Qualifying Research Activities

Qualifying Research Activities relate to efforts undertaken to develop new products, enhance existing products, and to develop or improve manufacturing processes. In order to qualify for the R&D tax credit, the qualifying research activities must satisfy the Four Tests ascribed by the Internal Revenue Service. In addition, the company carrying out the work must bear the financial risk.

The Four Tests

  • Technological-in-Nature
  • Permitted Purpose
  • Uncertainty
  • Process-of-Experimentation

The activity was undertaken for the purpose of discovering information that is technological in nature and fundamentally relies on principles of physical or biological sciences, engineering or computer science. The activity was intended to exceed, expand or refine the common knowledge of the skilled professionals in a particular field of science or engineering.

It has been found that there are three types of R&D situations in which qualifying research activities occur:

Classic R&D

Contingent R&D

Unplanned R&D