IRC § 41(d) – Qualified research defined
CONTENTS:
(1) In general
(2) Tests to be applied separately to each business component
(3) Purposes for which research may qualify for credit
(4) Activities for which credit not allowed
For purposes of this section—
(1) In general. The term “qualified research” means research—
(A) with respect to which expenditures may be treated as expenses under section 174,
(B) which is undertaken for the purpose of discovering information—
(i) which is technological in nature, and
(ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and
(C) substantially all of the activities of which constitute elements of a process of experimentation for a purpose described in paragraph (3). Such term does not include any activity described in paragraph (4).
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(2) Tests to be applied separately to each business component. For purposes of this subsection—
(A) In general. Paragraph (1) shall be applied separately with respect to each business component of the taxpayer.
(B) Business component defined. The term “business component” means any product, process, computer software, technique, formula, or invention which is to be—
(i) held for sale, lease, or license, or
(ii) used by the taxpayer in a trade or business of the taxpayer.
(C) Special rule for production processes. Any plant process, machinery, or technique for commercial production of a business component shall be treated as a separate business component (and not as part of the business component being produced).
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(3) Purposes for which research may qualify for credit. For purposes of paragraph (1)(C)—
(A) In general. Research shall be treated as conducted for a purpose described in this paragraph if it relates to—
(i) a new or improved function,
(ii) performance, or
(iii) reliability or quality.
(B) Certain purposes not qualified. Research shall in no event be treated as conducted for a purpose described in this paragraph if it relates to style, taste, cosmetic, or seasonal design factors.
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(4) Activities for which credit not allowed. The term “qualified research” shall not include any of the following:
(A) Research after commercial production. Any research conducted after the beginning of commercial production of the business component.
(B) Adaptation of existing business components. Any research related to the adaptation of an existing business component to a particular customer’s requirement or need.
(C) Duplication of existing business component. Any research related to the reproduction of an existing business component (in whole or in part) from a physical examination of the business component itself or from plans, blueprints, detailed specifications, or publicly available information with respect to such business component.
(D) Surveys, studies, etc. Any—
(i) efficiency survey,
(ii) activity relating to management function or technique,
(iii) market research, testing, or development (including advertising or promotions),
(iv) routine data collection, or
(v) routine or ordinary testing or inspection for quality control.
(E) Computer software. Except to the extent provided in regulations, any research with respect to computer software which is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer, other than for use in—
(i) an activity which constitutes qualified research (determined with regard to this subparagraph), or
(ii) a production process with respect to which the requirements of paragraph (1) are met.
(F) Foreign research. Any research conducted outside the United States, the Commonwealth of Puerto Rico, or any possession of the United States.
(G) Social sciences, etc. Any research in the social sciences, arts, or humanities.
(H) Funded research. Any research to the extent funded by any grant, contract, or otherwise by another person (or governmental entity). 
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