IRS Extends R&D Section G Implementation and Refund Claim Transition Deadlines

In Brief:

• The IRS announced relief for businesses claiming the R&D tax credit, including delayed reporting and an extended transition period for refund claims.
• Section G reporting on Form 6765 will remain optional through March 31, 2026, giving companies more time to prepare for project-level documentation requirements.
• Section G reporting is expected to become mandatory for certain taxpayers beginning with tax year 2026 (tax years ending after 12/31/2026), while some smaller taxpayers may continue to have optional reporting.
• The IRS extended the transition period for perfecting R&D refund claims to January 10, 2027, maintaining the ability to fix deficiencies within 45 days after IRS notification.
• Companies should evaluate whether they’ll be subject to the enhanced requirements and consider implementing tracking systems now to capture business-component and expense-level detail.

The IRS recently made two important announcements impacting businesses claiming the Research & Development (R&D) tax credit. Formally announced in IR-2055-99, the agency delayed the requirement to comply with Section G reporting requirements. This means taxpayers will not yet be required to provide descriptions of research activities or detailed information on qualified research expenses until 2026. In addition, it was also announced there would be a 45-day extension to the transition period for perfecting R&D claims. The combination of the two provides meaningful relief to taxpayers facing more stringent filing requirements. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

Section G Reporting: Optional Extension Through March 31, 2026

Section G reporting extension will now remain optional for all taxpayers through March 31, 2026 versus this upcoming tax filing season for 2025. In addition, the IRS has -re-opened the window for receiving feedback for the draft Form 6765 to March 31, 2026. Beginning with tax year 2026 (or tax years ending after 12/31/2026), Section G reporting will be mandatory for certain taxpayers, but is still optional for taxpayers that (1) are eligible to elect to reduce payroll tax with the credits or (2) those with less than $1.5 million research expenses and $50 million or less gross receipts. This means that businesses now have additional time to prepare tracking systems to capture the project-level R&D detail required for Section G. Specifically, documenting expenses by business component (or project) and then reporting the percentages of research wages that are conducting the research, or direct supervision or support of the research activities.

Refund Claim Transition Period: Extended to January 10, 2027

In addition, the IRS once again has extended the transition period for perfecting R&D refund claims to January 10, 2027. This extension allows taxpayers 45 days to correct or supplement a refund claim with additional detail when claiming a R&D tax credit on an amended tax return. As a reminder, as of June 18, 2024, these requirements include:

• Identification of all business components related to the credit for the year the refund is claimed. This needs to include: (1) The business component (or project) number and (2) name and (3) then which category (i.e. product, process, formulation, technique, software, invention) applies under IRC Section 41(D)(2)(B).
• For each project, a summary of the research activities performed.
• The total qualified wages, supply costs, and contract research expenses for the claim year. If there is a change from a previous amount claimed, it needs to include the original amount claimed and additional amounts claimed. This can be included as a table or by attaching the Form 6765.

We’re here to help

The recent announcement provides welcome relief. However, the new reporting rules mean companies should proactively evaluate how they may be affected. In some cases, it is practical to start tracking and qualifying expenses now in preparation for the enhanced requirements. If you have questions about the information outlined above, or need assistance claiming the R&D credit, JLK Rosenberger can help. For additional information, call 972-931-6803 or click here to contact us. We look forward to speaking with you soon.