Avoid This Controlled Group Pitfall on Form 6765

Controlled Group Form 6765 filers may face a critical risk in 2024: a software misstep that could erase a valid R&D credit if tax teams aren’t paying close attention to how QREs are reported.

In recent years, some taxpayers have lost valuable R&D credits due to automation errors—especially when software pre-filled forms using the previous year’s settings. This has happened with Section 280C and could happen again with the 2024 version of Controlled Group Form 6765 if tax teams aren’t careful.

This time, the issue centers on Controlled Groups where members file separate returns. Specifically, line-item instructions on the 2024 form are inconsistent—and software may misinterpret those inputs in ways that wipe out legitimate credits.

That’s why it’s critical to review both your calculations and your form outputs before filing.

The Setup: Controlled Group Allocation

Imagine a Controlled Group with three members: Companies A, B, and C.

Together, they have a three-year average of $52 million in QREs, which—when divided by six—yields a base amount of $8.7 million.

In the current year, they report $19 million in combined QREs. That puts them over the base period threshold, making them eligible for a $1.4 million R&D credit, using the 14% ASC rate.

The credit is then allocated based on each entity’s proportion of the group’s total QREs:

• Company A: 11/19
• Company B: 9/19
• Company C: 7/19

Company B, for instance, is entitled to a $72,000 credit.

These allocation percentages and dollar amounts are typically detailed in a workbook or statement attached to the tax return—and should flow consistently through to the Form 6765. When completed correctly, this ensures that each group member receives its fair share of the total group credit in a manner compliant with IRS rules.

Where It Gets Weird

This is where many tax teams may get tripped up: the instructions for how to report QREs on the form are contradictory.

Line 20 of Form 6765 instructs Controlled Group members filing separately to report only their own current-year QREs. But Line 21—just one line below—asks for the group’s QREs over the prior three years, even if the member is filing separately.

That inconsistency creates a potential pitfall for automated systems. If your software uses the group’s base period (8.7M) and compares it directly to a single company’s current-year QREs (e.g., Company B’s $954K), it may conclude that the entity doesn’t exceed the base amount—and incorrectly assign zero credit.

Even if the credit was properly calculated and allocated in your workpapers and shows up on your supporting statements, the form may zero out that credit based on a flawed comparison.

This disconnect stems from how base amounts and QREs should be handled when separate filings are involved, and how the form seems to blur the distinction between group-level and entity-level data inputs. Without context, the software may default to a logic path that is technically clean but substantively wrong.

Real-World Consequences for Tax Teams

If you miss this issue, the consequences can be serious. You might:

• Lose out on thousands—or even hundreds of thousands—in R&D credit.
• File an incorrect return and face questions or follow-ups from the IRS.
• Need to amend your return, causing delays and extra internal work.
• Lose trust in your software provider if the issue isn’t caught before filing.

Worse yet, many tax teams never spot the discrepancy—especially when relying on automated flows or pre-filled forms. During busy filing seasons, oversights like this happen more often than you’d think.

What You Should Do

Don’t miss out on a legitimate credit:

• Review your workpapers and Form 6765 side by side. Make sure the credit amount in your allocation statements matches what’s on the final form.
• Check the logic in your software. Confirm it doesn’t use group base amounts to disqualify entity-level QREs.
• Manually validate the credit on all key lines—especially Line 44.
• Align all supporting documents, including Controlled Group attachments that show how you split QREs and credits.

If your software pulls in last year’s data or applies default logic for base period comparisons, override it or confirm each number manually.

Bottom line: Even if your group’s calculations are correct, your entity’s credit can vanish if the final form tells a different story.

The Bottom Line

Whether it’s a typo, a missed instruction, or a software glitch—your entity may still qualify for a substantial R&D credit.

What matters is making sure your documentation, calculations, and form entries all align. Don’t let a mismatch between spreadsheets and IRS forms cost you the credit.

At MASSIE, we track these edge cases closely to help clients avoid preventable mistakes. Not sure how your software handles Controlled Group QREs? Want a second look at your Form 6765 inputs?

Reach out—we’ll walk through it with you and make sure you’re filing with confidence.

Still have questions about Controlled Group filing or Form 6765 updates? Reach out, and we’ll walk you through it.

Jason Massie, CPA, Esq.

As the Founder and President of MASSIE R&D Tax Credits, Jason is responsible for the quality, consistency, and integrity of our services. His strategic vision and leadership drive innovation within the company, encouraging collaboration and ne...