Technical specifications — including requirement documents, design specs, and product specifications — can help support R&D tax credit documentation. This page explains how specifications 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 Specifications Support the Business Component
Technical specifications can help identify and describe the business component — what is being developed or improved. Specifications that describe the product, process, or component being developed can help connect activities and costs to a specific business component.
How Specifications Support the Uncertainty Element
Specifications can help support the elimination-of-uncertainty element by showing what was established and what was to be determined. Specifications that note what is "to be determined" or "to be evaluated" can help demonstrate that there was a technical uncertainty about the capability, method, or design. For more, see our page on elimination of uncertainty.
How Specifications Support the Experimentation Element
Specifications can help support the process-of-experimentation element by showing that the specification was the result of experimentation, not just an input. When a specification is developed through evaluating alternatives and testing, the specification itself can be evidence of the experimentation. For more, see our page on product specification development.
What Makes Specifications Useful
Useful specifications for R&D documentation tend to:
- describe the business component being developed or improved;
- distinguish what is established from what is to be determined;
- show how the specification was developed (through experimentation or from known data);
- be contemporaneous — created during the development process.
Hypothetical Example
Consider a manufacturer that has technical specifications that describe the product being developed, note which performance targets are "to be determined" through testing, and show how the specification was developed through evaluating alternatives. These specifications can help support the business component, uncertainty, and experimentation elements.
By contrast, a specification that simply lists established standards with no "to be determined" items is less useful for supporting the uncertainty element.
These examples are illustrative only.
Key Takeaway
Technical specifications can help support R&D tax credit documentation by showing what was being developed, what was established, and what was to be determined. Specs are most useful when they distinguish known from unknown. Because documentation adequacy is fact-specific, professional review is appropriate.