The Big Picture for 2025

At a high level, the R&D credit landscape for 2025 can be summarized simply:

• The rules haven’t loosened.

• Enforcement remains active and targeted.

• State credits continue to diverge sharply.

• Process and documentation matter more than ever.

Companies that treat the credit as a system will be fine.
Companies that treat it as a one-off calculation remain exposed.

IRS Enforcement: No Retreat, Just Refinement

Despite public conversation around IRS staffing and budget constraints, the Internal Revenue Service has not stepped back from R&D credit scrutiny.

What has changed is how that scrutiny is applied.

The IRS continues to focus on:

• factual support for qualified activities,

• clear linkage between wages and technical uncertainty,

• and consistency across years.

Rather than broad, random challenges, the IRS is concentrating on:

• inflated wage allocations,

• templated or generic narratives,

• and studies that appear disconnected from how the business actually operates.

For 2025 filings, the practical takeaway is straightforward:
defensibility matters at least as much as credit size.

Form 6765: What’s New (and What’s Optional)

The structure of Form 6765 remains largely intact, but several changes affect how companies should approach it.

Optional Narrative Sections (For Now)

Certain narrative-style disclosures introduced in prior years remain optional for 2025 filings.

That has caused confusion.

Optional does not mean irrelevant.

Many companies are choosing not to complete these sections to reduce filing burden. Others are completing them selectively to:

• align the tax filing with their underlying documentation,

• or reduce future questions.

The key point:
Whether or not you complete optional sections, the underlying support must exist.
Skipping the form does not reduce audit expectations.

Refund Claim Procedures Still Matter

For amended returns and refund claims, the IRS continues to expect:

• clear explanation of changes,

• credible reconstruction of activities,

• and consistent methodology.

Nothing about the refund process has become “easier” in 2025. If anything, the bar for clarity has risen.

Federal Baseline Rules That Did Not Change

Amid all the noise, several foundational rules remain unchanged — and continue to trip people up.

• Research must still meet the four-part test.

• Research must still be performed within the United States.

• Wage allocations must still reflect actual technical involvement, not titles.

• The credit still rewards increasing research activity, not just activity itself.

• Federal credits still carry forward up to 20 years.

These rules form the backbone of every defensible study. Any approach that assumes otherwise is starting from a fragile position.

High-Impact State Updates for 2025

Where 2025 does look meaningfully different is at the state level.

State R&D credits continue to fragment — some becoming more generous, others more procedural, and many more situational.

Below are the state updates most likely to matter for tech and software companies.

California: ASC Conformity and Strategic Tradeoffs

California remains one of the most valuable — and complex — R&D states.

Key 2025 considerations include:

• Conformity with the Alternative Simplified Credit (ASC) method.

• Continued indefinite carryforward of unused credits.

• A $5M limitation on the use of business credits at the group level.

• The refundable election for disallowed credits, spread over five years.

California still rewards sustained, in-state R&D. But it increasingly penalizes sloppy methodology and unrealistic expectations.

Texas: Expansion with Structure

Texas continues to expand the reach of its R&D incentives, particularly through:

• broader eligibility,

• and clearer paths to benefit realization.

That said, Texas remains documentation-heavy and highly procedural. The value is real, but only when paired with disciplined execution.

Michigan and Minnesota: Refundability with Guardrails

Michigan and Minnesota both stand out in 2025 for refundable or quasi-refundable structures.

Key implications:

• Refundability creates value even without income tax liability.

• Application deadlines and tentative claim requirements are strict.

• Proration mechanisms mean credits are not guaranteed at face value.

These states reward companies that plan ahead — and punish those who treat state credits as an afterthought.

Oklahoma and Iowa: Application-Driven Credits

Oklahoma and Iowa illustrate an important trend:
credits that look attractive, but require advance approval or annual applications.

For 2025:

• Timelines matter as much as eligibility.

• Administrative effort can outweigh benefit for smaller footprints.

• These credits work best when state presence is intentional and material.

What Companies Should Actually Do Differently in 2025

The biggest mistake companies make is assuming they need to “do more” in response to updates.

In reality, most need to do a few things more deliberately.

For 2025, that means:

• treating R&D credits as a recurring system, not a one-time calculation,

• aligning documentation with how engineering work actually happens,

• evaluating state credits through a federal-first lens,

• and setting expectations around timing, not just dollar amounts.

The companies that struggle are rarely the ones pushing boundaries. They’re the ones relying on outdated assumptions.

The Bottom Line

The 2025 R&D credit environment is not about new loopholes or expanded generosity.

It’s about:

• consistency,

• credibility,

• and informed selectivity.

For companies willing to approach the credit with discipline, the opportunity remains meaningful. For those chasing shortcuts, the risks are becoming clearer — and more expensive.

This is the year to stop thinking about the R&D credit as a tax form and start thinking about it as part of the company’s operating and financial strategy.