Do You Qualify?

Four-Part Test

Congress established a four-part test that defines qualified research activities associated with new and improved product and process development to exclude routine engineering.


Technological in Nature

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.


Technological Uncertainty

Designs related to the development activities must have inherent risks or uncertainties associated with their potential for success.


Process of Experimentation

This test, intended to exclude routine engineering, requires a process of theoretical or physical evaluation that can result in the development of design alternatives.


Permitted Purpose

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.

Indicators of Qualified Research

Whether or not a company qualifies for the Research & Experimentation Tax Credit depends on many factors.  Typical indicators of qualified research include:

  • Degreed engineers or scientists on staff
  • Operates in a manufacturing industry
  • Patentable products or production methods
  • Has new/continuous improvements to products and/or processes
  • Operates in industry where prototyping is common
  • Is awarded government R&D projects, from program such as: SBIR, STTR
  • Engages in Continuous Quality Improvement efforts
  • Manufactures simple products in a highly automated system
  • Creates high warranty costs due to improper product/process design
  • Develops software using new algorithms, techniques or architectures