Prototype records — including build records, test records, and iteration records — can help support R&D tax credit documentation. This page explains how prototype records can support a credit claim. It is educational and is not individualized advice. For the general documentation concepts, see our page on R&D tax credit documentation.
How Prototype Records Support the Business Component
Prototype records can help identify and describe the business component — the product or component being developed. Records that show what was built and what it was intended to achieve can help connect activities and costs to a specific business component.
How Prototype Records Support the Uncertainty Element
Prototype records can help support the elimination-of-uncertainty element by showing what was uncertain about the prototype. Records that identify what the prototype was intended to test and what was uncertain can help demonstrate a technical uncertainty. For more, see our page on elimination of uncertainty.
How Prototype Records Support the Experimentation Element
Prototype records can help support the process-of-experimentation element by showing the alternatives that were evaluated and the iterations. Records that show multiple prototype versions, what was tested, and how results informed the next version can help demonstrate an evaluative process. For more, see our page on process of experimentation.
How Prototype Records Support the Failure Element
Records of failed prototypes can be particularly useful. Failed prototypes can be evidence of a process of experimentation, and records that show what failed, why, and what was learned can help demonstrate a genuine evaluative process. For more, see our page on documenting failed prototypes.
Hypothetical Example
Consider a manufacturer that has prototype build records showing what was built, test records showing what was tested and the results, and iteration records showing how the prototype changed in response to testing, including records of failed prototypes. These records can help support the business component, uncertainty, experimentation, and failure elements.
By contrast, a single record of a final prototype with no test or iteration records is less useful.
These examples are illustrative only.
Key Takeaway
Prototype records can help support R&D tax credit documentation by showing what was built, what was tested, and how prototypes changed. Records are most useful when they show alternatives and iterations. Because documentation adequacy is fact-specific, professional review is appropriate.