to the business.
• Contemporaneous documentation: Encourage employees to keep notes, design documents, or progress reports during the year. This provides audit protection and makes year-end compilation easier.
• System enhancements: If expenses are currently booked to a general R&D account, consider adding a field in the accounting system to tag costs to specific projects.

By building project-level tracking into the fabric of operations, companies can reduce compliance costs while strengthening their credit claims.

What are the Risks of Noncompliance with Section G

The stakes for ignoring Section G are high. Claims that lack sufficient detail could be denied. More importantly, filing inadequate information could trigger prolonged examinations, delay refunds, and create additional administrative burdens. With the IRS having flagged R&D credits as an area of heightened scrutiny, taxpayers cannot afford to treat Section G lightly.

For CPAs, this creates both a challenge and an opportunity. The challenge is to help clients establish robust methodologies now, before year-end. The opportunity is to position your firm as a proactive advisor, helping clients not just claim credits but build sustainable processes that maximize benefits while minimizing audit risk.

The Bottom Line about Section G

The R&D credit remains one of the most valuable incentives in the tax code, particularly as Section 174 expensing once again makes innovation-driven investment more attractive. But taxpayers should not assume that prior practices will suffice going forward. Section G of Form 6765 raises the bar, requiring project-level detail and careful allocation of QREs.

Companies that take steps now to implement workable tracking systems will be well-positioned to claim stronger, more defensible credits in 2026 and beyond. For CPAs, the message is clear: this is not just about filling out a form; it’s about helping clients rethink how they capture, document, and support their innovation efforts.