OMB No. 1545-0619 Credit for Increasing Research Activities Form 6765

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 81

 Attach to your tax return.

Name(s) shown on return Identifying number

Current Year Credit (Members of controlled groups or businesses under common control, see instructions.)

1 Basic research payments paid or incurred to qualified organizations (see instructions) 1

2 Qualified organization base period amount 2

3 Subtract line 2 from line 1. If zero or less, enter -0- 3

4 Wages for qualified services (do not include wages used in figuring the work opportunity credit) 4

5 Cost of supplies 5

6 Rental or lease costs of computers (see instructions) 6

7 Enter the applicable percentage of contract research expenses (see instructions) 7

8 Total qualified research expenses. Add lines 4 through 7 8

9 9 %

10 Enter average annual gross receipts (see instructions) 10

11 Multiply line 10 by the percentage on line 9 11

12 Subtract line 11 from line 8. If zero or less, enter -0- 12

13 Multiply line 8 by 50% (.50) 13

14 Enter the smaller of line 12 or line 13 14

15 Add lines 3 and 14 15

Regular credit. If you are not electing the reduced credit under section 280C(c), multiply line 15

by 20% (.20), enter the result, and see the instructions for the schedule that must be attached.

If you are electing the reduced credit, multiply line 15 by 13% (.13) and enter the result. Also,

write “Sec. 280C” on the dotted line to the left of the entry space. Go to Section C

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For Paperwork Reduction Act Notice, see page 2. Form 6765 (2003)

Part I

Cat. No. 13700H

Enter fixed-base percentage, but not more than 16% (see instructions)

Section A—Regular Credit. Skip this section and go to Section B if you are electing or previously elected the alternative incremental

credit.

Section B—Alternative Incremental Credit. Skip this section if you completed Section A.

Multiply line 26 by 1% (.01)

Subtract line 27 from line 25. If zero or less, enter -0-

Multiply line 26 by 1.5% (.015)

Subtract line 29 from line 25. If zero or less, enter -0-

Subtract line 30 from line 28

Multiply line 26 by 2% (.02)

Subtract line 32 from line 25. If zero or less, enter -0-

Subtract line 33 from line 30

Multiply line 31 by 2.65% (.0265)

Multiply line 34 by 3.2% (.032)

Multiply line 33 by 3.75% (.0375)

Add lines 20, 35, 36, and 37

Alternative incremental credit. If you are not electing the reduced credit under section 280C(c),

enter the amount from line 38, and see the line 16 instructions for the schedule that must be

attached. If you are electing the reduced credit, multiply line 38 by 65% (.65) and enter the result.

Also, write “Sec. 280C” on the dotted line to the left of the entry space

Pass-through research credit(s) from a partnership, S corporation, estate, or trust

Current year credit. Add line 16 or line 39 to line 40, and go to Part II on the back

17 Basic research payments paid or incurred to qualified organizations (see the line 1 instructions)

18 Qualified organization base period amount

19 Subtract line 18 from line 17. If zero or less, enter -0-

20 Multiply line 19 by 20% (.20)

21 Wages for qualified services (do not include wages used in figuring the work opportunity credit)

22 Cost of supplies

23 Rental or lease costs of computers (see the line 6 instructions)

24 Enter the applicable percentage of contract research expenses (see the line 7 instructions)

25 Total qualified research expenses. Add lines 21 through 24

26 Enter average annual gross receipts (see the line 10 instructions)

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Section C—Current Year Credit for Increasing Research Activities

2003
Form 6765 (2003) Page 2

Part II Allowable Credit (See Who must file Form 3800 to find out if you complete Part II or file Form 3800.)

Credit allowed for the current year. Individuals, estates, and trusts: Enter the smallest of

line 41, line 51, or the amount from the formula in the instructions for line 52 here and on Form

1040, line 52; or Form 1041, Schedule G, line 2c. Corporations: Enter the smaller of line 41 or

line 51 here and on Form 1120, Schedule J, line 6d; Form 1120-A, Part I, line 2a; or the applicable

line of other returns. If line 52 is smaller than line 41, see instructions

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Form 6765 (2003)

● Individuals. Enter the amount from Form 1040, line 41

42

● Corporations. Enter the amount from Form 1120, Schedule J, line 3; Form 1120-A,

Part I, line 1; or the amount from the applicable line of your return

45a 45a

Credit for child and dependent care expenses (Form 2441, line 11) 45b

Credit for the elderly or the disabled (Schedule R (Form 1040), line 24)

b

45d

Foreign tax credit

d

Possessions tax credit (Form 5735, line 17 or 27)

45f f

g 45g

Credit for fuel from a nonconventional source

h

Qualified electric vehicle credit (Form 8834, line 20)

Add lines 45a through 45l 45m

46

46 Net income tax. Subtract line 45m from line 44. If zero, skip lines 47 through 50 and enter -0-

on line 51

43 Alternative minimum tax:

● Individuals. Enter the amount from Form 6251, line 35

● Corporations. Enter the amount from Form 4626, line 14 43

● Estates and trusts. Enter the amount from Form 1041, Schedule I, line 56

47

Tentative minimum tax (see instructions):

● Individuals. Enter the amount from Form 6251, line 33

47

● Corporations. Enter the amount from Form 4626, line 12

● Estates and trusts. Enter the amount from Form 1041,

Schedule I, line 54

48 Enter 25% (.25) of the excess, if any, of line 47 over $25,000 (see

instructions)

50

Subtract line 50 from line 46. If zero or less, enter -0-

50

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Mortgage interest credit (Form 8396, line 11)

c 45c

42 Regular tax before credits:

44 Add lines 42 and 43 44

49

Enter the greater of line 48 or line 49

48

49

i

Adoption credit (Form 8839, line 18) 45h

45i District of Columbia first-time homebuyer credit (Form 8859, line 11)

j

k

l

Child tax credit (Form 1040, line 49)

Education credits (Form 8863, line 18)

45j

45k

● Estates and trusts. Enter the sum of the amounts from Form 1041, Schedule G, lines

1a and 1b, or the applicable line of your return

Net regular tax. Subtract line 45m from line 42. If zero or less, enter

-0-

51



e Credit for qualified retirement savings contributions (Form 8880, line 14) 45e

45l

m

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated

average time is:

Recordkeeping 16 hr., 58 min.

Learning about the law

or the form 1 hr., 40 min.

Preparing and sending the form

to the IRS 2 hr., 2 min.

If you have comments concerning the accuracy of

these time estimates or suggestions for making this form

simpler, we would be happy to hear from you. See the

instructions for the tax return with which this form is filed.

Paperwork Reduction Act Notice. We ask for the

information on this form to carry out the Internal Revenue

laws of the United States. You are required to give us the

information. We need it to ensure that you are complying

with these laws and to allow us to figure and collect the

right amount of tax.

You are not required to provide the information

requested on a form that is subject to the Paperwork

Reduction Act unless the form displays a valid OMB

control number. Books or records relating to a form or its

instructions must be retained as long as their contents

may become material in the administration of any Internal

Revenue law. Generally, tax returns and return information

are confidential, as required by section 6103.
Form 6765 (2003) Page 3

Use Form 6765 to figure and claim the

credit for increasing research activities

(research credit).

Who Must File

Qualified Research

If you incur qualified clinical testing

expenses relating to drugs for certain

rare diseases, you may elect to claim

the orphan drug credit for these

expenses instead of the research credit.

See Form 8820, Orphan Drug Credit.

Special Rules

For special rules concerning the

allocation and apportionment of research

and experimental expenditures between

U.S. and foreign source income, see

sections 861 through 864.

Specific Instructions

Part I—Current Year Credit

Members of Controlled

Groups or Businesses Under

Common Control

Section A—Regular Credit

Line 1

Line 2

Line 6

Line 7

Line 9

The fixed-base percentage for a

start-up company is figured as follows.

General Instructions

Section references are to the Internal

Revenue Code unless otherwise noted.

Purpose of Form

An individual, estate, trust, organization,

or corporation claiming a credit for

increasing research activities; or any S

corporation, partnership, estate, or trust

that allocates the credit to its

shareholders, partners, or beneficiaries

must complete this form and attach it to

its income tax return. If allocating the

credit, see the instructions for line 41.

● Research conducted after the

beginning of commercial production.

● Research adapting an existing product

or process to a particular customer’s

need.

● Duplication of an existing product or

process. 

● Surveys or studies. 

● Research relating to certain

internal-use computer software.

● Research conducted outside the

United States, Puerto Rico, or a U.S.

possession.

● Research in the social sciences, arts,

or humanities.

● Research funded by another person

(or governmental entity).

See section 41 and Regulations

sections 1.41-2 and 1.41-4 for other

definitions and special rules.

The research credit is generally allowed

for expenditures paid or incurred before

July 1, 2004, for qualified research.

Qualified research means research for

which expenditures may be treated as

section 174 expenses. This research

must be undertaken for discovering

information that is technological in

nature, and its application must be

intended for use in developing a new or

improved business component of the

taxpayer. In addition, substantially all of

the activities of the research must be

elements of a process of

experimentation relating to a new or

improved function, performance,

reliability, or quality. The research credit

generally is not allowed for the following

types of activities.

See section 41(f) and Regulations

section 1.41 for special rules related to:

● Aggregation of expenditures for

members of controlled groups and

businesses under common control;

● Allocation of the credit by

partnerships, estates, and trusts; 

● Adjustments, if a major portion of a

business is acquired or disposed of; and

● Short tax years.

You may claim the regular credit (Section

A) or elect the alternative incremental

credit (Section B). Under the alternative

incremental credit, a smaller three-tiered

fixed-base percentage and reduced

three-tiered credit rate apply. You may

want to figure your credit both ways to

see which gives you the larger credit.

However, once elected, the alternative

incremental credit applies to the current

tax year and all later tax years, unless

you receive IRS consent to revoke the

election. In the year the consent is

granted, attach the consent to Form

6765 and the return.

For purposes of figuring the credit, all

members of a controlled group of

corporations (as defined in section

41(f)(5) and Regulations section 1.41-6),

and all members of a group of

businesses under common control, are

treated as a single taxpayer. The credit

allowed each member is based on its

proportionate share of qualified research

expenses and basic research payments

giving rise to the group’s research credit.

Use Section A or B of Part I to figure the

credit for the entire group, but enter only

this member’s share of the credit on line

16 or line 39, whichever applies. Attach

a statement showing how this member’s

share of the credit was figured, and

write “See Attached” next to the entry

space for line 16 or line 39.

Skip this section and go to Section B if

you are electing or previously elected

the alternative incremental credit (and

have not received permission to revoke

the election).

Corporations (other than S corporations,

personal holding companies, and service

organizations) may be eligible for a basic

research credit if payments in cash to a

qualified university or scientific research

organization (under a written contract)

exceed a base period amount (based on

their general university giving and certain

other maintenance-of-effort levels for the

3 preceding years). Enter your payments

on this line. See section 41(e) for details.

Enter the qualified organization base

period amount as defined in section

41(e). The amount on line 2 (not to

exceed the amount on line 1), although

not eligible for the basic research credit,

can be treated as contract research

expenses on line 7 subject to the 65%

(or 75%) limitation.

Enter the amount you paid or incurred

for the rental or lease of computers used

in qualified research. The computer must

be located off your premises and you

must not be the operator or primary user

of the computer. Reduce this amount by

the amount that you (or any member of

a controlled group of corporations or

businesses under common control)

received or accrued for the right to use

substantially identical property.

Include 65% of any amount you paid or

incurred for qualified research performed

on your behalf. Prepaid contract

research expenses are considered paid

in the year the research is actually done.

Also include 65% of that portion of the

line 1 basic research payments that

does not exceed the line 2 base

amount. However, use 75% in place of

65% for payments made to a qualified

research consortium. A qualified

research consortium is a tax-exempt

organization described in section

501(c)(3) or 501(c)(6) that is organized

and operated primarily to conduct

scientific research and is not a private

foundation.

The fixed-base percentage depends on

whether you are an existing company or

a start-up company.

A start-up company is a taxpayer that

had both gross receipts and qualified

research expenses either:

● For the first time in a tax year

beginning after 1983 or

● For fewer than 3 tax years beginning

after 1983 and before 1989.

● For the first 5 tax years beginning

after 1993 for which you have qualified

research expenses, the percentage is

3%.

The credit is not allowed for

expenditures paid or incurred after June

30, 2004.

A Change To Note
Form 6765 (2003) Page 4

The fixed-base percentage for an

existing company (any company that is

not a start-up company) is figured by

dividing the aggregate qualified research

expenses for the tax years beginning

after 1983 and before 1989 by the

aggregate gross receipts for those tax

years.

Line 10

Line 16

Section B—Alternative Incremental

Credit

Line 18

Section C—Current Year Credit

Line 41

S corporations and partnerships.

Attach Form 6765 to your tax return,

and on Schedule K-1 show the credit

allocated to each shareholder or partner.

Electing large partnerships include this

credit in “general credits.”

Part II—Allowable Credit 

See the instructions for Form 3800 to

find out which credits are included in the

general business credit.

Line 48

Line 49

Line 52

(Line 46 - Line 48) x

Taxable income for the year (Form

1040, line 40, or Form 1041, line 22)

The result figured above is limited to

the excess of line 46 over line 48. If in

the current tax year you had no taxable

income attributable to a particular

business interest, you cannot claim any

research credit this year for that

business.

If you cannot use all of the research

credit because of the tax liability limit or

the taxable income limit above (line 52 is

less than line 41), carry the unused

credit back 1 year then forward up to 20

years. See the instructions for Form

3800.

● For the 6th tax year beginning after

1993 for which you have qualified

research expenses, divide the aggregate

qualified research expenses for the 4th

and 5th such tax years by the aggregate

gross receipts for those tax years, then

divide the result by 6.

● For the 7th tax year beginning after

1993 for which you have qualified

research expenses, divide the aggregate

qualified research expenses for the 5th

and 6th such tax years by the aggregate

gross receipts for those tax years, then

divide the result by 3.

● For the 8th tax year beginning after

1993 for which you have qualified

research expenses, divide the aggregate

qualified research expenses for the 5th,

6th, and 7th such tax years by the

aggregate gross receipts for those tax

years, then divide the result by 2.

● For the 9th tax year beginning after

1993 for which you have qualified

research expenses, divide the aggregate

qualified research expenses for the 5th,

6th, 7th, and 8th such tax years by the

aggregate gross receipts for those tax

years, then divide the result by 1.5.

● For the 10th tax year beginning after

1993 for which you have qualified

research expenses, divide the aggregate

qualified research expenses for the 5th

through 9th such tax years by the

aggregate gross receipts for those tax

years, then divide the result by 1.2.

● For the 11th and later tax years

beginning after 1993 for which you have

qualified research expenses, divide the

aggregate qualified research expenses

for any 5 of the 5th through 10th such

tax years by the aggregate gross

receipts for those tax years.

The fixed-base percentage for all

companies (existing and start-up) must

be rounded to the nearest 1/100th of

1% (i.e., four decimal places) and

cannot exceed 16%. In addition, when

figuring your fixed-base percentage, you

must reflect expenses for qualified

research conducted in Puerto Rico or a

U.S. possession for all prior tax years

included in the computation.

Note: Reduce gross receipts by returns

and allowances. For a foreign

corporation, include only gross receipts

that are effectively connected with a

trade or business in the United States (or

in Puerto Rico or a U.S. possession, if

applicable).

If short tax years are involved, see

Regulations section 1.41-3(b).

Enter the average annual gross receipts

(reduced by returns and allowances) for

the 4 tax years preceding the tax year

for which the credit is being determined.

You may be required to annualize gross

receipts for any short tax year. For a

foreign corporation, include only gross

receipts that are effectively connected

with a trade or business in the United

States (or in Puerto Rico or a U.S.

possession, if applicable).

If you do not elect the reduced credit,

you must reduce your otherwise

allowable deduction for qualified

research expenses or basic research

expenses by the amount of the credit on

this line. If the credit exceeds the

amount allowed as a deduction for the

tax year, reduce the amount chargeable

to the capital account for the year for

such expenses by the amount of the

excess. Attach a schedule to your tax

return that lists the deduction amounts

(or capitalized expenses) that were

reduced. Identify the lines of your return

(schedule or forms for capitalized items)

on which the reductions were made.

Complete this section only if you are

electing or previously elected the

alternative incremental credit instead of

the regular credit (and have not received

permission to revoke the election).

Enter the qualified organization base

period amount as defined in section

41(e). The amount on line 18 (not to

exceed the amount on line 17), although

not eligible for the basic research credit,

can be treated as contract research

expenses on line 24 subject to the 65%

(or 75%) limitation.

Pass-through entities should report the

amount on line 41 as follows. 

The credit allowed for the current year

may be limited based on your tax

liability. Use Part II to figure the

allowable credit unless you must file

Form 3800, General Business Credit. 

Who must file Form 3800. You must file

Form 3800 if you have: 

● A research credit from a passive

activity,

● More than one credit included in the

general business credit (other than a

credit from Form 8844 or 8884), or

● A carryback or carryforward of any of

those credits.

See section 38(c)(4) for special rules that

apply to married couples filing separate

returns, controlled corporate groups,

regulated investment companies, real

estate investment trusts, and estates

and trusts.

Although you may not owe alternative

minimum tax (AMT), you generally must

still compute the tentative minimum tax

(TMT) to figure your credit. For a small

corporation exempt from the AMT under

section 55(e), enter zero. Otherwise,

complete and attach the appropriate

AMT form or schedule.

For an individual, estate, or trust, the

credits on line 16 or 39 and line 40 are

limited to the amount of tax attributable

to your taxable income from the sole

proprietorship or your interest in the

partnership, S corporation, estate, or

trust (pass-through entity) generating the

credit. Figure the research credit

limitation separately for each business

enterprise by using the following

formula:

Taxable income attributable to the

sole proprietorship or your interest in

the pass-through entity

Estates and trusts. Allocate the credit

on line 41 between the estate or trust

and the beneficiaries in the same

proportion as income was allocated. In

the margin for line 41, the estate or trust

should enter its share of the credit.

Label it “1041 Portion” and use this

amount in Part II (or on Form 3800, if

required) to figure the credit to take on

Form 1041. On Schedule K-1, show the

credit allocated to each beneficiary.