Six Hallway Questions at ISC East About the R&D Credit, and What Integrators and Security Manufacturers Can Say Back

TL;DR

• The R&D credit looks at what your team does to resolve technical uncertainty, not what your company sells, so integrators, installers, and device makers can all have qualifying work.
• Demo units, firmware testing, customer-funded builds, and small teams each raise their own questions, and the answers depend on the specific activities, documentation, and facts.
• You can leave ISC East with a short list of projects worth a closer look, and bring your R&D credit questions to Strata first.

Why this conversation comes up at a trade show

ISC East (November 3 to 5, 2026, Javits Center, New York) puts integrators, manufacturers, and distributors in the same aisles. Those conversations tend to turn to new products, custom builds, and what teams are working on next. That is also where many owners first wonder whether any of it counts for the federal research credit (IRC Section 41). In short, the credit rewards businesses that spend money resolving technical uncertainty through a process of experimentation, whether in a product, a piece of software, or a technique. Here are six questions that often come up, with answers hedged the way they should be.

1. “We mostly integrate other companies’ products. Is there anything to claim?”

Possibly. The credit does not require you to invent a new product. Treas. Reg. 1.41-4(a)(3) says research must aim at discovering information that eliminates uncertainty about the capability, method, or design of a business component, and it does not require that the effort succeed. Routine installation and standard configuration generally do not qualify. Custom control logic, a nonstandard integration between systems, or a design that required testing alternatives may. Depending on the facts, the qualifying work can sit inside a small part of an otherwise routine job.

2. “We built a demo unit for the booth. Does that count?”

It may, depending on what the unit was for. Costs of developing a prototype or demonstration model can be part of research on a new or improved product while the design is still being worked out. Treas. Reg. 1.41-4(c)(2) draws the line at the point a business component is ready for commercial use or sale: activities after that point generally are not research. A unit that was built to show an already-finished product is more likely on the wrong side of that line than one built to test whether a new approach worked.

3. “We test firmware and software betas for our manufacturer partners. Is that eligible?”

It depends on who funds and controls the work and on what the team is actually doing. Research performed under a contract is subject to the funded research rules, and under Treas. Reg. 1.41-4A(d) the contract terms (who bears the risk of failure and who keeps the substantial rights to the results) can decide whether the work is treated as funded by someone else. Routine testing to confirm that a finished product works as specified generally falls outside the credit. Testing that is part of resolving real uncertainty in your own design is a different fact pattern. This is one to review with the actual agreements in hand.

4. “Our customers pay for custom work. Doesn’t that disqualify it?”

Not by itself. A customer paying for a project does not automatically make the work funded research. The questions are whether payment depends on the success of the work and whether your company keeps substantial rights to the results. Contracts that are billed on time and materials and leave the rights with you are often analyzed differently from those that do not, which is why the paperwork matters as much as the engineering. Any claim has to be built on the specific agreements, not on a general rule.

5. “We are a small team. Is it worth the trouble?”

The credit is not limited by company size, and the question is usually whether the qualifying work is large enough, and well enough documented, to justify a study. For one supporting data point, Graphite Connect, a software company, identified $1.1M+ in credits with Strata; you can read the Graphite Connect case study for the full story. Individual results vary, and a software company is not an integrator, so treat it as an illustration of scale, not a forecast. A short conversation about your last year of projects is often enough to see whether a closer look makes sense.

6. “What would it take from my team?”

Less than most owners expect. Strata starts with a $0 initial assessment, runs a structured, guided process in which most of the work sits with Strata, and typically delivers in 4 to 8 weeks depending on the engagement. The result is a documentation package built to support the claim, which your CPA files with the return. Self-Serve, Full-Service, and Enterprise engagements are available, so you can match the level of support to the lift you want to carry.

What to bring back from the show

Before you leave the floor, jot down three things while they are fresh: a project where you were not sure at the start that it would work, a custom feature or integration your team had to build or test, and any agreement where a customer or manufacturer funded the work. Those notes are enough to start a useful conversation about which projects might hold a claim.

If you want a second set of eyes on them, bring your R&D credit questions to Strata first. Start with a 15-minute review at stratataxgroup.com/contact.

Sources

• IRC Section 41 (Cornell LII)
• Treas. Reg. 1.41-4 (eCFR)
• About Form 6765, Credit for Increasing Research Activities (IRS.gov)
• ISC East 2026 (Security Industry Association)
• Graphite Connect case study (Strata)

This post is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional regarding your specific circumstances.