Precision agriculture and agtech companies develop technology systems for farming — including soil and crop sensors, irrigation and control systems, machine automation, remote monitoring, and data-driven decision platforms. The technical challenges can include developing sensor systems for field conditions, engineering irrigation and control automation, developing machine automation, and building crop and field algorithms for precision application. This page explains what development work may look like in a precision agriculture and agtech business and how it relates to qualified research under Section 41. It is educational and is not individualized advice.
What R&D May Look Like in Precision Agriculture & AgTech
Precision agriculture and agtech development involves sensor system development, irrigation and control engineering, machine automation development, and algorithm development. Technical development may arise when a company develops new sensor systems, engineers irrigation and control automation, develops machine automation, or builds crop and field algorithms. Work directed at resolving genuine technical uncertainty in these areas — through a structured evaluative process — may warrant review under the four-part test.
Industry-Specific Examples of Technical Development
- Developing sensor systems for field conditions where the sensor performance is uncertain.
- Engineering irrigation and control automation where the automation performance is uncertain.
- Developing machine automation for field operations where the automation performance is uncertain.
- Building crop and field algorithms for precision application where the algorithm performance is uncertain.
- Developing data systems for remote monitoring where the system performance is uncertain.
None of these constitutes qualified research by itself. Each depends on whether the work satisfies all four elements of the four-part test.
Technical Uncertainty Examples
- Whether a new sensor system can achieve the specified accuracy and reliability targets under field conditions.
- Whether an alternative irrigation control approach can achieve the specified water-efficiency target.
- Whether a modified algorithm can achieve the specified precision-application target.
For more, see our page on elimination of uncertainty.
Process-of-Experimentation Examples
- Testing alternative sensor systems in field conditions, measuring accuracy and reliability, and comparing results.
- Testing alternative irrigation control approaches, measuring water efficiency, and evaluating results.
- Developing and testing alternative algorithms, measuring precision-application performance, and comparing results.
For more, see our page on process of experimentation.
Potential Business Components
Potential business components may include a new or improved product (an agtech system with improved performance), a new or improved process (a sensor or automation process), or a new or improved technique (an algorithm or control method).
Employee Work That May Warrant Analysis
Employees whose work may warrant analysis include hardware engineers developing sensors, software engineers developing algorithms, and field engineers conducting performance testing tied to a development project. For more, see our page on R&D tax credit employee wages.
Contractor Work That May Warrant Analysis
Contractor work that may warrant analysis includes sensor and component suppliers, testing service providers, and specialized consultants — where the company bears the economic risk and retains substantial rights. For more, see our page on R&D tax credit contractor costs.
Supplies and Materials That May Become Relevant
Supplies that may become relevant include prototype sensors, components, and field test materials consumed in testing. For more, see our page on R&D tax credit supplies.
Activities That Generally Require Caution or May Not Qualify
- Routine agricultural operations and farming.
- Standard sensor installation and calibration using established methods.
- Ordinary data collection and reporting.
- Copying an existing system for a new field.
- Normal quality control and inspection following established procedures.
Documentation That May Help
Records that may help include project descriptions, sensor and algorithm test results, field performance data, and records connecting personnel and materials to specific development projects. For more, see our page on R&D tax credit documentation.
Example Hypothetical Project
The following is a hypothetical example for illustration only. It does not represent any actual company and does not state that the work qualifies.
An agtech company is developing a precision irrigation system where the standard sensor and control approach does not achieve the specified water-efficiency and crop-performance targets. The technical uncertainty is whether an alternative sensor network, a modified irrigation control algorithm, and a new remote monitoring approach can together achieve the water-efficiency, reliability, and performance targets. The team tests three sensor configurations with two control algorithms in field conditions, measures water efficiency, crop performance, and reliability, and evaluates the monitoring approach. Based on the results, the team selects a sensor and control approach and refines the monitoring system. Records of the alternatives, test conditions, and results may help support analysis — but professional review is still needed.
Questions to Ask Internally
- What specific business component was being developed or improved?
- What technical uncertainty existed at the outset?
- What alternatives were evaluated, and how were they tested?
- Who performed or directly supported the work?
- What materials were consumed in the testing?
- How does this differ from routine agricultural operations?
Relationship to the Four-Part Test
The four-part test applies the same way it does in any industry. The work must be directed at developing or improving a business component (permitted purpose), must fundamentally rely on principles of the physical sciences or engineering (technological in nature), must be intended to eliminate a technical uncertainty (elimination of uncertainty), and must be conducted through a structured evaluative process (process of experimentation). Meeting one element is not enough.
Key Takeaway
Precision agriculture and agtech companies may perform activities that warrant analysis under IRC §41 — particularly work involving sensors, automation, and algorithms. Routine agricultural operations do not automatically qualify. Professional review is appropriate. For related industries, see our pages on agriculture and farming and logistics and 3PL.