Form 6765 Credit for Increasing Research Activities

Form

6765

Department of the Treasury
Internal Revenue Service
Name(s) shown on return

OMB No. 1545-0619

Credit for Increasing Research Activities
©

2007

Attach to your tax return.

Attachment
Sequence No.
Identifying number

81

Section A—Regular Credit. Skip this section and go to Section B or C if you are electing or previously elected (and are not revoking)
the alternative incremental credit or the alternative simplified credit, respectively.
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Certain amounts paid or incurred to energy consortia (see instructions)
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Basic research payments to qualified organizations (see instructions)
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Qualified organization base period amount
Subtract line 3 from line 2. If zero or less, enter -0Wages for qualified services (do not include wages used in figuring
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the work opportunity credit)
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Cost of supplies
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Rental or lease costs of computers (see instructions)
Enter the applicable percentage of contract research expenses (see
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instructions)
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Total qualified research expenses. Add lines 5 through 8
10
Enter fixed-base percentage, but not more than 16% (see instructions)
11
Enter average annual gross receipts (see instructions)
12
Multiply line 11 by the percentage on line 10
13
Subtract line 12 from line 9. If zero or less, enter -014
Multiply line 9 by 50% (.50)
Enter the smaller of line 13 or line 14
Add lines 1, 4, and 15
No
Are you electing the reduced credit under Section 280C? © Yes

If “Yes,” multiply line 16 by 13% (.13). If “No,” multiply line 16 by 20% (.20) and see the instructions
for the schedule that must be attached. Members of controlled groups or businesses under
common control: see instructions for the schedule that must be attached
Section B—Alternative Incremental Credit. Skip this section if you are completing Section A or C.
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Certain amounts paid or incurred to energy consortia (see the line 1 instructions)
Basic research payments to qualified organizations (see the line 2
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instructions)
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Qualified organization base period amount (see the line 3 instructions)
Subtract line 20 from line 19. If zero or less, enter -0Add lines 18 and 21
Multiply line 22 by 20% (.20)
Wages for qualified services (do not include wages used in figuring
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the work opportunity credit)
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Cost of supplies
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Rental or lease costs of computers (see the line 7 instructions)
Enter the applicable percentage of contract research expenses (see
the line 8 instructions)
Total qualified research expenses. Add lines 24 through 27
Enter average annual gross receipts (see the line 11 instructions)
Multiply line 29 by 1% (.01)
Subtract line 30 from line 28. If zero or less, enter -0Multiply line 29 by 1.5% (.015)
Subtract line 32 from line 28. If zero or less, enter -0Subtract line 33 from line 31
Multiply line 29 by 2% (.02)
Subtract line 35 from line 28. If zero or less, enter -0Subtract line 36 from line 33

For Paperwork Reduction Act Notice, see instructions.

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%

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Cat. No. 13700H

Form

6765

(2007)

Form 6765 (2007)

Page

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Section B—Alternative Incremental Credit (continued)

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Multiply line 34 by 3% (.03)

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Multiply line 37 by 4% (.04)

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Multiply line 36 by 5% (.05)

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Add lines 23, 38, 39, and 40
Are you electing the reduced credit under Section 280C? © Yes

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No

If “Yes,” multiply line 41 by 65% (.65). If “No,” enter the amount from line 41 and see the line 17
instructions for the schedule that must be attached. Members of controlled groups or businesses
under common control: see instructions for the schedule that must be attached

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Section C—Alternative Simplified Credit. Skip this section if you are completing Section A or B.
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59

Certain amounts paid or incurred to energy consortia (see the line 1 instructions)
Basic research payments to qualified organizations (see the line 2
44
instructions)
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Qualified organization base period amount (see the line 3 instructions)
Subtract line 45 from line 44. If zero or less, enter -0Add lines 43 and 46
Multiply line 47 by 20% (.20)
Wages for qualified services (do not include wages used in figuring the
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work opportunity credit)
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Cost of supplies
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Rental or lease costs of computers (see the line 7 instructions)
Enter the applicable percentage of contract research expenses (see
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the line 8 instructions)
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Total qualified research expenses. Add lines 49 through 52
Enter your total qualified research expenses for the prior 3 tax years. If
you had no qualified research expenses in any one of those years, skip
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lines 55 and 56
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Divide line 54 by 6.0
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Subtract line 55 from line 53. If zero or less, enter -0-

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Multiply line 56 by 12% (.12). If you skipped lines 55 and 56, multiply line 53 by 6% (.06)
Add lines 48 and 57
Are you electing the reduced credit under Section 280C? © Yes
No
If “Yes,” multiply line 58 by 65% (.65). If “No,” enter the amount from line 58 and see the line 17
instructions for the schedule that must be attached. Members of controlled groups or businesses
under common control: see instructions for the schedule that must be attached

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Section D—Summary
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Credit for increasing research activities from partnerships, S corporations, estates, and trusts

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Add line 17, line 42, or line 59 (whichever applies) to line 60. Estates and trusts go to line 62;
partnerships and S corporations, report this amount on Schedule K; all others, report this amount
on line 1c of Form 3800
Amount allocated to beneficiaries of the estate or trust (see instructions)
Estates and trusts: subtract line 62 from line 61. Report the credit on line 1c of Form 3800

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Form

6765

(2007)

Form 6765 (2007)

General Instructions
Section references are to the
Internal Revenue Code unless
otherwise noted.

What’s New
The credit for increasing research
activities is not allowed for amounts
paid or incurred after December 31,
2007. However, pending legislation
may allow the credit for later
expenditures.

Purpose of Form
Use Form 6765 to figure and claim
the credit for increasing research
activities.

Who Must File
An individual, estate, trust,
organization, or corporation claiming
a credit for increasing research
activities; or any S corporation,
partnership, estate, or trust that
allocates the credit to its
shareholders, partners, or
beneficiaries must complete this form
and attach it to its income tax return.
If you are a taxpayer that is not a
partnership or S corporation, and
your only source of this credit is from
a partnership, S corporation, estate,
or trust, you are not required to
complete or file this form, with the
following exception: you are a
taxpayer that is an estate or trust and
the credit can be allocated to
beneficiaries. For more details, see
the Instructions for Form 1041,
Schedule K-1, box 13.

Qualified Research
The research credit is generally
allowed for expenditures paid or
incurred for qualified research.
Qualified research means research
for which expenditures may be
treated as section 174 expenses.
This research must be undertaken for
discovering information that is
technological in nature, and its
application must be intended for use
in developing a new or improved
business component of the taxpayer.
In addition, substantially all of the
activities of the research must be
elements of a process of
experimentation relating to a new or
improved function, performance,
reliability, or quality. The research
credit generally is not allowed for the
following types of activities.

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● Research conducted after the
beginning of commercial production.
● Research adapting an existing
product or process to a particular
customer’s need.
● Duplication of an existing product
or process.
● Surveys or studies.
● Research relating to certain
internal-use computer software.
● Research conducted outside the
United States, Puerto Rico, or a U.S.
possession.
● Research in the social sciences,
arts, or humanities.
● Research funded by another
person (or governmental entity).
If you incur qualified clinical
testing expenses relating to drugs
for certain rare diseases, you can
elect to claim the orphan drug credit
for these expenses instead of the
research credit. See Form 8820,
Orphan Drug Credit.
See section 41 and Regulations
sections 1.41-2 and 1.41-4 for other
definitions and special rules.

Special Rules
See section 41(f) and Regulations
sections 1.41-6 and 1.41-7 for
special rules related to:
● Aggregation of expenditures for
members of controlled groups and
businesses under common control;
● Allocation of the credit by
partnerships, estates, and trusts;
● Adjustments, if a major portion of
a business is acquired or disposed
of; and
● Short tax years.
For special rules concerning the
allocation and apportionment of
research and experimental
expenditures between U.S. and
foreign source income, see sections
861 through 864.

Member of Controlled Group
or Business Under Common
Control
For purposes of figuring the credit,
all members of a controlled group of
corporations (as defined in section
41(f)(1)(A) and (f)(5)) and all members
of a group of businesses under
common control (as defined in
section 41(f)(1)(B)), are treated as a
single taxpayer. As a member,
compute your credit based on your

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proportionate share of qualified
research expenses and basic
research payments giving rise to the
group’s research credit for Section
A, B, or C. Enter your share of the
credit on line 17, 42, or 59,
whichever applies. Attach a
statement showing how your share
of the credit was figured, and write
“See Attached” next to the entry
space for line 17, 42, or 59.
For special rules regarding the
election (or revocation of the
election) of the alternative
incremental credit in Section B by a
controlled group of corporations, see
Regulations section 1.41-8.

Specific Instructions
You can:
● Claim the regular credit in
Section A,
● Elect the alternative incremental
credit in Section B, or
● Elect the alternative simplified
credit in Section C.
You may want to figure your credit
using all of the methods for which
you are eligible to get the maximum
credit allowed.
Once elected, the alternative
incremental credit or the alternative
simplified credit applies to the
current tax year and all later tax
years, unless you revoke the
election. The revocation for the
alternative incremental credit must
be made on an original return filed
by the due date (including
extensions). See Regulations section
1.41-8. The revocation of the
alternative incremental credit may
not be made on an amended return.
To revoke a previous election of the
alternative incremental credit,
complete Section A or C.
Section A—Regular Credit
Skip this section and go to Section
B or C if:
1. You are electing the alternative
incremental credit,
2. You are electing the alternative
simplified credit, or
3. You previously elected the
alternative incremental credit or the
alternative simplified credit and are
not revoking the election on this
return.

Form 6765 (2007)

Line 1
Enter the amounts you paid or
incurred to energy research
consortia for energy research.
Energy research does not include
any research that is not qualified
research. In general, an energy
research consortium is any
organization described in section
501(c)(3), exempt from tax under
section 501(a), organized and
operated primarily to conduct energy
research, and not a private
foundation. See section 41(f)(6) for
further details.
Any amount included on line 1
cannot be included elsewhere on the
return.
Line 2
Enter the amounts the corporation
(not to include S corporations,
personal holding companies, and
service organizations) paid in cash,
under a written contract, for basic
research to a qualified university,
scientific research organization, or
grant organization. See section 41(e)
for details, including the definitions
of qualified organizations.
Line 3
Enter the qualified organization base
period amount based on minimum
basic research amounts plus
maintenance-of-effort amounts for
the three preceding tax years. See
section 41(e) for details.
Line 7
Enter the amount you paid or
incurred for the rental or lease of
computers used in qualified
research. The computer must be
located off your premises and you
must not be the operator or primary
user of the computer. Reduce this
amount by the amount that you (or
any member of a controlled group of
corporations or businesses under
common control) received or
accrued for the right to use
substantially identical property.
Line 8
Enter the amounts you paid or
incurred, subject to the following
limitations.
● 100% of amounts you paid (or
incurred) for qualified energy
research performed by: an eligible
small business, a university, or a
federal laboratory (see section
41(b)(3)(D) for definitions of those
entities). Also include payments to

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those same entities to the extent they
are included as basic research
payments in line 2, not to exceed the
base period amount in line 3.
● 75% of amounts you paid (or
incurred) for qualified research by a
qualified research consortium (as
defined by section 41(b)(3)(C)(ii)). Also
include 75% of the payments to a
qualified research consortium to the
extent they are included as basic
research payments in line 2, not to
exceed the base period amount in
line 3.
● 65% of amounts you paid (or
incurred) for all other qualified
research by any other person. Also
include 65% of the payments to that
person to the extent they are
included as basic research
payments in line 2, not to exceed
the base period amount in line 3.
Note. Prepaid contract research
expenses are considered paid in the
year the research is actually done.
Line 10
The fixed-base percentage depends
on whether you are an existing
company or a start-up company.
A start-up company is a taxpayer
that had both gross receipts and
qualified research expenses either:
● For the first time in a tax year
beginning after 1983, or
● For fewer than 3 tax years
beginning after 1983 and before
1989.
The fixed-base percentage for a
start-up company is figured as
follows.
● For the first 5 tax years beginning
after 1993 for which you have
qualified research expenses, the
percentage is 3%.
● For the 6th tax year beginning
after 1993 for which you have
qualified research expenses, divide
the aggregate qualified research
expenses for the 4th and 5th such
tax years by the aggregate gross
receipts for those tax years, then
divide the result by 6.
● For the 7th tax year beginning
after 1993 for which you have
qualified research expenses, divide
the aggregate qualified research
expenses for the 5th and 6th such
tax years by the aggregate gross
receipts for those tax years, then
divide the result by 3.

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● For the 8th tax year beginning
after 1993 for which you have
qualified research expenses, divide
the aggregate qualified research
expenses for the 5th, 6th, and 7th
such tax years by the aggregate
gross receipts for those tax years,
then divide the result by 2.
● For the 9th tax year beginning
after 1993 for which you have
qualified research expenses, divide
the aggregate qualified research
expenses for the 5th, 6th, 7th, and
8th such tax years by the aggregate
gross receipts for those tax years,
then divide the result by 1.5.
● For the 10th tax year beginning
after 1993 for which you have
qualified research expenses, divide
the aggregate qualified research
expenses for the 5th through 9th
such tax years by the aggregate
gross receipts for those tax years,
then divide the result by 1.2.
● For the 11th and later tax years
beginning after 1993 for which you
have qualified research expenses,
divide the aggregate qualified
research expenses for any 5 of the
5th through 10th such tax years by
the aggregate gross receipts for
those tax years.
The fixed-base percentage for an
existing company (any company that
is not a start-up company) is figured
by dividing the aggregate qualified
research expenses for the tax years
beginning after 1983 and before
1989 by the aggregate gross
receipts for those tax years.
The fixed-base percentage for all
companies (existing and start-up)
must be rounded to the nearest
1/100th of 1% (that is, four decimal
places) and cannot exceed 16%. In
addition, when figuring your
fixed-base percentage, you must
reflect expenses for qualified
research conducted in Puerto Rico or
a U.S. possession for all prior tax
years included in the computation.
If short tax years are involved, see
Regulations section 1.41-3(b).
Reduce gross receipts by
returns and allowances.
For a foreign corporation,
CAUTION
include only gross receipts
that are effectively connected with a
trade or business in the United
States (or in Puerto Rico or a U.S.
possession, if applicable).

Form 6765 (2007)

Line 11
Enter the average annual gross
receipts (reduced by returns and
allowances) for the 4 tax years
preceding the tax year for which the
credit is being determined. You may
be required to annualize gross
receipts for any short tax year. For a
foreign corporation, include only
gross receipts that are effectively
connected with a trade or business in
the United States (or in Puerto Rico
or a U.S. possession, if applicable).
Line 17
If you do not elect the reduced
credit, which can only be claimed on
an original timely filed return (with
extensions), you must reduce your
otherwise allowable deduction for
qualified research expenses or basic
research expenses by the amount of
the credit on this line. If the credit
exceeds the amount allowed as a
deduction for the tax year, reduce
the amount chargeable to capital
account for the year for such
expenses by the amount of the
excess. Attach a schedule to your tax
return that lists the deduction
amounts (or capitalized expenses)
that were reduced. Identify the lines
of your return (schedule or forms for
capitalized items) on which the
reductions were made.
Section B—Alternative
Incremental Credit
Complete this section only if, instead
of the regular credit or the
alternative simplified credit:

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1. You are electing the alternative
incremental credit, or
2. You previously elected the
alternative incremental credit and
are not revoking the election on this
return.
Section C—Alternative Simplified
Credit
Complete this section only if, instead
of the regular credit or the
alternative incremental credit:
1. You are electing the alternative
simplified credit, or
2. You previously elected the
alternative simplified credit and are
not revoking the election on this
return.
Section D—Summary
Line 62
Estates and trusts. Allocate the
credit for increasing research
activities on line 61 between the
estate or trust and the beneficiaries
in the same proportion as income
was allocated and enter the
beneficiaries’ share on line 62.
Paperwork Reduction Act Notice.
We ask for the information on this
form to carry out the Internal
Revenue laws of the United States.
You are required to give us the
information. We need it to ensure
that you are complying with these
laws and to allow us to figure and
collect the right amount of tax.

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You are not required to provide
the information requested on a form
that is subject to the Paperwork
Reduction Act unless the form
displays a valid OMB control
number. Books or records relating to
a form or its instructions must be
retained as long as their contents
may become material in the
administration of any Internal
Revenue law. Generally, tax returns
and return information are
confidential, as required by section
6103.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
estimated burden for individual
taxpayers filing this form is approved
under OMB control number
1545-0074 and is included in the
estimates shown in the instructions
for their individual income tax return.
The estimated burden for all other
taxpayers who file this form is
shown below. The estimated
average time is:
Recordkeeping
16 hr., 15 min.
Learning about the law
or the form
2 hr., 22 min.
Preparing and sending the form
to the IRS
2 hr., 45 min.
If you have comments concerning
the accuracy of these time estimates
or suggestions for making this form
simpler, we would be happy to hear
from you. See the instructions for the
tax return with which this form is
filed.