Tax Law
Pending Changes to the R&D Tax Credit: What Businesses Need to Know

The Tax Relief for American Families and Workers Act of 2024, which could significantly impact the Research & Development (R&D) Tax Credit, has passed the House of Representatives but is currently stalled in the Senate. As of August 2024, the Senate blocked the bill in a procedural vote, and progress has since stalled. The bill requires 60 votes to move forward, and Senate leaders have indicated they do not currently have the necessary support.
If passed, the legislation would retroactively restore full expensing of domestic R&D costs through 2025, providing significant business benefits. However, until the bill becomes law, companies must continue following the current tax rules, which require amortizing R&D expenses over five years.
The Impact of the Tax Relief for American Families and Workers Act
If this legislation passes, it will introduce several fundamental changes to the R&D tax credit, affecting tax planning for businesses:
1. Full Expensing of R&D Costs
The act proposes restoring the ability for businesses to immediately deduct 100% of their domestic R&D expenses in the year they are incurred rather than amortizing these costs over five years. This provision would apply retroactively to the 2023 tax year and extend through 2025. For companies engaging in R&D, this change would offer a substantial business tax credit, allowing for more favorable cash flow management and incentivizing innovation.
2. Modifications to Form 6765
Businesses claiming the R&D tax credit must use Form 6765, and the IRS has proposed procedural changes to this form if the legislation passes. These changes would require more detailed documentation about the business components and qualified research projects, including:
- A list of specific projects or components for which the business tax credit is claimed.
- Detailed descriptions of research objectives, uncertainties, and the experimentation process.
These modifications aim to enhance transparency and ensure that companies are genuinely conducting qualifying R&D activities.
3. Increased Documentation Requirements
To align with the proposed changes, businesses must provide comprehensive documentation to substantiate their claims. This includes:
- Detailed records of experimentation, such as alternative approaches considered and costs associated with each project.
- Clear evidence of the business components involved in each qualifying project.
These documentation requirements could increase the compliance burden, especially for businesses managing multiple R&D projects simultaneously. Companies relying on the R&D tax credit as part of their tax planning strategy must prepare for these additional demands.
How Businesses Can Prepare Now
While the future of the Tax Relief for American Families and Workers Act remains uncertain, businesses can take proactive steps to optimize their tax planning strategy and make the most of the R&D tax credit:
- Review Current R&D Activities: Ensure all current and past R&D activities are well-documented and qualify under existing IRS rules. Proper documentation is essential for compliance, regardless of the legislative outcome.
- Prepare for Documentation Changes: Anticipate the possibility of increased documentation requirements for Form 6765. Start organizing detailed records of your research projects, including descriptions of objectives, uncertainties, experimentation processes, and associated costs.
- Consult with Tax Professionals: Given the complexity of business tax credits and the evolving tax landscape, consulting with tax experts can help businesses navigate current regulations and prepare for potential changes. A well-planned approach ensures businesses maximize their tax credits while staying compliant.
Final Thoughts on Navigating the R&D Tax Credit Changes
The pending changes to the R&D tax credit could bring significant benefits, including the restoration of full expensing for domestic R&D costs. However, until the Tax Relief for American Families and Workers Act passes, businesses must continue to follow the current amortization rules. Staying informed and planning accordingly can help businesses optimize their tax planning strategy and make the most of available business tax credits. We will continue to monitor the legislative developments and provide updates as they unfold.