Qualified research activities and expenses are defined using the following four-part IRS test, as outlined under Section 41:
1. Permitted purpose R&D activities must develop or improve the functionality, performance, reliability or quality of a new or existing business component (product, process, software, technique, formula or invention).
2. Elimination of uncertainty The development or improvement of the business component must seek to discover information that would eliminate uncertainties about its appropriate design or the capability or method of its development.
3. Process of experimentation Taxpayers are required to identify technological uncertainty and then properly evaluate one or more alternatives to eliminate it.
4. Technological in nature Experimentation has to rely on the principles of engineering, physical or biological science, or computer sciences and seek to discover information that is technological in nature.