Phase 1: Define Standard Practice

The US Internal Revenue Service (IRS) requires work to be supervised by personnel with appropriate technical backgrounds and clarifies that in describing activities performed,

“Qualified  activities for the research credit must pass a four part test ”1

IRS Four part test

  • Technological in nature
  • Permitted purpose (discovering information)
  • Elimination of uncertainty
  • Process of experimentation

Technological in nature (stage 0 qualification)

Activity must rely on the principles of physical sciences such as

  • engineering, biology, or computer science . …
  • does not include research in  the social sciences. 2


Permitted purpose:

“Discovering information … application of which … development of a new or improved business component of the taxpayer …

A business component may include a product, process, technique, formula, invention, or software.” 3

A) Define industry “standard practice”:

“discovering information [defined] as obtaining knowledge that exceeds, expands, or refines the common knowledge of skilled professionals in a particular field of science or engineering.” 4

B) Objective beyond standard practice:

“Research is to be treated as conducted for a qualified purpose if it relates to (i) a new or improved function, (ii) performance, (iii) reliability or quality.” 5

1. IRS code Section 41(d) (1)

2. IRS code Section 41(d) (4)

3. IRS code Section 41(d)(1 & 4)

4. IRS code Section 41(d)(1 & 4)

5. IRS code Section 41(d)(3)(A)