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Last Updated: 2/22/2017

R&D Credit Four-Part Test

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​Elimination of Uncertainty

  • Qualify as a business deduction under Section 174 of the Internal Revenue Code  
  • Undertake (perform) activity to discover information
  • Eliminate technical uncertainty concerning the capability or method for developing or improving a product or process

​Discovering Technological Information

Discover information that relies on principles of:

  • Physical sciences
  • Engineering, Chemistry, Biology, Metallurgy, or Computer Science


​Permitted Purpose

Research is treated as performed for a permitted purpose if the new or improved business component relates to:

  • Function
  • Reliability
  • Performance
  • Quality

See Internal Revenue Code 41(d)(1)(B)(ii)

Process of Experimentation

  • Evaluate alternatives
  • Develop and test hypothesis
  • Refine or discard the hypothesis
  • Technical Risk: Failure may occur


See Internal Revenue Code 41(d)(1)(C)

Note: Internal-use computer software may be qualified research if it meets the above Four-Part Test and the additional Three-Part Test set forth in Treasury Regulation 1.41-4, paragraph (c)(6)(vii).