Rance Hughes, CPA, explains Section G: who has to complete it, what it asks for, and how to help clients get their records ready.
For most of its history, claiming the federal R&D tax credit took a handful of numbers on a single page. Starting with the 2026 tax year, many companies will need to report wages, supplies, and contract research for each project behind their claim.
That’s Section G, the new project-level section of IRS Form 6765. If your company claims the R&D credit, or you’re thinking about it, we’ll cover who Section G applies to, what it asks for, and what to start tracking now so next year’s claim doesn’t turn into a scramble for records.
Rance recently walked tax professionals through these changes in a CPA Academy webinar. We’ve worked on R&D credits since 2013 and have defended them through IRS and state examinations, so this is the condensed version of what we’re telling clients right now.
What is Form 6765 Section G?
Section G is a new part of Form 6765 that requires project-by-project detail on R&D credit claims for tax years beginning in 2026.
Form 6765 is the form companies attach to their federal income tax return to claim the research credit. Before 2024, it asked for little more than total qualified wages, supplies, and contract research, plus some prior-year history. As far as the IRS could see, that was the whole claim.
The IRS released a redesigned four-page version for 2024. Several new items took effect right away, including the number of R&D projects in the claim, the amount of officer wages included, and a few yes-or-no questions. Section G was optional for 2024 and 2025. For tax years beginning in 2026, it’s required for many claims.
The IRS calls each project a “business component.” Under Section 41 of the tax code, that means a product, process, software, technique, formula, or invention. In plain terms, it’s the specific thing your team was trying to build or improve.
Why did the IRS add Section G?
The IRS wants to see that each R&D claim is built on project-level analysis instead of a single total expense number.
The R&D credit has a long history of disputes between the IRS and taxpayers, with more than 50 court decisions since the 1990s. Research doesn’t fit neatly into an accounting system, so determining eligible expenses requires careful analysis and professional judgment. Some providers took liberties with the rules, especially after the credit became permanent in 2015. We’ve seen claims that never should have been filed, including a roofing contractor who wanted a large credit for routine work.
The law has always required companies to identify their eligible projects and confirm that each one qualifies. Section G asks taxpayers to show that work on the return itself, and it gives the IRS better information for deciding which claims to examine.
Does Section G apply to my company?
Section G applies to original tax returns unless your QREs are $1.5 million or less and average gross receipts are $50 million or less.
QREs, or qualified research expenses, are the wages, supplies, and contract research costs that count toward the credit. You’re exempt from Section G for the 2026 tax year if all three of these are true:
Your total QREs are $1.5 million or less.
Your average annual gross receipts for the three prior tax years are $50 million or less. For a 2026 claim, that’s the average of 2023, 2024, and 2025.
You’re claiming the credit on a timely filed original return.
You have to be under both dollar thresholds. A company with $20 million in average receipts and $2 million in QREs must complete Section G. So must a company with $51 million in receipts and $1 million in QREs.
A few more rules can change the answer:
Thresholds are measured at the group level. If you own related companies under common control, add their QREs and gross receipts together.
Startups using the payroll tax election are exempt. Qualified small businesses (generally under $5 million in gross receipts and within their first five years of receipts) that apply the credit against payroll taxes skip Section G, even with $2 or $3 million in QREs.
Amended returns are never exempt. Once 2026 returns are open for amendment, any amended R&D claim will need Section G, no matter how small.
What information does Section G ask for?
For each project, Section G asks for its name, type, and costs, with wages split into direct research, supervision, and support.
Projects are listed from most to least expensive. You keep going until the listed projects cover 80% of your total QREs or you reach 50 projects, whichever comes first. A machine shop with 200 qualifying custom jobs would list 50 at most, or fewer if its top 35 jobs already add up to 80% of QREs.
For each project, the form asks for:
Project name and type (product, process, or other)
Software category, if the project is software (internal use, non-internal use, dual function, or excepted from internal use treatment)
Wages for direct research, direct supervision, and direct support, plus total wages
Supplies
Rental or lease of computers
Contract research
There’s also a field for the “information sought to be discovered,” meaning the technical questions the project was trying to answer. For now, that field applies only to amended returns. In our experience it’s also challenging to answer well, since a single complex project can raise dozens or hundreds of design questions along the way.
What’s the difference between direct research, supervision, and support?
Direct research is doing the work, supervision is first-line management of it, and support is hands-on help that keeps research moving.
All three count as qualified wages under Treasury Regulation 1.41-2. Section G asks you to separate them.
Direct research
This is the actual conduct of research. Think of an engineer designing a new product, a software developer writing code for a new application, or a scientist running lab experiments.
Direct supervision
This is first-line management of the people doing research, such as an engineering manager or product manager directing tests and design changes. It doesn’t include a CEO three levels removed. At smaller companies, though, a technical founder often fills this role.
Direct support
This is work that has to happen for the research to continue. The regulations’ examples include a machinist cutting a prototype part an engineer needs to test, a clerk compiling research data, and a lab worker cleaning research equipment. The machinist probably doesn’t think of that job as R&D. The IRS does.
Here’s the catch: one person can land in different categories on different projects. A technical CEO might design Project A herself, only supervise Project B, and do some of both on Project C. Section G expects that split for each person on each project.
Who will have the hardest time with Section G?
Companies with many R&D projects and many people involved, like machine shops and contract manufacturers, face the biggest lift.
Ten engineers working on two projects is manageable. Forty employees spread across hundreds of custom jobs is more difficult. Each custom job that required R&D counts as its own business component, and engineers at these shops often design some jobs and supervise others. Applying one blanket research-to-supervision ratio across every job rarely reflects what actually happened. We’ve already had several conversations with other R&D credit providers about how best to document this exact situation.
Companies that prepare their own R&D claim are the other group to watch. Even below the Section G thresholds, the 2024 form already asks for project counts and officer wages, and we’ve seen self-prepared claims miss those items. If Section G applies to you, take an honest look at whether your records can support it.
Do I need project accounting to claim the R&D credit?
No. Courts have held that project accounting isn’t required, but you must identify each project and support its costs with reasonable allocations.
Your books don’t have to be organized by project. A court case involving a pharmaceutical company that tracked costs by department instead of by project settled that point. What you do need is a list of eligible projects, a reason each one qualifies, and a documented, reasonable method for assigning costs to each.
Many of our clients track what they can during the year and finalize allocations at year end. That still works. Section G raises the bar on how specific and defensible those allocations need to be.
How should you prepare for Section G?
Start tracking R&D by project now: list your projects, note who worked on each and in what role, and tag R&D expenses as you enter them.
Check whether Section G applies. Total your QREs and three-year average gross receipts, including any related entities.
Build your project list. Some companies have three projects. A job shop may have hundreds. Either way, the list comes first.
Note each person’s role on each project, whether that’s research, supervision, or support.
Set up a dedicated R&D account in your chart of accounts, then use a memo, class, or tag field to note which project each charge belongs to. We recommend this to nearly every client with meaningful R&D supplies or contract research.
Talk with your CPA or R&D advisor before December 31. For calendar-year companies, the 2026 tax year is almost over, and gaps are much easier to fill now than next fall.
Is the R&D credit still worth claiming?
For most qualifying companies, yes. The federal credit is generally 5 to 10% of qualifying expenses, many states add a credit of their own, and you can typically claim the current year plus up to three prior years.
More documentation doesn’t have to mean months of meetings, though. Version2, a Las Vegas ad tech company, came to us through its CPA after working with another provider that needed four or five meetings over several months. We needed one or two. Their claim came to more than $100,000 in federal and California credits, including over $20,000 from a sister company they didn’t expect to qualify. We also recommended lowering a few team members’ R&D percentages so the claim would hold up under review, which is exactly the kind of judgment Section G now puts on paper. You can read how Version2 claimed $100,000+ in R&D tax credits in the full case study.
If you haven’t claimed the credit before and want a rough number first, our free R&D tax credit calculator is a good place to start.
Find out where your company stands
If you claim the R&D credit now, or plan to for 2026, we’ll look at your projects and records, tell you whether Section G applies, and point out any gaps worth closing before year end. If you’re new to the credit, we’ll also give you a free estimate of what it could be worth.
→ Talk to Us About Your 2026 R&D Claim
A note for CPAs
Section G means more for you to review before signing a return. The R&D section used to be a few expense totals. Now it includes project names, wage splits, officer compensation, and several checkboxes. We work alongside CPAs on R&D credit claims and don’t provide tax preparation, accounting, or audit services, so your client relationship stays yours. If you have clients who’ll be affected by Section G, we’re happy to talk through how we can help.
This article is general information about Form 6765 and is not tax advice for any specific taxpayer or situation.
