How OBBBA and Form 6765 Are Changing R&D Compliance

A New Compliance Environment

On paper, the One Big Beautiful Bill Act (OBBBA) fixed one of the biggest pain points for tax teams: it ended the mandatory capitalization of R&D expenses under Section 174. But it also quietly revived an older rule that many taxpayers haven’t had to think about in years: the coordination of Section 174 with the research credit under Section 280C.

Under the new rules, taxpayers must now choose one of the following:

• Reduce their R&D expenses by the amount of the credit
• Reduce the amount capitalized to a long-term asset
• Or elect to reduce the credit itself under Section 280C

This election is no longer optional. It’s required. And for many companies, it’s coming as a surprise.

Why the 280C Election Matters Again

For the past few years, most taxpayers didn’t have to make a 280C election. They could claim the full R&D credit without reducing expenses or capitalized amounts, because the TCJA-era capitalization rules already created a sort of built-in coordination.

But now that the default treatment is again deductibility, the IRS wants to avoid a double benefit: deducting the full expense and getting the credit on top.

That means if you don’t make the 280C election on time, you may be required to reduce your expenses instead—lowering your deduction and creating additional complexity in your return.

One mistake we’re still seeing in 2022, many taxpayers mistakenly made the 280C election even though they weren’t required to.

That election is irrevocable and resulted in an unnecessary reduction of their R&D credit. Congress has granted relief for small taxpayers (those with average gross receipts of $25M or less), but not for larger filers. The window for fixing past mistakes has mostly closed.

Form 6765 Instructions Still Causing Trouble

The IRS released revised instructions for Form 6765 in January 2025 and then issued an update in June. But even with the clarification, confusion remains—especially for members of controlled groups filing separate returns.

Here’s the issue:

• The January instructions originally told separate filers to include group-wide QREs on lines 5 and 20. That would have overstated QREs and potentially distorted the credit.
• The June revision clarified that filers should report only their own QREs on those lines.

So far, so good. But here’s where it gets tricky:

• Line 21 still asks for the prior 3 years of QREs for the entire group
• This creates a mismatch in the base period calculation that could cause a valid credit to disappear

The bigger problem?

The instructions were updated, but the revision date wasn’t changed. It still says “Rev. January 2025,” which makes it unclear which version taxpayers are supposed to follow. That lack of clarity could lead to errors—and IRS scrutiny down the road

For a full breakdown of this issue, see Form 6765 Controlled Group Member Beware.

IRS Memo Signals a Cultural Shift

It’s not just the forms that are changing. The tone coming from IRS leadership is shifting, too.

In July 2025, the LB&I division issued a memo to all employees that included three key updates:

• Acknowledgment of Facts (AOF) IDRs are being phased out
  • Optional through 2025
  • Eliminated beginning January 1, 2026
  • Reason: They added time but little value
• Fast Track Settlement denials must be escalated
  • Now requires review by the Deputy Commissioner
  • Puts pressure on field agents to justify a refusal to engage in Fast Track
• Accelerated Issue Resolution (AIR) is back
  • Originally launched in the 1990s
  • Provides a way to resolve large corporate issues early and cooperatively

Why this matters to you

These changes suggest a growing awareness inside the IRS that its exam process needs to be more collaborative and efficient.

The memo specifically encourages:

• Transparency
• Early engagement
• Business-driven decisions rather than strictly legal ones

That’s good news for taxpayers who are willing to be proactive. If your team can clearly explain your position—and back it up with documentation—you may find more flexibility at the exam level than in years past.

Best Practices for 2025 Filings

Tax teams should be on high alert this year. OBBBA has changed the rules, but the transition is far from clean. Here’s what you can do:

• Double-check your 280C election
  • Make sure it’s timely and correct
  • Know the consequences of making (or not making) the election
• Review Form 6765 line-by-line
  • Follow the June clarification
  • Be especially careful with controlled group reporting on Line 21
• Use the IRS memo to your advantage
  • Don’t be afraid to reference it if an agent resists Fast Track or tries to push an AOF unnecessarily
  • Engage early and stay collaborative
• Document now, not later
  • As always, support your R&D claim with real-time evidence
  • Don’t rely on interviews or memory alone

Final Takeaway

The biggest risk in 2025 isn’t the rules themselves—it’s misunderstanding how those rules interact.

280C is now mandatory. Form 6765 is clearer, but not perfect. And IRS culture is shifting, but not consistently.

Tax teams that stay alert, follow the latest guidance, and document their positions carefully will be best positioned to defend their credits. The rest may get caught off guard.

Need a second set of eyes on your 6765 or 280C approach? Reach out. We’re here to help.