Congress established a four-part test that defines qualified research activities associated with new and improved product and process development to exclude routine engineering.1
Activities must be based on a hard science such as physics, biology, chemistry and computer sciences. The activity cannot be based on the soft sciences which include psychology, humanities, arts or social sciences.2
Designs related to the development activities must have inherent risks or uncertainties associated with their potential for success.3
This test, intended to exclude routine engineering, requires a process of theoretical or physical evaluation that can result in the development of design alternatives.4
The goal of the activity must be to improve the fit, form, or function of a product or process. This does not include development directly related to aesthetic changes or technology that does not build on a company’s knowledge base.
Whether or not a company qualifies for the Research & Experimentation Tax Credit depends on many factors. Typical indicators of qualified research include: