R&D credits can be claimed by numerous industries, including software development, manufacturing, life sciences, engineering, architecture, food & beverage, and agriculture. Any company can claim R&D credits as long as the activities meet the requirements of the 4-Part Test below:
- Permitted Purpose: In simple terms, the purpose of the activity or project must be to create something new or improved product, process, software, invention, patent, or formula (referred to as a business component). The permitted purpose falls under a broad umbrella that includes improving functionality, performance, reliability, or quality of the business component.
- Elimination of Uncertainty: The activities and project in question must attempt to eliminate uncertainty related to the optimal design, development methodology, or component’s capability to achieve the permitted purpose.
- Process of Experimentation: Substantially all of the activities constitute elements of a process of experimentation. The activities must include a systematic evaluation of alternative solutions to eliminate the technical uncertainty through, for example, trial and error or a Product Development Lifecycle (“PDLC”).
- Technological In Nature: The activities and process of experimentation must rely on the fundamental principles of hard science, including biological sciences, computer science, engineering, physics, or chemistry.