IRS Reporting and the R&D Tax Credit: Compliance Changes in 2025

The federal Credit for Increasing Research Activities for research and development (R&D) provides a dollar-for-dollar decrease in tax liability and incentivizes American businesses’ investment in innovation. Qualifying new companies can offset payroll taxes for up to five years using a maximum of $1.25 million in total credits.

However, a dynamic governmental landscape currently surrounds this credit. Significant legislative discussions and new Internal Revenue Service (IRS) reporting requirements shape its application in 2025 and beyond.

The Amortization Hurdle and Push for Full Expensing

Since Jan. 1, 2022, a significant point of contention between U.S. businesses and Congress has been a legislative change mandating them to amortize domestic and international R&D expenses over five and fifteen years, respectively, instead of fully expensing them in the year incurred. This shift – provided for in 2017’s Tax Cuts and Jobs Act (TCJA) – increased the after-tax cost of R&D and decreased the present value of deductions. These changes underlie concerns about decreased American competitiveness and stifled innovation.

Recent congressional action may reverse this change. H.Con.Res.14, which aims to restore full expensing for domestic R&D investments, was passed in April 2025 and analyzed by the nonpartisan Congressional Budget Office (CBO). While it does not change the law directly, this resolution sets the stage for potential reconciliation that could reintroduce immediate expensing.

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• Legislative action: 
  • There are strong pushes to restore full expensing for domestic R&D from 2025 through 2029 in the Committee on Ways and Means and the United States Senate Committee on Finance as they draft reconciliation bills.
• Retroactivity: 
  • An open question remains whether future legislation will apply backward to 2022, allowing businesses to amend prior returns and claim refunds for previously amortized R&D costs. While it would provide significant tax relief, this retroactivity would carry significant cost.

Stricter Reporting Requirements for 2025

Businesses claiming the R&D tax credit face significantly stricter IRS reporting requirements in 2025. These changes, mandatory for tax years beginning after Dec. 31, 2024, for businesses with greater than $1.5 million in qualified research expenses (QREs), aim to enhance transparency and ensure proper substantiation of claims.

Key changes to the reporting Form 6765 include:

• Detailed business-component reporting: 
  • Businesses must break down expenses by specific business components (e.g., products, processes, or computer software) and link costs to these developments.
• Enhanced disclosure: 
  • Companies must describe in greater detail the technological information sought, the uncertainties involved, and the process of experimentation (PoE) underlying each R&D project.
• Wages categorization:
  • Stricter wage classification requires separating direct R&D labor from supervisory and supporting roles.
• Section G mandating:
  • Section G, which requires extensive documentation of qualified research activities (QRAs), is now mandatory for certain businesses.

The Enduring Value of the R&D Tax Credit

The coming months will prove pivotal for the R&D tax credit. Amortization of R&D expenses continues to burden many American businesses, although legislative advocacy to restore full expensing offers hope. In the meantime, companies must prioritize robust documentation and work closely to ensure compliance with new, stricter IRS reporting requirements. 

Businesses should prepare now. Schedule a free consultation today to receive immediate assistance from Randy Eickhoff, CPA, Founder & Head Coach at Acena. 

Stay Informed

Want to learn more about qualifying and documenting activities for R&D tax credits?

• Register for our free, monthly webinar, next scheduled on June 17: “Cracking the (Tax) Code for R&D.”

  • This workshop provides one CPE credit for professionals who are keeping up with continuing education.

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Edited by Laura Whittenburg, MSBME, Sr. Technical Writer at Acena Consulting. Photo courtesy of Grand Canyon NPS on Flickr.