A common question is the difference between data collection and experimentation for the R&D tax credit. The short answer is that data collection alone is generally not qualified research, but using data to systematically evaluate alternatives to resolve a technical uncertainty may be. Surveys and studies are excluded under Section 41(d)(4)(D), and the distinction is in the purpose and use of the data. This page explains the framework in general terms. It is educational and is not individualized advice. For the foundational framework, see our page on process of experimentation.
Data Collection Alone Is Generally Not Research
Collecting measurements, data, or information alone — without using it to evaluate alternatives to resolve a technical uncertainty — is generally not qualified research. The process of experimentation element requires an evaluative process designed to evaluate alternatives, not merely data collection. A company that collects data for monitoring, reporting, or informational purposes is generally not conducting qualified research, even if the data is technical.
Using Data to Systematically Evaluate Alternatives
Using data to systematically evaluate alternatives to resolve a technical uncertainty may be part of a process of experimentation. For example, a company that collects performance data on alternative designs, analyzes the data to evaluate the alternatives, and uses the results to resolve a technical uncertainty may be conducting qualified research. The distinction is in the purpose and use of the data: data collected to evaluate alternatives and resolve a technical uncertainty may support the process-of-experimentation element; data collected for other purposes generally does not.
Surveys and Studies Are Excluded
Under Section 41(d)(4)(D), surveys, studies, and research relating to management functions are excluded from qualified research. This means that surveys, consumer studies, efficiency surveys, and management studies are generally not qualified research, even if they involve data collection and analysis. The exclusion reinforces that the process of experimentation must be directed at developing or improving a business component, not at surveys or management studies. For more, see our page on qualified research.
The Distinction Is in the Purpose and Use
The distinction between data collection and experimentation is in the purpose and use of the data:
- Data collection for monitoring or reporting — collecting data to monitor performance, report results, or track metrics. This is generally not qualified research.
- Data collection for surveys or studies — collecting data through surveys, consumer studies, or management studies. This is excluded under Section 41(d)(4)(D).
- Data collection to evaluate alternatives — collecting data on alternative designs, materials, or processes and using it to systematically evaluate the alternatives to resolve a technical uncertainty. This may be part of a process of experimentation.
Hypothetical Example
Consider a manufacturer that collects performance data on three alternative designs, analyzes the data to evaluate which design achieves the required performance, and uses the results to select the best design. This use of data to systematically evaluate alternatives to resolve a technical uncertainty may warrant review as part of a process of experimentation.
By contrast, if the same manufacturer collects performance data on its production process for monitoring and reporting purposes, without using it to evaluate alternatives or resolve a technical uncertainty, that is data collection, not 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 data-collection vs. experimentation analysis include records showing the purpose of the data collection (monitoring, surveys, or evaluation of alternatives), records of the alternatives evaluated, and records of how the data was used to resolve a technical uncertainty. For more, see our page on R&D tax credit documentation.
Key Takeaway
Data collection alone is generally not qualified research, but using data to systematically evaluate alternatives to resolve a technical uncertainty may be. Surveys and studies are excluded under Section 41(d)(4)(D), and the distinction is in the purpose and use of the data. Because the distinction is fact-specific, professional review is appropriate.