Internal Use Software Exclusion

The computer software exclusion (not to be confused with the computer software business component) is specific to internal use software (IUS). The intent of this exclusion is to exclude activities related to IUS such as installing or implementing SAP, Oracle, or Windows. Officially, the IRS considers IUS to be software tailored for general and administrative functions including: human resources, finances, and support services. However, as technology advances, many activities related to internal use software appear to qualify as R&D. For instance, a client uses Microsoft SharePoint for their company Intranet. SharePoint is highly customizable and can be tailored to a company’s needs. Thus, the company appoints someone in their IT department to assist in customizing certain functions within SharePoint. Does … Read More

Exclusions to the R&D tax credit

Now that we have a framework for how to qualify projects as R&D, we should take some time to understand what does not qualify. The Internal Revenue Service specifically excludes eight activities from qualifying as R&D. These are: Think of your project on a timeline. Once the project reaches commercial production, and uncertainty is resolved, R&D is effectively complete. Any expense incurred afterwards will not count toward your R&D tax credit. For a manufacturer of widgets, the expenses that go into the design, modeling, and prototyping of the widget qualify. As do pilot and trial manufacturing runs. However, once the widget is ready for mass production, R&D stops. If quality decreases during production, the efforts in quality control to resolve … Read More