Who it's for

The R&D tax credit for agencies and dev shops

Agencies and dev shops are the trickiest case for the R&D credit, and the honest answer is that it depends. Most billable client work is funded research: the client pays whether or not it succeeds and keeps the rights, so it does not qualify for the shop. But a shop that builds its own products, tools, or IP, or that takes real technical and financial risk on a fixed-price engagement, can have genuinely qualifying work. The whole question turns on who holds the risk and the rights.

By the R&D Binder Editorial Research Team. Last reviewed June 7, 2026.

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Why most client work does not qualify

The funded-research exclusion catches typical agency billing.

Section 41(d)(4)(H) excludes funded research: work where payment is not contingent on success and the performer does not keep substantial rights. Standard agency billing fits that exclusion, because the client pays for the hours, owns the deliverable, and carries no outcome risk for the shop.

So a shop cannot simply claim the credit on everything it builds for clients. For the typical work-for-hire engagement, the credit, if anyone gets it, belongs to the client.

When agency work does qualify

Owned IP and genuinely at-risk engagements are a different story.

A shop that develops its own products, internal tooling, or reusable IP is doing research on its own behalf, with its own risk and rights. That work can qualify like any product company's.

Fixed-price or outcome-based engagements can also qualify when the shop genuinely bears the risk: it gets paid only if the result works, and it keeps rights to what it builds. The contract terms, not the invoice, decide it.

Drawing the line cleanly

The defense is separating funded work from owned work, by contract.

A defensible agency claim carves billable funded work out and keeps only the development where the shop held the risk and the rights. Sweeping client work in is exactly what an examiner looks for.

R&D Binder maps each component to its contract and its commits, so qualifying and non-qualifying work are separated before anything reaches the return.

The test that decides an agency claim:

Sources

Every claim on this page traces to a primary authority. Each source below is independent and verifiable.

26 U.S.C. § 41(d)(4)(H), exclusion for funded research - Cornell Law School, Legal Information Institute
Treas. Reg. § 1.41-4, qualified research and the four-part test - Cornell Law School, Legal Information Institute
IRS, Instructions for Form 6765 - Internal Revenue Service

Get documentation built to survive an exam

R&D Binder reads the contracts and the commit history together, separating funded client work from the shop's own at-risk development, so your CPA claims only what holds up.

Estimate your credit See the sample binder