R&D Tax Credit Documentation Checklist

1Business components and the four-part test

The four-part test applies to each business component separately, so keep one file per component.

• A list of every business component in the claim: each product, process, computer software, technique, formula or invention, and whether you sell, lease or license it or use it in your business.

  Source: IRC 41(d)(2)(B)
• Test 1, section 174A: the costs are domestic research or experimental expenditures.

  Source: IRC 41(d)(1)(A)
• Test 2, technological in nature: the work relied on the physical or biological sciences, engineering or computer science.

  Source: IRC 41(d)(1)(B); Treas. Reg. 1.41-4(a)(4)
• Test 3, business component: the new or improved product, process or software the work was meant to produce.

  Source: IRC 41(d)(1)(B)(ii)
• Test 4, process of experimentation: the uncertainty at the start (capability, method or appropriate design), the alternatives you tried, how you evaluated them (modeling, simulation, systematic trial and error) and what you learned.

  Source: Treas. Reg. 1.41-4(a)(5)
• Support that at least 80% of the component’s research activities were part of that process, measured on cost or another consistent basis.

  Source: Treas. Reg. 1.41-4(a)(6)
• The purpose: a new or improved function, performance, reliability or quality. Style, taste, cosmetic or seasonal design does not count.

  Source: IRC 41(d)(3)
• A screen for excluded work: research after commercial production, adapting or duplicating an existing component, surveys and studies, research outside the United States, social sciences and funded research.

  Source: IRC 41(d)(4)
• For software: whether it is internal-use, dual-function, excepted or not internal use. Internal-use software must also meet the high threshold of innovation test.

  Source: Treas. Reg. 1.41-4(c)(6); Form 6765 instructions
• Project records that show the work as it happened: specifications, design documents, test plans and results, prototypes, code commits and meeting notes.

  Source: IRS Audit Techniques Guide; Treas. Reg. 1.41-4(d)
• Any utility patent issued for the work. A patent is conclusive evidence that you discovered technological information, but no patent is required.

  Source: Treas. Reg. 1.41-4(a)(3)(iii)

2Research wages

Tie every wage dollar to a person, a role and a business component.

• W-2 wages (as defined in section 3401(a)) for each person in the claim, with the payroll register that ties to them.

  Source: IRC 41(b)(2)(D)
• Each person’s role on each component: doing the research, direct supervision (first-line managers only) or direct support, such as a lab worker cleaning test equipment or a clerk compiling research data. These match Form 6765 Section G columns 50, 51 and 52.

  Source: IRC 41(b)(2)(B); Treas. Reg. 1.41-2(c)
• General and administrative work left out: payroll, accounting, HR, and managers above the first line.

  Source: Treas. Reg. 1.41-2(c)
• Each person’s share of time on qualified work, by component, and how you measured it.

  Source: IRS Audit Techniques Guide; Treas. Reg. 1.41-4(d)
• For anyone at 80% or more: support for that figure, since all of that person’s wages then count.

  Source: Treas. Reg. 1.41-2(d)(2)
• Officer wages in the claim, totaled separately for Form 6765 line 38.

  Source: Form 6765 instructions
• Wages used for the work opportunity credit, kept out of research wages.

  Source: Form 6765, line 42

3Time records

The IRS audit guide says information that supports a claim “should be contemporaneous and available for inspection.”

• Records made while the work happened that tie hours to a component: timesheets, project or task codes, tickets, sprint boards, lab notebooks or test logs.

  Source: IRS Audit Techniques Guide
• For any time share that is an estimate: who made it, when, and from what records. The guide notes that examiners do not have to accept estimates.

  Source: IRS Audit Techniques Guide
• If you used statistical sampling: the sampling plan, which must follow Rev. Proc. 2011-42.

  Source: Form 6765 instructions

4Supplies and computer use

• Invoices for supplies used in the research, tied to a component. Supplies exclude land, improvements to land and property you depreciate.

  Source: IRC 41(b)(2)(C)
• No overhead or indirect costs. The IRS audit guide notes that QREs do not include them.

  Source: IRS Audit Techniques Guide
• For cloud or computer rental: invoices for the right to use computers off your premises in the research, where you are not the operator or primary user.

  Source: IRC 41(b)(2)(A); Form 6765, line 44

5Contract research

• The signed agreement, dated before the research began.

  Source: Treas. Reg. 1.41-2(e)(2)
• Terms showing the work is done on your behalf and that you have a right to the results. Exclusive rights are not required.

  Source: Treas. Reg. 1.41-2(e)(2) and (e)(3)
• Terms showing you pay even if the research fails. Payments that depend on success do not count.

  Source: Treas. Reg. 1.41-2(e)(2)
• Invoices and proof of payment. Only 65% of the amount counts, or 75% for a qualified research consortium.

  Source: IRC 41(b)(3); Form 6765 instructions
• Where the work was done. Research outside the United States does not qualify.

  Source: IRC 41(d)(4)(F)
• Prepaid amounts, counted in the year the research is performed.

  Source: Treas. Reg. 1.41-2(e)(4)

6Research others pay for

Research is excluded to the extent a customer, a grant or a government agency funds it.

• Every customer contract, grant or government agreement that pays for research you perform. All agreements count, not only research contracts.

  Source: Treas. Reg. 1.41-4A(d)(1)
• Whether payment depends on the research succeeding. Amounts contingent on success are not treated as funding.

  Source: Treas. Reg. 1.41-4A(d)(1)
• Whether you keep substantial rights in the results. If the other party gets the exclusive right to exploit the results, the research is treated as fully funded.

  Source: Treas. Reg. 1.41-4A(d)(2)
• If you keep substantial rights: the funding amount, which reduces your research expenses.

  Source: Treas. Reg. 1.41-4A(d)(3)

7Prior years in the credit base

• QRE totals for each of the three prior tax years, figured the same way as this year. The Alternative Simplified Credit is built on them.

  Source: IRC 41(c)(4); Form 6765, line 21
• Any new or recharacterized expense category applied to the base years too.

  Source: Form 6765 instructions, line 40
• The records behind those totals, not only the totals. The IRS audit guide describes a court case where a credit was disallowed because base period records had been destroyed.

  Source: IRS Audit Techniques Guide

8Form 6765 items

• Item A: your section 280C reduced-credit choice. It is made only on the original, timely filed return and cannot be made or changed on an amended return.

  Source: Form 6765 instructions
• Item B: the controlled group statement, if related companies are under common control.

  Source: Form 6765 instructions
• Section E: the number of business components (line 37), officer wages (line 38), acquisitions or dispositions (line 39) and new expense categories (line 40).

  Source: Form 6765
• Section F: QREs by category, meaning wages, supplies, computer rental and contract research (lines 42 to 48).

  Source: Form 6765
• Section G: optional for tax years beginning before 2026. For later years it is required unless you are a qualified small business electing the payroll credit, or your QREs are $1.5 million or less, average gross receipts are $50 million or less and you file an original return. When required, report at least 80% of QREs by business component, up to 50 components.

  Source: Form 6765 instructions (Rev. December 2025)

9Amended returns and refund claims

A refund claim that includes the research credit needs specific information at filing to be valid.

• Every business component the claim relates to for that year.

  Source: IRS research credit claim FAQs
• The research activities performed for each business component.

  Source: IRS research credit claim FAQs
• Total qualified wages, supplies and contract research for the year. Form 6765 can show this.

  Source: IRS research credit claim FAQs
• Names of the people who did the work and the information each sought. The IRS stopped requiring these at filing on June 18, 2024, but may ask for them in an exam.

  Source: IRS research credit claim FAQs, FAQ 21
• Form 6765 Section G, column 49(f), for a new or increased credit on an amended return.

  Source: Form 6765 instructions
• A deficient claim gets a letter and 45 days to fix it, under a transition period that runs through January 10, 2027.

  Source: IRS research credit claim FAQs

10Payroll election records

For a qualified small business applying the credit against employer payroll tax.

• Gross receipts under $5 million for the year and none before the five-year period ending with it, counted across companies under common control.

  Source: IRC 41(h)(3) and (h)(5)
• A count of earlier payroll elections. No election is allowed after five prior years with one.

  Source: IRC 41(h)(4)(B)(ii)
• Form 6765 Section D on the original, timely filed return, extensions included: box 33a, the elected amount on line 34 (up to $500,000), line 35 and line 36. Partnerships and S corporations skip line 35.

  Source: Form 6765 and instructions
• The date that return was filed. The credit starts on the Form 941 for the first quarter that begins after it.

  Source: Form 8974 instructions
• Form 8974 attached to each Form 941 that uses the credit, with the total carried to Form 941 line 11.

  Source: Form 8974 instructions
• A quarter-by-quarter log from Form 8974 Part 1: the amount elected, the amount used in earlier quarters and the amount remaining.

  Source: Form 8974 instructions
• Each quarter’s Form 941 and payroll register, showing the employer Social Security and Medicare tax the credit reduced.

  Source: Form 8974 instructions, lines 8 to 16

11Keeping the file

• Records “in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit.”

  Source: Treas. Reg. 1.41-4(d)
• Keep them as long as their contents “may become material in the administration of any internal revenue law.”

  Source: Treas. Reg. 1.6001-1(e)
• The elected payroll credit carries from quarter to quarter until used, and credit you do not elect can carry forward up to 20 years, so the file supports those later returns too.

  Source: IRC 3111(f)(3); IRC 39