What Do Large Filers Need to Do Before Form 6765 Section G Becomes Mandatory?

Your tax team has one more filing season to treat Section G as optional. Starting with tax year 2026, the IRS requires most filers to itemize qualified research expenses by business component. Then grace period disappears. Large, multi-entity organizations feel this shift more than smaller filers do, because your R&D footprint spans dozens of business units, contract research arrangements, and controlled group members.

We covered the broader mechanics of this change in our rundown of what tax teams need to know about R&D credits in 2026. Section G deserves its own conversation, though. It changes how you build a claim, and it happens well before you file one.

What Section G Actually Demands

The IRS wants project-level detail now, and a summary total won’t satisfy that anymore. Filers must report business components in descending order of cost until they hit 80% of total QREs, or 50 components, whichever comes first. Wages get split into direct research, supervision, and support categories. That level of granularity raises a question most Fortune 100 tax teams haven’t answered cleanly: can your current systems trace a dollar of QRE back to a specific project?

Many can’t answer yes today. Engineering tracks work in Jira or Azure DevOps. Finance tracks costs in SAP or Oracle. Nobody built a bridge between the two, because nobody needed one before. Section G builds that bridge for you now, whether your systems are ready or not.

Why This Hits Large Filers Harder

Smaller companies with straightforward research programs can often reconstruct component-level detail after the fact. A single research team, working on one or two products, can usually piece together a clean record months later. Your organization can’t rely on that shortcut. When concurrent research programs run across multiple subsidiaries, product lines, and controlled group members, retroactive reconstruction turns into a forensic exercise that pulls people away from other work for weeks.

Auditors already flagged funded research and controlled group issues as recurring problem areas, a trend we broke down in our analysis of the Smith v. Commissioner decision on funded research rules. Section G reporting sharpens that scrutiny further, because the IRS now receives a component-level map before it even opens an examination. Weak spots that used to surface only under audit will show up on the return itself.

Building the Bridge Before It’s Mandatory

Treat 2025 as your dry run, if you haven’t already started. Pull last year’s QRE workpapers and try to map them to business components using the descending-cost method the form requires. You’ll find gaps quickly: projects with fuzzy boundaries, contract research without clean allocation, wage data that lives in three different systems and doesn’t reconcile cleanly.

A few moves matter more than the rest for organizations your size.

Assign real ownership of the taxonomy. Someone inside your tax function, not an outside advisor working alone, needs to own how business components get defined. That definition has to reflect how your engineering teams actually structure their work, or the mapping breaks apart every year as projects shift and teams reorganize.

Standardize documentation while the work happens. Waiting until filing season to reconstruct component detail produces weak support almost every time. Project leads should log technical uncertainty and experimentation activity as it occurs, not eighteen months later when memories have faded and people have moved to other projects.

Test your controlled group allocation well before filing season. When your organization includes multiple entities claiming a shared credit, allocation errors compound quickly under Section G’s added detail. Our 174 assistance work exists for exactly this reason: Section 174A capitalization choices and Form 6765 reporting have to stay aligned, and most in-house teams don’t have the extra bandwidth to reconcile both at once during a busy filing season.

The Cost of Waiting

Filers who wait until the 2026 filing season to build this infrastructure will scramble under real time pressure. Component-level reporting takes more than a few weeks to retrofit. It requires a data architecture decision, buy-in from engineering leadership, and a full tax year of clean tracking before the numbers hold up on their own. Companies that start now will file 2026 returns with confidence. Companies that put this off will file with exposure they can’t fully see until an examiner points it out.

A Practical Next Step

Run a gap analysis before your next quarterly close. Compare your current QRE tracking against the descending-cost, 80 percent threshold requirement, and identify where your documentation would fail an IRS request today. That single exercise will tell you more about your Section G readiness than any outside memo can.

The value of the credit hasn’t dropped. The bar for proving it has risen instead. Tax teams that adjust their documentation discipline now will keep the full value of the credit intact through the transition. Teams that wait will spend 2027 defending numbers they can no longer fully trace back to the work behind them. If your team is working through this gap analysis and wants a second set of eyes, we’re glad to talk it through.

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...