R&D Tax Credit Examples: What Qualifying Work Looks Like by Industry

These R&D tax credit examples cover manufacturing, construction, architecture and engineering, food and beverage (breweries included), agriculture, and dental and medical device work. Every example on this page is either an illustration written for this guide, and labeled that way, or an example the Treasury regulations or the Tax Court published. None describes a BEG client. Each one names the part of the four-part test it turns on and a trap to check in that industry.

The test itself is explained part by part in R&D tax credit requirements. This page shows it applied. One rule shapes every example: the test is applied to each business component on its own, meaning each product, process, technique, formula, invention or piece of software, so a single company can have one project that qualifies beside another that does not.

R&D tax credit examples at a glance

The illustrations in the table are hypothetical. The sections below add the government’s own examples, what the Tax Court has decided in each field, and the costs that do and do not count.

Manufacturing R&D tax credit examples

The regulations recognize this kind of work directly. In Treas. Reg. 1.41-4(c)(10), Example 7, a valve maker modifies purchased robotic equipment for a new manufacturing process after modeling, simulating and lab-testing design alternatives, and the regulation says that work is not excluded as adaptation, provided the four-part test is met. A production process is its own business component, so process research can qualify even when the product it makes does not, and the reverse is also true.

Where manufacturing claims go wrong

• Work after commercial production. Once a component is ready for commercial sale or use, or meets your basic functional and economic requirements, further work is excluded. Treas. Reg. 1.41-4(c)(2) names six activities it treats as occurring after production: preproduction planning for a finished component, tooling-up, trial production runs, troubleshooting faults in production equipment or processes, accumulating production data, and debugging flaws. In the regulation’s tire example, designing new tread-cooling belts may qualify, but manufacturing, installing and testing the chosen belts does not.
• Routine quality control. Testing whether particular units conform to set parameters is quality control, which is excluded. Testing to find out whether a design is appropriate is not quality control under Treas. Reg. 1.174-2(a)(7), so the same lab can do both kinds of work in one week.
• Prototypes that are really equipment. A model built to resolve design uncertainty is a pilot model, but a prototype that is property subject to depreciation is not a supply. The IRS audit guide tells examiners to scrutinize prototype costs for that reason and notes that the word “prototype” is not in the statute or regulations, so the label decides nothing.
• Building the finished unit. In the regulation’s custom machine example, $10,000 for a model and $1,000 for testing it are research spending, while the $20,000 spent building the machine the customer ordered is a production cost.

From the Tax Court: shipbuilding. In Little Sandy Coal Co. v. Commissioner, T.C. Memo. 2021-15, a shipbuilder argued that two new or redesigned vessels passed the 80% requirement because more than 80% of each vessel’s elements differed from those of vessels it had built before. The court held that the requirement measures research activities, not the share of new parts; that the work of people who only support or supervise research cannot count as elements of a process of experimentation; and that supply costs are left out when the 80% fraction is measured by cost. The claim failed, and the Seventh Circuit affirmed in 2023 (62 F.4th 287).

Construction R&D tax credit examples

The same company pouring its fifth foundation with the method it already proved is doing production, not research. Two other construction traps need a look before any credit is computed:

• Funded research. Under Treas. Reg. 1.41-4A(d), every agreement with the owner is considered, not only a research contract. Payments that do not depend on the research succeeding count as funding, and if the owner gets the exclusive right to exploit the results, the contractor’s research is treated as fully funded. The requirements guide sets out the four combinations of payment and rights terms.
• Adaptation and duplication. Fitting a standard detail to a new site, or reproducing an existing system from its drawings, is excluded. The exclusion does not apply merely because a component is built for one owner, so a genuinely new method first used on one project can still qualify.

R&D credit for architects and engineering firms

For design firms the contract can be the deciding document, because the work is paid for by a client. Two recent Tax Court opinions show both sides of it.

Funding and rights: an architecture partnership. In Smith v. Commissioner, T.C. Memo. 2026-50 (June 16, 2026), the parties had agreed that the firm’s claimed business components passed the four-part test, so the six sample projects turned on funded research. The court found that none of the six contracts made payment contingent on the research succeeding. Under four of them the firm kept the copyright or other ownership of its work and could use its research on later projects, so it kept substantial rights, and a partial credit remains available to the extent its research costs exceeded the payments it received. Under the other two, the drawings and copyright vested in the client and the firm could not use them for any other purpose, so it kept no substantial rights and those projects produce no credit.

Proof of experimentation: an engineering firm. In Phoenix Design Group, Inc. v. Commissioner, T.C. Memo. 2024-113, a firm that designs mechanical, electrical, plumbing and fire protection systems for hospitals and laboratories lost the credit on all three sample projects. The court rejected the argument that design stayed uncertain until construction ended because drawings might still be revised, rejected a general six-stage design process as proof of experimentation, and held that uncertainty in one part of a system does not make the whole system’s design uncertain. It said the analysis has to focus on the specific uncertainty and the steps taken to resolve it.

In practice, that means reading each contract’s payment, ownership and confidentiality clauses before counting a project, and keeping records that tie engineers’ time to the specific design question they were resolving.

Food, beverage and brewery examples

The regulations’ clearest food example is a shredding line. A food manufacturer that made a large-shred product wanted a fine-shred version, but no thinner blade was sold and its blade material broke when machined thinner. It ran systematic trial and error on blade designs and materials, and Treas. Reg. 1.41-4(a)(8), Example 3, calls that qualified research. The section 174 regulations add a winery testing a new way of crushing grapes as part of a new production process, and treat those test costs as research spending for a process component.

The line the statute draws for food is purpose. Research related to style, taste, cosmetic or seasonal design factors has no qualified purpose, so choosing between recipes because a panel liked one better is not research, and consumer taste panels are the kind of market research and testing that section 41(d)(4)(D) excludes. Routine batch testing is quality control. And trial production runs of a finished product count as after commercial production, although work on a new production process is judged on its own until that process meets your requirements.

From the Tax Court: flour milling. In Siemer Milling Co. v. Commissioner, T.C. Memo. 2019-37, a wheat miller claimed credits for projects that included heat-treating flour to make cake flour without chlorine and low-microorganism flour without chemicals. The court held that none of the projects was shown to meet all four tests. It found no proof of a “methodical plan involving a series of trials to test a hypothesis, analyze the data, refine the hypothesis, and retest the hypothesis,” and noted that many supporting documents were undated and of unknown authorship. The miller avoided penalties because it had relied in good faith on its accountants.

Agriculture R&D tax credit examples

Three agricultural points trip up otherwise good projects:

• Land never counts. Section 41(b)(2)(C) excludes land and improvements to land from supplies, and section 174A(d)(1) excludes the cost of acquiring or improving land from research spending.
• Selection is not experimentation. In Siemer Milling, the miller’s wheat hybrids project failed because it was testing varieties that breeders and growers already offered. The court compared that to the regulations’ example of evaluating software sold by vendors, which is not a process of experimentation, and found no business component the miller was developing.
• Routine data collection is one of the excluded surveys and studies in section 41(d)(4)(D), so yield records kept for ordinary management do not become research because a spreadsheet exists.

Dental R&D tax credit examples: practices, labs and device makers

The routine version of the same work does not qualify. Making each patient’s crown, aligner or surgical guide with an established workflow is production, and adjusting it to suit one patient’s case is the kind of customer adaptation section 41(d)(4)(B) excludes. Adopting a new material by following its maker’s published processing protocol also looks like the regulations’ paint-line example, where the equipment maker’s specification resolved the uncertainty and checking the result was routine testing. The adaptation exclusion does not apply merely because a component is made for a specific customer, though, so a genuinely new design first built for one patient can still be tested under the four-part test.

Device makers follow the manufacturing pattern. A company designing a new implant component and testing alternative geometries for fatigue life is improving reliability, and models built to settle that design are pilot models under Treas. Reg. 1.174-2(a)(4). Lot-by-lot inspection of production units is quality control.

Software and technology companies

Software gets its own rules. Software built to sell, license or let customers use your systems follows the standard test, but software built for your own back-office functions must also pass the high threshold of innovation test. Does software development qualify for the R&D tax credit? walks through the regulations’ internal-use software examples and how cloud computing costs are treated.

More examples from the regulations

Treasury wrote its own examples into the regulations to show where the lines fall. These come from Treas. Reg. 1.41-4 and Treas. Reg. 1.174-2:

Two of those examples come from the section 174 regulations, which decide the first part of the test (whether costs are research or experimental spending); the credit still requires the other three parts. The section 174 guide covers how those costs are deducted under section 174A.

From example to claim

A good example becomes a credit only when the costs behind it are counted and documented component by component. Qualified research expenses explains which wages, supplies, computer costs and contractor payments count for each project. For tax years beginning after 2025, the Form 6765 instructions require Section G, unless an exception applies, listing the business components that make up at least 80% of total QREs (up to 50) with each one’s wages, supplies, computer rental and contract research. The documentation checklist lists the records behind each of those numbers.

Companies with qualifying projects in past years that never claimed the credit may be able to amend open years; the guide to claiming a missed R&D credit covers what the IRS requires in a refund claim, and that recovery work is part of Tax Planning. Companies with under $5 million in gross receipts for the year and no gross receipts before the five-tax-year period ending with that year may be able to elect to use the current year’s credit against payroll tax through Payroll Credits.

Sources: 26 U.S.C. 41; 26 U.S.C. 174A; Treas. Reg. 1.41-4, qualified research and its examples (eCFR); Treas. Reg. 1.41-4A(d), funded research (eCFR); Treas. Reg. 1.41-2, supplies and contract research (eCFR); Treas. Reg. 1.174-2, pilot models and production costs (eCFR); IRS, Instructions for Form 6765 (Rev. December 2025); IRS, Audit Techniques Guide: Research credit issues; Smith v. Commissioner, T.C. Memo. 2026-50 (docket 13382-17); Phoenix Design Group, Inc. v. Commissioner, T.C. Memo. 2024-113 (docket 4759-22); Little Sandy Coal Co. v. Commissioner, T.C. Memo. 2021-15 (docket 17431-17); Siemer Milling Co. v. Commissioner, T.C. Memo. 2019-37 (docket 21655-15). Examples, rules and case holdings checked against these sources on September 25, 2026. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.