Credit for Increasing Research Activities

Instructions for Form 6765

Department of the Treasury
Internal Revenue Service

(Rev. December 2020)

Credit for Increasing Research Activities
Section references are to the Internal Revenue Code unless
otherwise noted.

Future Developments

For the latest information about developments related to
Form 6765 and its instructions, such as legislation enacted
after they were published, go to IRS.gov/Form6765.

Reminder

General Instructions

See section 41 and Regulations sections 1.41-2 and
1.41-4 for other definitions and special rules.

Purpose of Form

Use Form 6765 to figure and claim the credit for increasing
research activities (research credit), to elect the reduced
credit under section 280C, and to elect to claim a certain
amount of the credit as a payroll tax credit against the
employer portion of social security taxes.
Partnerships and S corporations must file this form to
claim the credit. All others are generally not required to
complete or file this form if their only source for this credit is a
partnership, S corporation, estate, or trust. Instead, they can
report this credit directly on Form 3800, General Business
Credit. The following exception applies: 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
Schedule K-1 (Form 1041), box 13.
Note. Corporations filing an amended return to claim a credit
or refund of the research credit, see Notice 2008-39, 2008-13
I.R.B. 684, available at IRS.gov/irb/
2008-13_IRB#NOT-2008-39 , for information on where to file.

Definitions
The research credit is generally allowed for expenses paid or
incurred for qualified research. Qualified research means
research for which expenses 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. All of
the research activities must be applied separately with
respect to each business component of the taxpayer. The
research credit generally isn’t allowed for the following types
of activities.
• 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.

Nov 18, 2020

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.

Tax rate. The graduated corporate tax structure was
replaced with a flat 21% corporate tax rate.

Qualified Research

• Surveys or studies.
• Research relating to certain internal-use computer

Eligible Small Business (For Purposes of
Offsetting AMT Only)
An eligible small business is:
• A corporation whose stock isn’t publicly traded,
• A partnership, or
• A sole proprietorship.

The average annual gross receipts of the corporation,
partnership, or sole proprietorship for the 3-tax-year period
preceding the tax year of the credit can’t exceed $50 million.
Gross receipts for any tax year must be reduced by returns
and allowances made during the year. Any reference to your
business also includes a reference to any predecessor of
your business. If your business wasn’t in existence for the
entire 3-year period, base your average annual gross
receipts on the period your business existed. Also, if your
business had a tax year of less than 12 months, your gross
receipts must be annualized by multiplying the gross receipts
for the short period by 12 and dividing the result by the
number of months in the short period.
Note. Gross receipts must meet the definition under section
448(c)(2) and (3) and Regulations section 1.448-1T(f)(2)(iv).
Member of controlled group, business under common
control, or affiliated group. For purposes of the gross
receipts test, all members of a controlled group of
corporations (as defined in section 52(a)) and all members of
a group of businesses under common control (as defined in
section 52(b)) are treated as a single person; and all
employees of the members of an affiliated service group (as
defined in sections 414(m) and (o)) shall be treated as
employed by a single person.
Treatment of partners and S corporation
shareholders. A partner or S corporation shareholder can’t
be treated as an eligible small business unless both the
partnership or S corporation and the partner or S corporation
shareholder meet the gross receipts test as discussed under
Eligible Small Business, earlier, for the tax year that the credit
is treated as a current year general business credit.

Cat. No. 13701S

• Adjustments, if a major portion of a business is acquired or
disposed of; and
• Short tax years.

Qualified Small Business (Payroll Tax Credit
Election)

A qualified small business is a corporation (including an S
corporation) or partnership with:
1. Gross receipts of less than $5 million for the tax year,
and
2. No gross receipts for any tax year before the
5-tax-year period ending with the tax year.

For special rules concerning the allocation and
apportionment of research and experimental expenses
between U.S. and foreign source income, see sections 861
through 864.

Member of Controlled Group of
Corporations or Group of Trades or
Businesses Under Common Control
(Controlled Group)

Any other person may be considered a qualified small
business if the person meets the requirements of (1) and (2)
above, taking into account the aggregate gross receipts
received in all the trades or businesses.
The term “gross receipts” for purposes of determining
whether your business is a qualified small business means
gross receipts as determined under section 448(c)(3)
(without regard to subparagraph (A) thereof) and Regulations
sections 1.448-1T(f)(2)(iii) and (iv). The definition of gross
receipts under section 41(c)(6) and Regulations section
1.41-3(c) doesn’t apply for this purpose. Any reference to
your trade or business also includes a reference to any
predecessor of your trade or business. Also, if your trade or
business had a tax year of less than 12 months, your gross
receipts must be annualized by multiplying the gross receipts
for the short period by 12 and dividing the result by the
number of months in the short period.

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 trades or
businesses under common control (as defined in section
41(f)(1)(B) and Regulations section 1.41-6(a)(3)(ii)) are
treated as a single taxpayer. Use Section A or B to figure the
credit for the entire group. As a member, your credit is
determined on a proportionate basis to your share of the
aggregate qualified research expenses for increasing
research activities taken into account by the group for the
research credit. Enter your share of the credit on line 17 or
line 34, whichever applies. Attach a statement showing how
your share of the credit was figured, the name and employer
identification numbers or taxpayer identification numbers of
the other members of the group, and the designated
member. Write “See Attached” next to the entry space for
line 17 or line 34.

A qualified small business doesn’t include a tax-exempt
organization under section 501.

Payroll Tax Credit Election

The payroll tax credit election is an annual election made by
a qualified small business specifying the amount of research
credit, not to exceed $250,000, that may be used against the
employer portion of social security liability. The credit is the
smallest of the current year research credit, an elected
amount not to exceed $250,000, or the general business
credit carryforward for the tax year (before the application of
the payroll tax credit election for the tax year). The general
business credit carryforward limitation doesn’t apply to
partnerships or S corporations. The election must be made
on or before the due date of the originally filed income tax
return (including extensions). An election can’t be made for a
tax year if an election was made for 5 or more preceding tax
years. The election made by a partnership or S corporation is
made at the entity level. Any election to take the payroll tax
credit may be revoked only with the consent of the IRS. For
more information about the payroll tax credit, see Notice
2017-23, 2017-16 I.R.B. 1100, available at IRS.gov/irb/
2017-16_IRB#NOT-2017-23.
Claiming the credit on employment tax return. A
qualified small business that elects to claim the payroll tax
credit will claim the payroll tax credit against the employer’s
portion of social security tax on its employment tax return for
the first quarter that begins after it files the return reflecting
the payroll tax election. See Notice 2017-23 for more
information. A qualified small business claiming the payroll
tax credit on its employment tax return must complete Form
8974 and attach the completed form to the employment tax
return.

If a member of a controlled group has filed its return using
a method different from that of the designated member, then
that member should file an amended return to conform to the
designated member's method.
A member of a controlled group can’t make an alternative
simplified credit (ASC) election in a tax year on an amended
return if any member of the controlled group for that tax year
previously claimed the research credit using a method other
than the ASC on an original or amended return for that year.
For additional rules regarding the election (or revocation of
the election) of the ASC in Section B by a controlled group of
corporations, see Regulations section 1.41-9.
For purposes of the reduced credit election, a member of
a controlled group may make the election under section
280C(c)(3). However, only the common parent (within the
meaning of Regulations section 1.1502-77(a)(1)(i)) of a
consolidated group may make the election on behalf of the
members of a consolidated group.
For purposes of the payroll tax credit election, all
members of the same controlled group are treated as a
single taxpayer. Thus, the aggregate gross receipts of all
members of such a group must be taken into account in
determining whether a business is a qualified small business.
Also see Qualified Small Business, earlier. In addition, a
member of such a group may not make a payroll tax credit
election if the member (or any other member of the member’s
group) has made a payroll tax credit election for 5 or more
preceding tax years.

Special Rules

Each member of a controlled group separately makes the
payroll tax credit election. The amount that each member of
the group can separately elect is limited to the least of (a) the
electing member’s allocable share of the group credit
(determined under the rules discussed above); (b) the

See section 41(f) and 1.41-7 for special rules related to:
• Aggregation of expenses for members of controlled
groups and businesses under common control;
• Allocation of the credit by partnerships, estates, and trusts;
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electing member’s allocable share of the $250,000 amount;
or (c) in the case of an electing member other than a
partnership or S corporation, the amount of the electing
member’s business credit carryforward under section 39
carried from the tax year (determined before the application
of the payroll tax credit election for the tax year). The
$250,000 amount is allocated to each member of the group,
regardless of whether all members of the group make the
payroll tax credit election, on a proportionate basis to each
member’s share of the aggregate of the qualified research
expenses taken into account for the tax year by the group for
purposes of the credit.

maintenance-of-effort amounts for the 3 preceding tax years.
See section 41(e) for details.

Specific Instructions

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 those
same entities to the extent they are included as basic
research payments on line 2, not to exceed the base period
amount on 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 on line 2, not to exceed
the base period amount on 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 on line 2, not to exceed the base
period amount on line 3.

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 mustn’t 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

You can:
• Claim the regular credit in Section A, or
• Elect the alternative simplified credit (ASC) in Section B.
You may want to figure your credit using both of the methods
for which you are eligible to get the maximum credit allowed.
Once elected, the ASC applies to the current tax year and all
later years. A current tax year's ASC election may not be
revoked. You may revoke the election for a later tax year by
completing Section A relating to the regular credit and
attaching the Form 6765 to your timely filed (including
extensions) original return for the year to which the
revocation applies. See Regulations section 1.41-9(b)(3).
After figuring your credit, you can elect to treat a portion of
the credit as a payroll tax credit. Complete Section D to
determine the payroll tax credit portion. Taxpayers other than
partnerships and S corporations must complete Form 3800
before completing Section D.

Note. Prepaid contract research expenses are considered
paid in the year the research is actually done.

Section A—Regular Credit

Line 10

Skip this section and go to Section B if:
1. You are electing the ASC, or
2. You previously elected the ASC and aren’t revoking
the election on this return.

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.

Enter the amounts you paid or incurred to energy research
consortia for energy research. Energy research doesn’t
include any research that isn’t 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.

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.
• 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

Line 1

Any amount included on line 1 can’t 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, scientific tax-exempt 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
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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 statement 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.

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.

If you make an election to claim a portion of your research
credit as a payroll tax credit, the amount elected is treated as
a research credit for purposes of the reduced credit.

Section B—Alternative Simplified
Credit (ASC)

The fixed-base percentage for an existing company (any
company that isn’t 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.

Complete this section only if, instead of the regular credit:
1. You are electing the ASC, or
2. You previously elected the ASC and aren’t revoking
the election on this return.

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 can’t 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.

Electing the ASC. You elect the ASC by completing
Section B and attaching the completed Form 6765 to your
timely filed (including extensions) original return for the tax
year the election applies. An ASC election can be made on
an amended return for a tax year only if you hadn’t previously
claimed the research credit on an original return or amended
return for that tax year. An extension of time to make the ASC
election will not be granted.

If short tax years are involved, see Regulations section
1.41-3(b).
Reduce gross receipts by returns and allowances.
For a foreign corporation, include only gross receipts
CAUTION 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 29

Line 11

Section C—Current Year Credit
Line 35

!

Enter your qualified research expenses for the prior 3 tax
years. If the credit terminates during the tax year, prorate the
qualified research expenses for the prior 3 tax years for the
number of days the credit applied during the tax year.

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).

If the credit on line 17 or line 34 includes amounts paid to
employees as wages, and you are claiming a credit for
employer differential wage payments based on payments
you made to the same employees, enter on line 35 the
portion of the credit from Form 8932, line 2, that is
attributable to wages that were used to figure the credit on
line 17 or line 34 (whichever applies).

For a tax year that the credit terminates, the average
annual gross receipts for the 4 tax years preceding the
termination tax year is prorated for the number of days the
credit applied during the tax year.

See Form 8932, Credit for Employer Differential Wage
Payments, for more information on the credit.

Line 37

Line 17

Enter total credit for increasing research activities from:
• Schedule K-1 (Form 1065), Partner's Share of Income,
Deductions, Credits, etc., box 15 (code M);
• Schedule K-1 (Form 1120S), Shareholder's Share of
Income, Deductions, Credits, etc., box 13 (code M); and
• Schedule K-1 (Form 1041), Beneficiary's Share of Income,
Deductions, Credits, etc., box 13 (code I).

If you are electing the reduced research credit, you must
complete Form 6765 (even if no research credits are claimed
on the original return) and clearly indicate your intent to make
the election. In order for the election to apply, the Form 6765
must be filed with your original timely filed (including
extensions) return for the tax year. Once made, the election
is irrevocable for that tax year.
Checking the box on line 17 or line 34 to elect the

Partnerships and S corporations report the above credits
on line 37. Also, estates and trusts that can allocate the
source credit to beneficiaries report the above credits on
line 37. All other filers figuring a separate credit on earlier
lines also report the above credits on line 37. All others not
using earlier lines to figure a separate credit can report the
above credits directly on Form 3800, Part III, as follows.
• Eligible small businesses, report the credit on line 4i. See
the definition of “eligible small business” under Definitions,

TIP reduced research credit when no research credits

are claimed on the original return doesn’t mean that
you are claiming the regular research credit or that you are
making the ASC election.
If you don’t elect the reduced credit, you must reduce your
otherwise allowable deduction for qualified research
expenses or basic research expenses by the amount of the
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Worksheet for Figuring General Business Credit Carryforward

Keep for Your Records

1.

Enter the sum of the following lines from Form 3800, Part I, line 6, and Part II, line 25 and line 36

..........................

____

2.

Enter the amount from Form 3800, Part II, line 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

____

3.

Subtract line 2 from line 1

.____

4.

Enter the amount from Form 3800, Part I, line 5, and Part II, line 35

..............................................

____

5.

Current year general business credit carryforward. Subtract line 4 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . .

____

...........................................................................

Line 41

earlier. Also see Treatment of partners and S corporation
shareholders, earlier.
• All others, report the credit on line 1c.

Check the box on line 41 if you are a qualified small business
electing to claim a certain portion of your research credit as a
payroll tax credit. See the definition of "qualified small
business" under Definitions, earlier.

Line 39

Estates and trusts. Allocate the credit for increasing
research activities on line 38 between the estate or trust and
the beneficiaries in the same proportion as income was
allocated and enter the beneficiaries’ share on line 39.
If the estate or trust is subject to the passive activity rules,
include on line 37 any credit for increasing research from
passive activities disallowed for prior years and carried
forward to this year. Complete Form 8582-CR, Passive
Activity Credit Limitations, to determine the allowed credit
that must be allocated between the estate or trust and the
beneficiaries. For details, see the Instructions for Form
8582-CR.

Line 42

Enter the portion of your research credit, figured on line 36,
that you are claiming as a payroll tax credit. Don’t enter more
than $250,000.

Line 43

Use the worksheet to figure the general business credit
carryforward for the current year.

Line 44

Enter the amount from line 44 on the applicable line of Form
8974, Part 1, column (e), Qualified Small Business Payroll
Tax Credit for Increasing Research Activities. Use Form 8974
to figure the amount to be applied to your payroll taxes.

Section D—Qualified Small Business
Payroll Tax Election and Payroll Tax
Credit

A qualified small business claiming a portion of the
research credit as a payroll tax credit must adjust the
research credit carryforward for the payroll tax credit claimed.

Complete this section only if you are making the payroll tax
election. Before completing this section, you must complete
Form 3800 if you are a qualified small business other than a
partnership or an S corporation.

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.
You aren’t 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.

h

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for
individual and business taxpayers filing this form is approved under OMB control number 1545-0074 and 1545-0123 and is
included in the estimates shown in the instructions for their individual and business income tax return. The estimated burden for
all other taxpayers who file this form is shown below.
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 hr., 31 min.
2 hr., 25 min.
5 hr., 6 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.

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