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Plain-language definitions of the terms that decide whether — and how much — you qualify. Search or filter by category.
24 terms
Under IRC §41(d)(2), the product, process, software, technique, formula, or invention being developed or improved. The credit attaches to the business component, not to the activity performed on it.
Related: Four-part test, Shrink-back rule
The IRS gate every activity must pass: (1) permitted purpose, (2) technological in nature, (3) elimination of uncertainty, and (4) a process of experimentation.
Related: Business component, Technical uncertainty, Process of experimentation
Uncertainty at the outset of a project about capability (can it be done?), methodology (how?), or appropriate design — a prerequisite for qualified research.
Related: Four-part test, Process of experimentation
A systematic evaluation of one or more alternatives to resolve technical uncertainty — modeling, simulation, or trial and error.
Related: Four-part test, Technical uncertainty
The spend that earns the credit: taxable wages for qualified services, supplies consumed in R&D, software/cloud/compute used to develop or test, and 65% of contract research.
Related: Qualified services, “Substantially all” (80%) rule, Contract research
The three categories of work whose wages can count: engaging in qualified research, directly supervising it, and directly supporting it (Treas. Reg. §1.41-2(c)).
Related: Qualified Research Expense (QRE), “Substantially all” (80%) rule
If at least 80% of an employee’s time is spent on qualified services, 100% of their wages count as a QRE; below 80%, only the actual qualified portion counts (Treas. Reg. §1.41-2(d)).
Related: Qualified Research Expense (QRE), Qualified services
Payments to a third party performing qualified research on the taxpayer’s behalf, includable at 65% — provided the taxpayer retains substantial rights and bears the financial risk.
Software developed primarily for the taxpayer’s own internal operations. It must clear an additional three-part high-threshold-of-innovation test under Treas. Reg. §1.41-4(c)(6).
Related: High-threshold-of-innovation test, Dual-function software
The extra three-part test for internal-use software: it must be innovative, developed under significant economic risk, and not commercially available without qualifying modification.
Related: Internal-use software (IUS), Dual-function software
Software serving both internal users and third parties. Governed by separate presumption and safe-harbor rules that can carve out the third-party-facing subset.
Related: Internal-use software (IUS), High-threshold-of-innovation test
The Internal Revenue Code section that creates the Credit for Increasing Research Activities — the federal R&D tax credit.
Related: IRC §174 / §174A, Four-part test, Qualified Research Expense (QRE)
The section governing the treatment of research and experimental expenditures. Expenses claimed for the §41 credit must be eligible §174/§174A research expenditures.
Related: IRC §41, Qualified Research Expense (QRE)
The IRS form used to calculate and claim the R&D credit. Recent revisions add Section G, requiring business-component-level reporting.
Related: Form 6765 Section G, IRC §41
The project-by-project, business-component reporting schedule on Form 6765 — descriptive name, information sought, and QREs per component.
Related: Form 6765, Business component
Categories the law carves out: research after commercial production, adaptation, funded research, duplication, surveys/studies, internal-use software (with exceptions), foreign research, and the social sciences/arts.
Related: Funded research, Adaptation, Shrink-back rule
Work paid for by a customer or grant where the taxpayer keeps no substantial rights and bears no financial risk — excluded from the credit.
Related: §41(d)(4) exclusions, Contract research
Adapting an existing business component to a particular customer’s requirement or environment — excluded from the credit.
Related: §41(d)(4) exclusions
If an entire business component doesn’t qualify, the analysis “shrinks back” to the most significant qualifying subset of it (Treas. Reg. §1.41-4(b)(2)).
Related: Business component, §41(d)(4) exclusions
A method that computes the credit as 14% of current-year QREs over 50% of the average QREs for the prior three years — often simpler than the regular method.
Related: Regular (traditional) method, Qualified Research Expense (QRE)
Computes the credit as 20% of current-year QREs above a base amount derived from historical gross receipts and a fixed-base percentage.
Related: Alternative Simplified Credit (ASC), Qualified Research Expense (QRE), Base amount
A startup that may elect, under IRC §41(h), to apply up to a set amount of the R&D credit against the employer share of payroll taxes instead of income tax.
Related: Payroll tax offset, Form 6765 Section G
The QSB election that applies the research credit against the employer portion of Social Security tax — valuable for pre-profit companies.
Related: Qualified Small Business (QSB)
The threshold the regular method requires QREs to exceed before the 20% credit applies, based on historical gross receipts and a fixed-base percentage.
Related: Regular (traditional) method
Educational information only — not tax, legal, or accounting advice. R&D tax credit rules (IRC §41, §174, Form 6765) are complex and fact-specific. Consult a qualified professional before acting.