The Four Criteria for
R&D Credit Eligibility
Most, but not all, research and development activities qualify for the credit. The IRS defines a clear four-part test to determine eligibility—federal and state programs are typically based on the same framework.
Below is a plain-language outline or download the PDF now.
Download the 4-Part Test PDF
1 – Technological in Nature
The activity must rely on the “hard sciences”—engineering, physics, chemistry, biology, computer science, or mathematics.
2 – Permitted Purpose
The activity must be intended to create or improve a “business component,” such as:
- Products
- Processes
- Techniques
- Inventions
- Formulas
- Software
3 – Technical Uncertainty
The work must address uncertainty in at least one of the following:
- Capability: Can it be done?
- Methodology: How should it be done?
- Design: What should it look like or how should it function?
4 – Process of Experimentation
The activity must involve a process of experimentation—iterative in nature—where alternatives are evaluated and solutions tested. This may include modeling, simulation, prototyping, hypothesis testing, or trial and error type approaches.
What’s Not Included
Certain activities are excluded, including research conducted outside the U.S., routine testing or quality control, reverse engineering, and purely aesthetic changes.
Download the Complete Guide
The downloadable PDF provides the full four-part test language, along with expanded definitions and a list of non-qualified activities.