What's excluded from the credit
The eight kinds of work §41(d)(4) excludes, with internal-use software and its extra test.
Some work is never qualified research, whatever it costs and however hard it is. Section 41(d)(4) lists it, and a credit that counts any of it is a credit the IRS can take back.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- IRC §41(d)(4)(A) (opens in a new tab)Activities for which the credit is not allowedFree to read
- IRS guidance
- Instructions for Form 6765 (Rev. December 2025), Research With Respect to Software (opens in a new tab)Internal use software and the high threshold of innovationPDF · Free to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Qualified researchResearch whose costs are §174A domestic research expenditures, undertaken to discover information that is technological in nature, intended to be useful in developing a new or improved business component, where substantially all (80% or more) of the activities form a process of experimentation for a functional purpose — applied to each business component separately, and excluding research after commercial production, adaptation, duplication, surveys, most internal-use software, foreign research, social sciences and funded research
- Internal-use softwareSoftware developed primarily for the taxpayer's own general and administrative functions — financial management, human resources, support services. Its development qualifies for the research credit only if it also meets the high-threshold-of-innovation test: innovative, significant economic risk, and not commercially available