A common question is whether certification testing counts for the R&D tax credit. The short answer is that certification testing — testing merely to certify known performance — is generally not qualified research. Development-stage testing used to resolve a technical uncertainty may warrant review, and third-party labs may be involved subject to contract research rules. This page explains the framework in general terms. It is educational and is not individualized advice. For the foundational framework, see our page on qualified research.
Certification Testing
Certification testing — testing to certify that a product meets an established standard or specification — is generally not qualified research. The characteristics of certification testing include:
- Known standard — the specification or standard is established.
- Known test method — the procedure for testing is established.
- Expected result — the expected outcome is known (pass or fail against the standard).
- Verification, not evaluation — the testing verifies conformance, it does not evaluate alternatives.
Where all four are present, the work is verification, not experimentation, and generally is not qualified research. For more on this distinction, see our page on routine testing vs. R&D experimentation.
Development-Stage Testing
Development-stage testing — testing used to resolve a technical uncertainty about a business component being developed or improved — may warrant review as qualified research. The distinction is in the purpose and nature of the testing: certification testing verifies conformance to a known standard; development-stage testing evaluates alternatives to resolve a technical uncertainty. The same physical activity — running a test — can be certification or research depending on the purpose and context.
Third-Party Labs
Third-party testing labs may be involved in either certification testing or development-stage testing. Where the lab performs certification testing, the costs generally are not qualified research. Where the lab performs development-stage testing as part of a process of experimentation on behalf of the taxpayer, the costs may warrant review as contract research, subject to the contract research rules (65% inclusion, economic risk, substantial rights, U.S. location). For more, see our page on third-party testing labs.
The Careful Distinction
The distinction between certification testing and development-stage testing requires care:
- Certification testing — known standard, known method, expected result, verification. Not qualified research.
- Development-stage testing — technical uncertainty, alternatives evaluated, evaluative process. May warrant review.
A single project may involve both types of testing at different stages. Testing during development, before commercial production, is more likely to be development-stage testing. Testing after commercial production, to certify a production product, is more likely to be certification testing. For more on the timing, see our page on research after commercial production.
Hypothetical Example
Consider a manufacturer that is developing a new product and tests alternative designs to resolve a technical uncertainty about performance. This development-stage testing may warrant review as qualified research. Later, after the product reaches commercial production, the manufacturer tests production units to certify that they meet the established specification. This certification testing is generally not qualified research.
These examples are illustrative only and do not state whether any particular activity qualifies.
Documentation That May Help
Records that can help support the certification vs. development-stage testing analysis include records showing the purpose of the testing (certification or development), records of the technical uncertainty (if any), records of alternatives evaluated (if any), and records showing when commercial production began. For more, see our page on R&D tax credit documentation.
Key Takeaway
Certification testing — testing merely to certify known performance — is generally not qualified research. Development-stage testing used to resolve a technical uncertainty may warrant review, and third-party labs may be involved subject to contract research rules. Because the distinction is fact-specific, professional review is appropriate.