The IRS has officially postponed mandatory Section G reporting on Form 6765, the form used to claim the Research & Development (R&D) Tax Credit. This update gives businesses additional time to adjust their documentation processes and prepare for the more detailed disclosures that will soon be required. Finding the right provider for your R&D tax service needs has never been more critical.
What Is Section G?
Section G is the newest part of Form 6765, designed to improve transparency around how taxpayers calculate and support their R&D credits. It asks for detailed, component-level information that many companies have not historically needed to report directly to the IRS.
Taxpayers will be required to disclose:
- Business components — a description of each product, process, software, or formula being claimed.
- Qualified Research Expenses (QREs) — a breakdown of wages, supplies, and contract research by business component.
- Within the wage category, taxpayers must go a step further — distinguishing between Direct, Supporting, and Supervisory research activities. This level of categorization can be challenging, even for companies that track time meticulously, and will likely require a deeper analysis of roles and project structures.
- Supporting documentation — details on experimentation, uncertainty, and technological elements tied to each component.
These changes are intended to streamline IRS reviews and reduce audit disputes by clarifying what qualifies under the R&D credit rules.
Revised Timeline and Relief Periods
Initially, Section G was expected to be mandatory beginning with Tax Year 2025. However, under updated guidance (IR-2025-99), the IRS has extended the relief period by one additional year:
| Tax Year | Section G Status | Notes |
| 2024 | Optional | Initial relief announced in IRS Bulletin IR-2024-171 |
| 2025 | Optional | Extended relief under IRS Release IR-2025-99 |
| 2026 | Mandatory | Applies to most filers except certain small businesses and low-QRE filers |
Who Is Exempt in Tax Year 2026?
Section G will not apply to:
- Qualified Small Businesses (QSBs) electing the payroll tax credit under IRC §41(h)(3).
- Taxpayers meeting all of the following thresholds:
- Qualified Research Expenses ≤ $1.5 million
- Gross receipts ≤ $50 million
- Filing an original return (not amended)
These exemptions are designed to ease the burden on smaller taxpayers while still pushing larger filers toward more detailed documentation.
What Businesses Should Do Now
Even though Section G won’t be mandatory until Tax Year 2026, the additional year offers a valuable window to prepare.
Recommended next steps:
- Begin drafting business-component narratives. Identify each product, process, or software element that forms the basis of your R&D credit claim.
- Organize QRE tracking systems. Align internal accounting and payroll data to map directly to business components.
- Review existing documentation. Ensure you can substantiate the four-part test (qualified purpose, elimination of uncertainty, process of experimentation, and technological in nature).
- Coordinate with your tax advisor. Work closely with your CPA or R&D tax specialist to align your documentation approach with the upcoming Section G format.
- Stay current on IRS updates. The IRS is expected to issue updated instructions and draft Form 6765 guidance in January 2026, which may include electronic filing updates or clarifications on exemptions
Looking Ahead
The IRS’s decision to delay Section G is more than just a compliance reprieve — it’s a signal that the agency intends to increase scrutiny on R&D claims in future years. Businesses that use the next twelve months to tighten documentation processes will be better positioned for smoother filings and reduced audit exposure once Section G becomes mandatory.
At Tri-Merit, we’ve been anticipating this shift for some time. In fact, our R&D documentation system, built and implemented in 2023, already meets every Section G requirement. So while others are getting ready, our clients are already there.
