R&D Credit Four-Part Test

• 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

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

Discover information that relies on principles of:

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

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

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)

• 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).