The "technological in nature" element is one of the four parts of the qualified-research test under Section 41 of the Internal Revenue Code. It requires that the process of inquiry fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. This page explains the element and addresses a common misunderstanding: that merely using technology is enough. Like the other elements, it must be satisfied together with them. For the overall framework, see our page on the four-part test.
Technological in Nature in Plain English
Under the Treasury Regulations (§1.41-4), information is technological in nature if the process of experimentation used to discover such information fundamentally relies on principles of the physical or biological sciences, engineering, or computer science. The element focuses on the nature of the process of inquiry — how the uncertainty is being addressed — rather than on whether modern tools or equipment are involved.
What "Relies on Principles Of" Means
The regulations state that the process of experimentation must "fundamentally rely" on principles of the hard sciences, engineering, or computer science. This is a substantive requirement, not a formality. The inquiry must depend on those principles to resolve the technical question. The regulations also note that a taxpayer may employ existing technologies and may rely on existing principles of those sciences — the element does not require inventing new scientific principles, only that the process of inquiry fundamentally relies on them.
Engineering
Research that fundamentally relies on engineering principles — such as mechanical, electrical, chemical, or civil engineering principles — to resolve a technical question about a business component may implicate the engineering aspect of this element. Whether the element is met depends on whether the process of inquiry genuinely relies on engineering principles, not merely on the involvement of engineers.
Computer Science
Research that fundamentally relies on computer science principles — for example, computer science principles applied to resolving a technical question about a software business component — may implicate the computer science aspect. The element is not satisfied merely because computers, software, or development tools are used; the inquiry must rely on computer science principles to address the technical uncertainty. Software development raises specific considerations, including the internal-use-software rules, which are addressed separately.
Physical and Biological Sciences
Research that fundamentally relies on principles of the physical sciences (such as physics or chemistry) or the biological sciences may implicate this element. For example, experimentation that relies on chemical principles to resolve a question about a new formulation, or on biological principles to address a question about a biological process, may be the kind of inquiry the element addresses. The question is whether the process of inquiry fundamentally relies on those scientific principles.
Using Technology vs. Conducting Technological Research
A central distinction is between using technology and conducting technological research. A team can use sophisticated tools, software, instruments, or equipment and still not satisfy this element if the inquiry does not fundamentally rely on hard-science or engineering principles to resolve a technical question. Using a computer to perform a task, employing a measuring instrument, or relying on commercial software does not, by itself, make research technological in nature. The element looks at the substance of the inquiry, not the tools used to carry it out.
Examples That May Warrant Review
The following are general examples that may warrant review; none automatically qualifies, and each depends on whether all four elements are satisfied:
- Experimentation that relies on chemical principles to resolve a question about whether a new formulation can achieve a target property.
- Research that relies on engineering principles to evaluate alternative designs for a component where the appropriate design is uncertain.
- Inquiry that relies on computer science principles to evaluate alternative architectures for resolving a technical capability question in software.
In each case, the question is whether the process of inquiry fundamentally relies on the relevant scientific or engineering principles.
Social Sciences, Arts, and Humanities
Section 41 excludes research in the social sciences, arts, or humanities from qualified research. This means that inquiry relying principally on those disciplines generally does not satisfy the technological-in-nature element, even if it is rigorous or valuable. The exclusion reinforces that the element is about reliance on the hard sciences, engineering, or computer science specifically.
Documentation That May Help
Records describing the scientific or engineering principles relied on, the technical question being addressed, and how the process of inquiry applied those principles can help support this element. Records created during the work tend to be more useful than generalized descriptions prepared later. For more, see our page on R&D tax credit documentation.
Relationship to the Four-Part Test
The technological-in-nature element operates together with the other elements. The research must also have a permitted purpose, be intended to eliminate uncertainty, and be carried out through a process of experimentation. Meeting this element alone does not establish qualified research. For the broader context, see our pages on qualified research and what the R&D tax credit is.
Key Takeaway
The technological-in-nature element requires that the process of inquiry fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. Using technology is not the same as conducting technological research, and research in the social sciences, arts, or humanities is excluded. The element is one of four that must be satisfied together, and the analysis turns on the specific facts. Because these determinations are fact-specific, professional review is appropriate before claiming the credit.