Since its inception, businesses claiming the R&D tax credit have followed a relatively straightforward process: provide the calculation of the credit on Form 6765 (Credit for Increasing Research Activities) and include that form with their annual tax return. However, the IRS has proposed new legislation that could add additional complexity to the information required on Form 6765. Soon, companies may need to provide additional substantiation to support their R&D tax credit claims, potentially adding complexity and time to an already detailed procedure. 

The IRS initially proposed changes to Form 6765 in September 2023, but the most recent proposed revisions were released in June 2024. 

If your business is claiming—or plans to claim—the R&D tax credit, staying ahead of these changes is crucial. Leveraging specialized software can help ensure compliance with any updated requirements, while also simplifying the process from start to finish. 

What Does Substantiation Mean for the R&D Tax Credit? 

Substantiation involves providing documentation that clearly demonstrates your business activities qualify under the IRS’s criteria for the R&D tax credit. This documentation typically includes: 

• Detailed descriptions of research activities and how they meet the IRS’s four-part test. 

• Project-level tracking that connects qualifying expenses (e.g., wages, supplies, and contractor costs) to specific R&D activities. 

• Thorough records to prove that qualifying activities occurred during the tax year for which the credit is claimed. 

The IRS’s proposed changes aim to tighten the rules around these requirements, requiring businesses to submit clear and comprehensive evidence when claiming the credit. 

How Software Simplifies Substantiation 

Specialized R&D tax credit software offers tools to manage and document your claim, ensuring compliance with stricter IRS standards. Here’s how the TriNet Clarus R+D Platform can help: 

1. Centralized Documentation 

Traditional methods of claiming the R&D tax credit involve loosely passing around documents and sensitive information through email and physical copies. Software platforms allow you to consolidate all required records in one place, reducing the number of times that documents are forwarded amongst different stakeholders. More importantly, working with a provider who utilizes a technology-based platform helps give you peace of mind that your information is secure.  

The TriNet Clarus R+D platform enables users to log and organize activities, expenses, and supporting documents by project. The platform is SOC-2 compliant, meaning that it meets a set of rigorous security and privacy standards.  

2. AI-Powered Assistance 

Many qualified companies miss out on claiming the R&D tax credit because they are overwhelmed by the detailed project descriptions required to meet the IRS’ Four-Part Test. Not only will a software platform walk you step-by-step through the process of filling out each piece of required information, but AI-powered tools can help suggest answers based on a business’s industry and on details that they provided earlier in the application. AI tools can also help suggest other qualified projects that the business may be performing, helping to maximize final credit value and avoid leaving money on the table. These examples provide a solid foundation for creating customized, IRS-compliant descriptions of your R&D activities.  

Additionally, advanced input-checking features and real-time validation help to ensure your documentation meets IRS standards before submission. By flagging unqualified activities or ambiguous terms, the platform helps businesses refine their claims proactively, minimizing the risk of rejected credits upon audit.  

Our platform also integrates AI tools to craft example responses, saving time and reducing the risk of errors throughout the study.  

3. Automated Workflows 

One of the key components of an R&D study is the nexus that is created between qualifying projects and the expenses that are related to each project. The Clarus platform utilizes fit-for-purpose workflows to guide users through the process of documenting R&D projects and connecting them to eligible expenses. By offering tailored suggestions for activities specific to your industry, the software helps ensure your claims align with IRS requirements. 

5. Secure Integration with Payroll Providers 

Traditional methods also required the manual inputting of information such as wages and contractor expenses. Some technology platforms allow for the seamless integration with major payroll providers, meaning that users can minimize the amount of time it takes for them to complete their R&D study while still including all qualified wages to maximize the full value of the credit.  

Future-Proof Your R&D Tax Credit Claims 

While proposed substantiation requirements may feel daunting, they also present an opportunity to revisit your current processes and look for a solution that will grow with you and your business. By working with a specialized provider now, businesses will be better able to adapt to any future legislative changes, ensuring compliance and maximizing their credit value. 

The TriNet Clarus R+D platform provides everything you need to navigate this new landscape with confidence. By centralizing documentation, automating workflows, and offering cutting-edge AI tools, it simplifies the claiming process and ensures your business gets the full value of its R&D tax credit. 

Now is the time to invest in the right tools to protect and enhance your claims. With TriNet Clarus R+D, you can prepare for the future of R&D tax credits—seamlessly, securely, and successfully.