Qualifying R&D Activities
1. Permitted Purpose
The activity improves function, performance, quality or reliability of a product, process, software, technique, formula or invention for sale, lease or license by the company or to carry out the company’s trade or business.
2. Elimination of Uncertainty
The activity tries to resolve uncertainty concerning the configuration, performance or methodology of the intended product, process, software, technique, formula or invention.
3. Process of Experimentation
The process of experimentation is using a systematic process to identify and evaluate multiple alternatives to achieve the desired result. The process of experimentation uses modeling, simulation, trial and error and prototyping.
4. Technological in Nature
The activity performed must fundamentally rely on principles of physical or biological sciences, engineering or computer science. The activity was intended to exceed, expand or refine the common knowledge of the skilled professionals in a particular field of science or engineering.
Three Types of R&D Situations where Qualifying Research Activities Occur
Classic R&D
Resulting from a deliberate decision to develop a new or improved product or process
Contingent R&D
Planned to be contingent on receiving an order where the bid was made knowing that existing technology is insufficient to fill the order without some development effort.
Unplanned R&D
Arising from the sudden discovery, part way through filling an order, that existing technology is inadequate and must be advanced by an emergency development effort to complete the order.
Qualifying Research Activities Typically Include One or More of the Following
- Development of products or processes using specific know-how that is treated as a trade secret or is patentable.
- Development of new or improved products in which the state of the art is advanced and that required one or more design iterations to achieve.
- Development or incorporation of a new technology in order to catch up to a competitor.
- An attempt to develop a new or improved product or process that was eventually abandoned.
- Implementation of a new process or improvements to an existing process relating to manufacturing, testing or quality control.
- Development of new products in which technical uncertainties must be overcome in order to satisfy the requirements of a customer specification or performance requirement.
Qualifying Research Activities are performed by employees who conduct, directly supervise or support the development effort.
Conduct R&D Activities
Employees who conduct research activities are generally involved in hands-on efforts and engaged in identifying and resolving technical problems.
Direct R&D Supervision
Direct supervision of research activities concerns immediate supervision (first-line management) of qualified research activities such as an engineering manager who directly supervises a team of engineers and technicians, but who does not perform hand-on development work.
Support R&D Activities
Support of research activities refers to activities performed that support those employees conducting or supervising the qualified research activities.
