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Can you claim R&D tax credit for website development?

Bryan Frey's Profile

My company has a website that is actually our "product". Imagine a site that we build and continuously add to and improve b/c it's our moneymaker via advertising, etc.. We have a staff of developers who work to do all of that constant building and improving. Does their work qualify for R&D tax credits?

Answers

Ray Scheppach
Title: Chief Financial Officer
Company: Vail Systems, Inc.
(Chief Financial Officer , Vail Systems, Inc.) |

Bryan - Hi. I have managed this process with our firm for a number of years now. Actually, we even hired a 3rd party firm to assist us for a few years. Overall, there is a 4 part test. If you meet those requirements, then "yes' its qualifies.
See the 4 parts below.

Permitted Purpose: The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component. A business component is defined as any product, process, technique, invention, formula, or computer software (see exclusion for internal use software below) that the taxpayer intends to hold for sale, lease, license, or actual use in the taxpayer's trade or business.

Elimination of Uncertainty - the taxpayer must intend to discover information that would eliminate uncertainty concerning the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, method of development or improvement, or the appropriateness of the business component's design.

Process of Experimentation: the taxpayer must undergo a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer’s research activities. Treasury Regulations define this as broadly as conventional implementation of the scientific method to something as informal a systematic trial and error process.

Technological in Nature: the process of experimentation used to discover information must fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. A taxpayer may employ existing technologies and may rely on existing principles of the physical or biological sciences, engineering, or computer science to satisfy this requirement.

Good luck!
Ray Scheppach, CFO

Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Ray's summary is excellent, but the general language clearly does not provide unequivocal guidance for all efforts. Your specific application may face its greatest challenge in meeting the "process of experimentation" test as many elements of your development may not be currently incorporated but are generally known to work. Development of features not employed anywhere else will improve your case. Tax attribute qualification is not always easy.

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