6765 Credit for Increasing Research Actrivities

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Instructions for Form 6765

Department of the Treasury
Internal Revenue Service

(Rev. January 2024)
Credit for Increasing Research Activities
Section references are to the Internal Revenue Code unless
otherwise noted.

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.
These tests to determine qualified research 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.
• Surveys or studies.
• Research relating to certain internal-use computer
software.
• Research conducted outside the United States, Puerto
Rico, or a U.S. territory.
• Research in the social sciences, arts, or humanities.
• Research funded by another person (or governmental
entity).

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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.

What’s New

Increase in the payroll tax credit. For tax years beginning
after 2022, the maximum amount of payroll tax research
credit a small business can apply against payroll tax liability
increased from $250,000 to $500,000. See Payroll Tax
Credit Election, later.

Reminders

Research credit claims on amended returns. If you are
claiming a refund or credit on an amended return or an
administrative adjustment request (AAR) that includes a
section 41 credit for increasing research activities (research
credit), you must also provide certain specific information for
your claim to be considered valid. See Research Credit
Claims on Amended Returns, later.

Partners of Bipartisan Budget Act (BBA) Partnership.
See Partners of BBA Partnership, later, for more information
about adjustments to credits.

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, 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
Qualified Research
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
Nov 22, 2023

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.

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

Cat. No. 13701S

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.

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.

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Special Rules

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;
• 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.

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.

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

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 $500,000, 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 $500,000, 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.

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
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Instructions for Form 6765 (January 2024)

consolidated group may make the election on behalf of the
members of a consolidated group.

energy research, and not a private foundation. See section
41(f)(6) for further details.

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. 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.

Line 1
Any amount included on line 1 can’t be included elsewhere
on the return.

Line 2

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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.

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
electing member’s allocable share of the $500,000 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
$500,000 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.

Line 3

Enter the qualified organization base period amount based
on minimum basic research amounts plus
maintenance-of-effort amounts for the 3 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 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.

Specific Instructions

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 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.

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
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.

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.

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
Instructions for Form 6765 (January 2024)

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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.

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
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.

Line 17
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.

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Checking the box on line 17 or line 34 to elect the

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, and if the amount of
the credit determined for the taxable year exceeds the
amount allowable as a deduction for such taxable year for
qualified research expenses or basic research expenses,
reduce the amount chargeable to capital account for the
taxable year for such expenses by the amount of the excess.
Attach a statement to your tax return that lists the capitalized
expenses that were reduced. Identify the schedule or forms
for capitalized items on which the reductions were made.
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. territory 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).

Line 29

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.
territory, if applicable).

!

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.

Section C—Current Year Credit
Line 35

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. territory, 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).
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Instructions for Form 6765 (January 2024)

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

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 $500,000.

Line 37
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).

Line 43
Use the worksheet to figure the general business credit
carryforward for the current year.

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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.

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

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.

Research Credit Claims on Amended
Returns

If you are claiming a refund or credit on an amended return
or an AAR (as applicable) that includes a section 41 credit
for increasing research activities that either (a) was not
reported on your original filed return or (b) is increased from
the amount reported on your original return, the following
five items of information must be identified and provided with
your claim.
1. Identify all the business components to which the
research credit claim relates for that year.
2. For each business component, identify all the
research activities performed.
3. For each business component, name the individuals
who performed each research activity. A taxpayer may
instead identify the individuals who performed each research
activity by listing the individual's title or position.
4. For each business component, describe the
information each individual sought to discover.
5. Provide the total qualified employee wage expenses,
total qualified supply expenses, and total qualified contract
research expenses paid or incurred for the research credit
claim. This fifth item may be done by using Form 6765.

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.

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

If you submit a credit study or other document, please
identify the exact pages that contain the five items of
information described above.

Line 41

BBA Partnerships must also submit Forms 8985 and
8986 to the IRS and send Forms 8986 to their partners. BBA
Partnerships do not need to provide the five items of
information on the Forms 8985 and Forms 8986 where the
five items of information are included with the Form 6765
attached to the BBA Partnership's AAR.

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.

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-

Instructions for Form 6765 (January 2024)

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

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

____
____

BBA Partnership's AAR, you may, but are not required to,
include the five items of information with your return to which
your Form 8978 is attached if the BBA Partnership has
provided the information to you with their AAR.

Partners of BBA Partnership. BBA Partnerships may not
file an amended return; they must instead file an AAR to
change any partnership-related items for any previously filed
partnership tax returns. If you are a partner of a BBA and
filing a return that includes a research credit reported on the

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 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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Instructions for Form 6765 (January 2024)