A client funds our development project. Can we still claim the research credit on our costs?
Client-funded research is not automatically eligible or ineligible.
By AE Tax Advisors Team · Updated October 28, 2026
Client-funded research is not automatically eligible or ineligible. The research-credit rules examine financial risk and substantial rights in the research, among other requirements. Contract terms must be read with actual performance, acceptance and payment obligations; who ultimately pays an invoice does not answer every element.
A specific business-owner situation
An engineering firm must deliver a functioning design before receiving the full fee but retains rights to reuse its methods. Another contract reimburses all effort regardless of success. Those arrangements can require different conclusions.
Illustrative example, not a client result.
What to establish before filing
- Read payment and acceptance conditions.
- Identify rights retained in the results.
- Test each project against funded-research and qualification rules.
Which fact changes the answer?
An unconditional right to payment for effort differs from payment contingent on successful performance. Retained rights are a separate requirement rather than a substitute for risk.
A mistake to avoid
A fixed-price label alone does not prove qualifying financial risk.
Records that support the decision
- Executed contracts.
- Acceptance and milestone records.
- Rights and cost-risk analysis.
The decision to document
Analyze projects individually before excluding all customer work or claiming every client development cost.
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Related questions
- Our developer invoices say consulting only. Is payment proof enough to support a contract research credit?
- We acquired a company with unused research credits. Can we immediately use all of them?
Sources and editorial context
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.