The IRS has spent the past several years raising the documentation standard for R&D credit claims: refund claims must identify the business components, activities, and individuals involved; recordkeeping regulations require records sufficient to substantiate the credit; and Form 6765’s Section G now puts business component detail on the form itself, mandatory for tax years beginning in 2026. The direction is consistent: claims supported by records, not estimates.
What changed, concretely?
Three layers, each already in effect. The refund claim standard requires taxpayers claiming R&D credit refunds to identify, up front, the business components involved, the research activities performed, the individuals who performed them, and the information sought. The longstanding recordkeeping regulation requires taxpayers to retain records substantiating the credit claimed. And Form 6765 itself was redesigned: Section G moves component-level disclosure from the audit file to the filing, optional for tax year 2025 and mandatory for tax years beginning in 2026.
Why is the IRS doing this now?
The credit grew, the claims industry grew with it, and a portion of that industry ran on templated narratives and estimated percentages. The tightening targets exactly that model: requirements that are easy to meet with real records and hard to meet with reconstructions. Asking for the individuals, the components, and the specifics is a filter. Genuine claims have those answers. Manufactured ones have prose.
What does "actuals, not estimates" mean in practice?
It means the wage allocation traces to recorded activity rather than a year-end survey. It means the business components are enumerated, not gestured at. It means the qualifying story points to artifacts created during the work: the tickets that captured the unknowns, the development history that shows the experimentation. An estimate answers “roughly how much.” A record answers “show me,” which is the question examinations actually ask.
How should software companies respond?
Software companies hold an advantage here that most industries do not: the work self-documents. Repositories, pull requests, and ticketing systems already record what was built, by whom, when, and for which component. The response to the tightening is not more documentation effort. It is capturing and organizing the record that already exists, continuously, so the claim is built from actuals by construction.
That is what CodeROI does: audit-ready substantiation, sourced from real engineering activity, organized by business component, current all year.
Frequently Asked Questions
Do the refund claim requirements apply to original returns? The heightened identification requirements target refund claims, but Section G brings component-level detail to original filings as well. The practical standard is converging: know your components and your people, whichever way you file.
Are estimates prohibited? Reasonable estimation has a long history in tax. The shift is in what carries weight under scrutiny: allocations tied to records consistently outperform unsupported percentages, and the new requirements are built to surface the difference.
How long should records be kept? Retain substantiation for as long as the credit can be examined, including carryforward years. Your advisor can map the retention period to your facts.
This article is for general informational purposes only and is not tax, legal, or financial advice. Consult a qualified professional about your specific situation before acting on anything here.