A common question is the difference between software configuration and qualified research for the R&D tax credit. The short answer is that configuring commercially available software for a known application generally is not qualified research. Configuration that involves a technical uncertainty and a process of experimentation may warrant review, subject to internal-use software 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.
Routine Configuration
Routine software configuration — setting up commercially available software for a known application using established methods — generally is not qualified research. The characteristics include:
- Known software — the software is commercially available and established.
- Known application — the application is known and established.
- No technical uncertainty — there is no question about whether the configuration will work.
Where all three are present, the work is configuration, not research.
Configuration That May Warrant Review
Configuration may warrant review when it involves a technical uncertainty and a process of experimentation:
- New application — configuring software for a new application where there is uncertainty about whether the configuration can achieve the required performance.
- Custom integration — configuring software to integrate with new systems where there is uncertainty about whether the integration can achieve the required performance.
- Performance uncertainty — configuring software to achieve a new performance target where there is uncertainty about whether the target can be achieved.
Where the configuration involves evaluating alternatives to resolve a technical uncertainty, the work may warrant review, subject to the internal-use software rules under Section 41(d)(4)(E).
Hypothetical Example
Consider a company that configures a standard CRM system for a known sales process. This is routine configuration, not research.
By contrast, if the company configures a system for a new application where there is uncertainty about whether the configuration can achieve the required performance, and evaluates alternative approaches through a structured process, the work may warrant review as 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 configuration vs. research analysis include records showing whether the work was routine configuration or research, records of the technical uncertainty (if any), and records of the process of experimentation (if any). For more, see our page on R&D tax credit documentation.
Key Takeaway
Configuring commercially available software for a known application generally is not qualified research. Configuration that involves a technical uncertainty and a process of experimentation may warrant review, subject to internal-use software rules. Because the distinction is fact-specific, professional review is appropriate before claiming the credit.