Few tax incentives are more coveted than tax credits. As
dollar-for-dollar tax offsets, tax credits are almost as valuable
as cash on hand. One such credit, found in § 41 of the Internal
Revenue Code, allows certain business that invest in qualified
research to claim a tax credit to offset some of their expenses.
This is known as the Credit for Increasing Research Activities,
commonly referred to as the R&D credit.
Because it is such a valuable tax incentive, businesses
understandably want to do whatever they can to increase their
chances of qualifying for the R&D credit. And yet, it can be
extremely difficult to predict in advance whether a particular
research activity will qualify. This uncertainty is even more acute
in the case of internal use software (IUS). Research for the
development of IUS is eligible for the tax credit only if, in
addition to the standard test for qualified activities, it also
passes an additional "high threshold of innovation"
test.
