2026 Field Guide to R&D Tax Credits: What Changed and What To Do Next

Who This Guide Is For

This field guide is written for CFOs, controllers, tax directors, and founders at companies that invest in domestic R&D and may qualify for the Section 41 credit.

Assumptions:

‍You are evaluating how OBBBA affects your 2026 tax position

• You may have pass-through structures, controlled group relationships, or multi-state operations that require entity-specific analysis
• You want practical guidance on operationalizing R&D credit compliance, not just a policy summary

Key Dates, Filing Windows, and Applicability Years

All dates are subject to applicable statutes of limitations. The filing deadline under Rev. Proc. 2025-28 is the earlier of July 6, 2026 or the claim for credit or refund due date under Section 6511 for that year.

Key Takeaways for 2026 Filing

• Section 174A restores immediate R&D expensing; use 2026 to capture aligned deduction and credit benefits.
• Retroactive elections for 2022-2024 must be filed by July 6, 2026 or your statute deadline.
• Section G is optional for 2025 returns; build systems now for mandatory 2026 filing.
• IRS documentation standards require business-component-level substantiation for refund claims.
• Controlled group aggregation determines eligibility; complete analysis before any elections.

Key Definitions

Business Component: A product, process, computer software, technique, formula, or invention that is the subject of R&D activities under Section 41.

Qualified Research Expenses (QREs): Wages, supplies, and contract research expenses that qualify under Section 41. QREs are determined by Section 41 rules, not Section 174A expensing.

Four-Part Test: The statutory test for qualifying research under Section 41: (1) permitted purpose, (2) technological uncertainty, (3) process of experimentation, (4) technological in nature.

Section 280C Reduced Credit: An election to claim approximately 79% of the gross credit (calculated as 100% minus the 21% corporate tax rate, i.e., 1 - 0.21 = 0.79) in exchange for keeping the full R&D deduction without add-back.

Form 6765 Section G: The reporting section requiring project-level and business-component detail for R&D credit claims. Optional for tax year 2025; mandatory for tax year 2026 and beyond (with limited exceptions) per IRS IR-2025-99.

What Changed in 2025 (and What Did Not)

What OBBBA Changed

The One Big Beautiful Bill Act created new Section 174A, effective for tax years beginning after December 31, 2024:

• Domestic R&E expenses: Now eligible for immediate expensing in the year incurred
• Elective amortization: Taxpayers may still elect capitalization and amortization under applicable rules if preferred 
• No scheduled expiration: Section 174A contains no current sunset provision in the enacted text
• Retroactive election: Small businesses (under $31M average gross receipts) can apply Section 174A to 2022-2024 via amended returns

Note: Larger businesses (above the $31M threshold) still benefit from Section 174A immediate expensing for tax years 2025 forward. The retroactive election for 2022-2024 is limited to qualifying small businesses, but the go-forward benefits apply broadly.

What OBBBA Did Not Change

• Section 41 credit calculation: The R&D credit rules remain largely the same. OBBBA's impact is indirect: the timing alignment makes the credit more valuable in practice.
• Foreign R&D treatment: Foreign R&E expenses still require 15-year amortization.
• Documentation requirements: The four-part test and QRE substantiation standards are unchanged.

The Practical Effect

During 2022-2024, the TCJA's capitalization requirement created a timing mismatch. You incurred R&D costs in Year 1 but deducted them over five years, while Section 41 credits were calculated on current-year QREs. The economics were fragmented.

Under Section 174A, your 2025 R&D spend generates a 2025 deduction. The credit is calculated on the same expenses. Timing aligns. This makes R&D credits more attractive for businesses that found the 2022-2024 regime too complex or economically diluted.

Documentation and Refund Claim Defensibility

The Five-Item Framework

For R&D credit refund claims on amended returns, the IRS has established a five-item documentation framework. These requirements apply when an amended return includes a Section 41 research credit claim for refund (and in some cases a claim for credit); they do not apply to amended returns with no research credit claim. See IRS Required Information for a Valid Research Credit Claim for Refund.

1. Business components: Identification of all business components for the claim year
2. Research activities and individuals: For each business component, the research activities performed and the individuals who performed them, along with what each individual sought to discover (part of framework, currently waived from initial submission)
3. QRE allocation by activity: For each research activity, the QREs for wages, supplies, and contract research
4. QRE totals by category: Total QREs broken out by wages, supplies, and contract research for the claim year
5. Supporting documentation: Records connecting QREs to qualified research activities

Current enforcement status: Per the IRS Research Credit Claims FAQ, as of June 18, 2024, the IRS is waiving the requirement to provide (a) names of individuals who performed each research activity and (b) the information each individual sought to discover at the time of filing the claim. However, the IRS may request this information during examination. Items 1, 3, 4, and 5 must accompany amended return claims.

For the current state of IRS guidance, see the IRS Research Credit Claims FAQ.

The Perfection Window

Per the IRS Research Credit Claims FAQ, the IRS allows a 45-day perfection period for claims missing required information. This transition process remains available through January 10, 2027. After that date, incomplete claims face potential summary disallowance without an opportunity to cure.

What This Means for 2026

If you are filing amended returns for retroactive Section 174A elections or any R&D credit refund claim, documentation standards are higher than they were five years ago. Claims must be built at the business-component level with clear linkage between activities and expenses.

For detailed guidance on avoiding common documentation mistakes, see R&D tax credit documentation requirements and filing mistakes.

Form 6765 Section G Readiness

This is where 2026 planning should focus most of its attention.

What Section G Requires

Form 6765 Section G mandates project-level and business-component reporting for R&D credit claims. The information required includes:

• Business component identification
• Officer attestation
• Methodology for allocating QREs to business components
• Breakdown of QREs by category at the project level

Timeline

Per IRS IR-2025-99:

• Tax year 2025: Section G is optional for all filers
• Tax year 2026 and beyond: Section G is mandatory, with optional reporting for the listed exception groups

This means the 2027 filing season (for tax year 2026 returns) is when Section G becomes mandatory. However, 2026 is the year to build your data systems so you are ready.

Who Can File Section G Optionally (When Mandatory)

Starting tax year 2026, Section G is mandatory for most filers. However, these groups may file Section G optionally:

• Qualified small business (QSB) taxpayers under IRC Section 41(h)(3) electing the payroll tax credit
• Taxpayers with QREs of $1.5 million or less AND gross receipts of $50 million or less (at the control group level) filing original returns

How to Operationalize This in 2026

The information Section G requires is not new conceptually. It reflects what the IRS has always expected to see in a defensible R&D credit study. The difference is that it becomes a mandatory filing requirement starting tax year 2026, not just an audit-defense best practice. Use 2025 (when Section G is optional) as your dry-run year.

What Data You Should Be Able to Produce

When Section G becomes mandatory, your systems should generate:

• Employee-to-project mapping (who worked on what)
• Project codes linked to business components
• Wage base by employee by project
• Supply invoices allocated to projects
• Contract research agreements and payments by project
• QRE allocation methodology documentation
• Technical uncertainty narratives by business component

If you cannot produce this data today, 2026 is the year to build the systems.

CFO action items for 2026:

1. Audit current time tracking systems. Can you produce time allocation by employee by project? If engineers log hours to department-level codes rather than specific R&D projects, fix that now.
   
2. Establish project identifiers for R&D activities. Each business component should have a code or identifier that flows through payroll, expense, and documentation systems.
   
3. Create templates for technical uncertainty capture. Engineers and researchers should document the technical questions they are trying to answer, the alternatives evaluated, and the outcomes. This should happen contemporaneously, not reconstructed at year-end.
   
4. Assign documentation ownership. Someone (tax, finance, or R&D leadership) must be responsible for aggregating and reviewing R&D records quarterly, not annually.
   
5. Run a dry run on Section G. Before 2026 ends, attempt to complete Section G using 2025 data. Identify gaps while there is time to fix them.
   

Waiting until 2027 filing season to discover your systems cannot produce Section G information will be expensive and stressful.

Retroactive Elections for Small Businesses

Small businesses meeting the Section 448(c) gross receipts test (average annual gross receipts of $31 million or less, with controlled group aggregation) can retroactively elect Section 174A treatment for tax years 2022, 2023, and 2024.

Deadline: July 6, 2026 per Rev. Proc. 2025-28, or the IRC Section 6511 statute of limitations for the applicable tax year, whichever is earlier. For 2022 returns filed April 15, 2023, the statute closes April 15, 2026.

What it unlocks: Immediate deductions for R&E costs previously being amortized, potential refunds, and the opportunity to claim R&D credits that may have been skipped during 2022-2024.

Important: Retroactive expensing changes deduction timing. It does not automatically change QREs, which are determined under Section 41 rules.

For complete retroactive election guidance, see retroactive Section 174A election deadline and filing risks.

Controlled Groups and Aggregation

Many OBBBA benefits depend on meeting the Section 448(c) gross receipts threshold. This test has aggregation rules under IRC Section 52 that apply to entities under common control.

The risk: A business that appears small on its own may exceed the $31 million threshold when combined with related entities. Failing to aggregate properly can result in claiming elections you were not entitled to (triggering penalties) or missing elections you were entitled to (forfeiting refunds).

Common control structures that trigger aggregation: Parent-subsidiary groups, brother-sister groups, and combined groups. The specific ownership thresholds and attribution rules are technical and vary by structure. Consult with a tax advisor to determine whether aggregation applies to your situation.

If your business has affiliated entities or ownership structures involving common shareholders, complete the controlled group analysis early in 2026.

For detailed coverage of aggregation rules and allocation strategies, see R&D tax credit controlled group aggregation rules.

Section 280C Elections

Section 280C prevents claiming both a full R&D deduction and a full credit on the same expenses. Two options:

Option 1 (no election): Claim the full gross credit, but add it back to taxable income.

Option 2 (reduced credit election): Claim approximately 79% of the gross credit (at 21% corporate rate) and keep the full deduction with no add-back.

Practical Guidance by Entity Type

C-corporations (federal-only, simplified): Both options produce the same federal tax liability. The reduced credit election simplifies book-tax reconciliation and audit documentation.

Pass-through entities: The analysis is more complex. The reduced credit uses the corporate rate, but owners' marginal rates may differ. Model your specific situation.

Multi-state filers: State treatment of the 280C election varies. Some states conform, others do not. Coordinate federal and state planning.

2026 Relevance

Per Rev. Proc. 2025-28, OBBBA allows small businesses to make late 280C(c)(2) elections or revocations on amended returns filed by July 6, 2026 (or earlier if the statute of limitations closes first). If prior elections were made under the capitalization regime and assumptions have changed, this is a narrow window to revisit them.

For detailed 280C analysis, see Section 280C reduced credit election after OBBBA.

State Credit Overlay

Many states offer R&D tax credits that can add meaningful value on top of federal benefits.

Conforming states: Many states with R&D credits use the federal Section 41 framework. The same expenses generally qualify, though rates and caps vary by jurisdiction.

Decoupled states: Some states (including California) have their own conformity dates and credit rules.

2026 considerations:

• Identify which states offer credits where your R&D activity is performed
• Determine whether state conformity to Section 174A affects deduction timing
• Evaluate whether state amended returns are required for retroactive claims

For a state-by-state overview, check “State R&D Tax Credit Information”. For California-specific conformity, check “California R&D Tax Credits”.

Decision Tree: Where to Focus

Are you amending 2022-2024 returns for retroactive Section 174A elections?

Your priorities:

1. Verify Section 448(c) eligibility (including controlled group aggregation)
2. Calculate statute of limitations for each year before assuming July 6, 2026 applies
3. Build business-component-level documentation meeting current IRS standards
4. Evaluate 280C election decisions under the new expensing regime

See: retroactive Section 174A election deadline and filing risks and R&D tax credit documentation requirements and common mistakes

Are you filing current-year credits (2025 forward)?

Your priorities:

1. Use tax year 2025 as your Section G dry run (optional this year, mandatory starting 2026)
2. Implement project-level time and expense tracking
3. Create contemporaneous technical documentation templates
4. Build the data outputs listed in the Section G Readiness section

See: The Section G Readiness section above

Do you have a multi-entity or controlled group structure?

Your priorities:

1. Complete controlled group analysis before any elections
2. Determine how QRE allocation rules apply across entities
3. Coordinate federal and state filings for consistency

See: R&D tax credit controlled group aggregation rules

What To Do Next: 2026 Checklist

Q1 2026:

• [ ] Complete controlled group analysis for Section 448(c) eligibility
• [ ] Determine if retroactive election makes sense for 2022-2024
• [ ] Calculate statute of limitations deadlines for each open year
• [ ] Audit time tracking and project coding systems for Section G readiness

Q2 2026:

• [ ] File retroactive amended returns before July 6 deadline (or earlier if statute applies)
• [ ] Finalize 280C election decisions for any amended returns
• [ ] Implement project-level documentation templates for 2026 activities

Q3-Q4 2026:

• [ ] Run optional Section G for 2025 return as dry run
• [ ] Address documentation gaps before 2026 year-end
• [ ] Coordinate state credit filings with federal strategy
• [ ] Prepare systems for mandatory Section G on 2026 returns

Ongoing:

• [ ] Capture technical uncertainties and experimentation contemporaneously
• [ ] Review QRE allocation quarterly, not annually
• [ ] Monitor IRS guidance for Section G and documentation updates

Official Sources

• One Big Beautiful Bill Act (OBBBA)
• IRS Rev. Proc. 2025-28
• IRS IR-2025-99: Section G Timing
• IRS Research Credit Claims FAQ
• IRS Required Information for a Valid Research Credit Claim for Refund
• IRS Section 41 Research Credit Overview
• IRS Form 6765 Instructions

Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Each taxpayer's situation is unique. Entity type, controlled group status, state conformity rules, and other factors affect outcomes. Consult a qualified tax professional for advice tailored to your circumstances.

Work With Strike Tax Advisory

Strike Tax Advisory is an R&D tax credit specialist firm helping innovative businesses across software, manufacturing, engineering, life sciences, and other technical industries with 2026 R&D tax credit planning and documentation.

Our team of CPAs, engineers, and tax professionals will:

• Conduct controlled group analysis and determine retroactive eligibility
• Prepare R&D tax credit studies meeting current IRS documentation standards
• Model Section 280C election scenarios for your entity type and state footprint
• Build Section G-ready documentation systems
• Coordinate federal and state credit strategies

Schedule a complimentary assessment to evaluate your 2026 R&D tax credit position.

Success-fee engagement: no upfront cost. If we don't identify credits, you don't pay.

These legislative changes build on the foundation of the R&D tax credit program. For a full overview of how the R&D tax credit works, who qualifies, and how to claim it, see our complete guide to the R&D tax credit.