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Sciences (Technological In Nature)

The IRS requires that any activity that qualifies, relies on the principles of the hard sciences (computer science, engineering, physics, chemistry, and biology). You can feel free to check all that apply as more often than not, there are multiple disciplines coming together to develop products and/or processes.


Treas. Reg § 1.41-4(a)(4) Technological in nature For purposes of section 41(d) and this section, information is technological in nature if the process of experimentation used to discover such information fundamentally relies on principles of the physical or biological sciences, engineering, or computer science.

Business Components

The IRS wants to see specific types of products and processes being rewarded by the R&D tax credit program. These products and processes are defined by the IRS as Business Components and can include software, products, manufacturing processes, techniques, formulas, and/or inventions.


I.R.C. § 41(d)(2)(B) Business component defined The term “business component” means any product, process, computer software, technique, formula, or invention which is to be held for sale, lease, or license, or used by the taxpayer in a trade or business of the taxpayer.

Purpose (Qualified Activities)

The IRS wants to reward companies that are taking the risk to develop products and/or processes here, while targeting imrpovements centered around functionality, performance, reliability, and quality.


For purposes of section 41(d) and this section, a process of experimentation is undertaken for a qualified purpose if it relates to a new or improved function, performance, reliability or quality of the business component.

Challenges (Process)

The IRS wants documentation of the types of challenges that your company encountered during your development effort. These challenges must be technical in nature and non-business related. The questions that you should have been asking yourself are: Can I make this? (Capability); How do I make this? (Methodology); and How do I engineer this? (Design).


For purposes of section 41(d) and this section, a process of experimentation is a process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer's research activities.


The IRS wants to see a systemic process of experimentation. This means that they want you to have a data-driven, repeatable process that includes analysis of multiple design alternatives and the testing and validation of those alternatives. Please check all the types of experimentation that you conducted during the course of your development work.


A process of experimentation must fundamentally rely on the principles of the physical or biological sciences, engineering, or computer science and involves the identification of uncertainty concerning the development or improvement of a business component, the identification of one or more alternatives intended to eliminate that uncertainty, and the identification and the conduct of a process of evaluating the alternatives (through, for example, modeling, simulation, or a systematic trial and error methodology). A process of experimentation must be an evaluative process and generally should be capable of evaluating more than one alternative


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