What Form 6765 Instructions Don't Tell You About Claiming R&D Tax Credit

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Posted by Randy Eickhoff on Oct 20, 2023 1:10:49 PM

Using IRS Form 6765 to claim the research and development (R&D) tax credit can feel like a complex, overwhelming process for business owners and even financial professionals who don’t specialize in this credit. Form 6765 requires careful attention to detail and a thorough understanding of the guidelines provided in the instructions to properly complete the document. However, there are also several important insights that may be unclear or not explicitly detailed in the instructions. 

At Acena Consulting, we understand that navigating the nuances of Form 6765 can mean the difference between a successful claim — and a denied one. Here are a few considerations to keep in mind that the instructions on Form 6765 may not tell you. 

The Importance of Documentation

One key aspect that the Form 6765 instructions may not make clear is the importance of proper documentation. The instructions do mention the need for documentation; however, it may not be enough to highlight how critical it is to maintain comprehensive and detailed records of your business’s research and development activities. Filing the form without thorough documentation could result in a claim that lacks the substantiation to support your expenses and activities. 

At Acena Consulting, we know that keeping track of project descriptions, time logs, technical documents, and financial records is essential when filing. This documentation not only supports your claim during the initial filing but also serves as a valuable resource in the event of an audit. Our R&D tax professionals emphasize the importance of documentation and help our clients manage it to help the process move as smoothly as possible. 

The Eligibility of Activities

Beyond needed documentation, Form 6765 instructions may also not fully emphasize the eligibility of business activities. The form guidelines give an overview of general criteria, but it may not be enough to identify all specific activities that qualify for the R&D tax credit. Many business owners assume that only cutting-edge or groundbreaking inventions qualify for eligibility. However, this is not the case. The R&D tax credit can also apply to software development, process enhancements, and even things like iterative improvements. Understanding that eligible activities can include a wide range of efforts, processes, and procedures can ensure qualifying businesses optimize their claim and don’t miss out on an earned financial advantage. 

Proper Project Classification

Form 6765 instructions also may not effectively underscore how important it is to properly classify every project. When organizing the information, it’s critical to categorize research and development projects as either “qualified research” or “disqualified research.” Incorrect or inaccurate project classification can skew calculations and potentially put the entire claim at risk. Carefully and strategically assessing each project’s technical uncertainty and process of experimentation can ensure accurate classification and reinforce the overall claim. 

Potential to Amend Prior Returns

One thing that may be missed in the instructions for Form 6765 is the potential to amend prior returns. Businesses that missed earned R&D tax credits from previous years can amend past returns and retroactively claim overlooked credits. Consulting with a tax professional that specializes in R&D tax incentives, like Acena Consulting, can ensure you provide all required documentation when amending your previous returns.

Contact Acena Consulting Today

At Acena Consulting, we understand that no matter how detailed Form 6765 instructions are, there’s a lot to know when claiming the research and development claim. We can help. Schedule a call with our team of R&D tax professionals today to learn more. Be sure to download our free R&D tax credit calculator to see what your business may be missing out on. 

Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.