The Four Criteria for
R&D Credit Eligibility

Not every R&D activity qualifies for the credit. The IRS applies a four-part test to determine eligibility, and most state programs follow the same framework. A plain-language outline is below.

Download the 4-Part Test PDF

1 – Technological in Nature

For any business activities to qualify, they must rely on the “hard sciences” — engineering, physics, chemistry, biology, computer science, or mathematics.

2 – Permitted Purpose

The business activities 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?
  • Technical Design: What’s the right design to achieve the objective?

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.

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