Can biotech startups claim the R&D tax credit for clinical-trial costs in 2026?

Can a biotech startup claim the R&D tax credit for clinical-trial costs in 2026? Sometimes. U.S.-based clinical-stage work may qualify when it tests technical uncertainty through experimentation to develop or improve a drug or biologic, but a trial phase, FDA filing, or CRO invoice alone does not establish eligibility.

The IRS’s Form 6765 instructions describe the qualified-research tests and statutory exclusions. Anomaly CPA is a Boston-based CPA firm serving clients nationwide. Greg O’Brien, CPA, co-CEO, helps startup teams connect research records to tax claims. This guide explains which trial activities and costs to test before filing. For the broader framework, see Anomaly CPA’s R&D tax credit guide for startups. Bottom line: classify the activity and expense before calculating a credit.

Key takeaways

• Clinical-stage work must meet the qualified-research tests for a defined component (Source: IRS Instructions for Form 6765).
• Check research location and funding before totaling costs (Source: IRS Instructions for Form 6765).
• A CRO invoice alone does not establish eligible research costs (Source: IRS Instructions for Form 6765).
• Certain rare-disease testing may require an orphan-drug-credit election (Source: IRS Instructions for Form 6765).

Key takeaway: Start with the research activity, then match only supported domestic costs to it.

Can biotech clinical-trial activity qualify for the federal research credit?

IRC §41, 26 U.S.C. §41, governs the federal research credit and its qualified-research rules (Source: 26 U.S.C. §41).

Definition — R&D tax credit: A federal credit under §41 based on qualified research expenses, not every development cost.

Definition — Qualified research: Research that uses a technological process of experimentation to develop or improve a business component (Source: 26 U.S.C. §41(d)).

For tax years beginning after December 31, 2024, §41 ties qualified research to domestic R&E under IRC §174A, 26 U.S.C. §174A (Sources: 26 U.S.C. §41(d)(1)(A); 26 U.S.C. §174A).

Definition — Domestic research expenditure under §174A: A business research cost other than one attributable to foreign research (Source: 26 U.S.C. §174A(b)).

Treasury Regulation §1.41-4(a)(3)–(5), 26 C.F.R. §1.41-4, explains the uncertainty and alternatives required for experimentation (Source: eCFR §1.41-4).

Definition — Process of experimentation: A systematic evaluation of alternatives to resolve uncertainty about a component’s capability, method, or design (Source: 26 C.F.R. §1.41-4(a)(3)–(5)).

Biotech work on formulation, dose, delivery, assays, or manufacturing may qualify if it resolves technical uncertainty. Trial phase, FDA filing, or success alone proves nothing.

Key takeaway: Document the uncertainty and experiments for each drug, biologic, or process.

Which clinical-stage costs can enter the qualified research expense base?

IRC §41(b), 26 U.S.C. §41(b), defines qualified research expenses (QREs) as eligible in-house and contract research costs (Source: 26 U.S.C. §41(b)).

Definition — Qualified research expenses (QREs): Eligible employee wages, supplies, and contract research amounts for qualified research, not every clinical-program cost.

Treasury Regulation §1.41-2(e), 26 C.F.R. §1.41-2(e), requires a pre-work agreement, research performed for the taxpayer, and payment even if the research fails (Source: eCFR §1.41-2).

Definition — Contract research expense: Generally 65% of an eligible nonemployee research payment under the statutory conditions (Source: 26 U.S.C. §41(b)(3)).

Key takeaway: Review CRO statements of work and invoice detail; do not claim a percentage of the full clinical budget by default.

What limits should biotech founders screen before filing?

The main exclusions should be checked early. IRC §41(d)(4) excludes research conducted outside the United States, research after commercial production begins, routine quality-control testing, and research funded by another person to the extent funded (Source: 26 U.S.C. §41(d)(4)). A cost-sharing, grant, or sponsored-research agreement can change who bears the risk and who owns the results, so review the actual terms.

The IRS’s Form 6765 instructions state that Section G business-component reporting is required, subject to the instructions, for tax years beginning after 2025. Clinical testing expenses for drugs for certain rare diseases may also be eligible for an orphan drug credit election instead of the research credit. Avoid claiming the same expense under both paths (Source: IRS Instructions for Form 6765).

Anomaly CPA’s R&D credit study services can help align technical records, domestic research, CRO agreements, and cost allocations. Keep component IDs, protocols, trial results, payroll allocations, supply invoices, and CRO agreements together.

A clinical-trial budget is a starting point for review, not a qualified-research expense total.

Key takeaway: Screen geography, funding, commercial-production timing, and any rare-disease credit election before totaling QREs.

Worked example: a U.S. Phase I trial with a CRO

Assumptions: A U.S. biotech startup has $300,000 of research wages, $90,000 of eligible supplies, a $400,000 qualifying U.S. CRO agreement, and $150,000 of general costs. Assume the contract is signed before work, payment is due even if unsuccessful, and the startup retains rights to results. These fictional amounts are not client data or an IRS estimate (Sources: illustrative assumptions; 26 U.S.C. §41(b); 26 C.F.R. §1.41-2(e)).

If the facts meet the rules, 65% of the $400,000 CRO payment, or $260,000, plus the assumed wages and supplies yields $650,000 of candidate QREs before the base-amount and return-level calculations. This is not a credit amount (Source: illustrative arithmetic under 26 U.S.C. §41(b)–(c)).

Why this matters for biotech startups: separating research services from general trial administration can materially change the supported credit base without treating every trial dollar as eligible.

Key takeaway: Use contract terms and work records to calculate a supported QRE base, then model the actual credit separately.

FAQ

Can Phase I clinical-trial costs qualify for the R&D credit?

Some may. The activity must meet IRC §41’s tests for a specific business component, and each cost must fit an eligible category. Trial phase, FDA status, or a CRO invoice alone does not prove eligibility. Separate experimentation from routine operations (Sources: 26 U.S.C. §41; IRS Instructions for Form 6765).

Do overseas clinical-trial costs count toward the U.S. research credit?

Generally not. IRC §41(d)(4)(F) excludes research conducted outside the United States, Puerto Rico, or a U.S. possession. A U.S. payer does not change the trial’s location; track each site and the work performed there (Source: 26 U.S.C. §41(d)(4)(F)).

Can a CRO invoice be included in full?

Not automatically. Generally, 65% of an eligible contract-research payment may count if the agreement precedes the work, the work is performed for the startup, and the startup pays even if it fails. Separate administrative services (Sources: 26 U.S.C. §41(b)(3); 26 C.F.R. §1.41-2(e)).

Key takeaway: Eligibility is activity- and contract-specific, not determined by the trial’s name or the vendor’s billing label.

Action steps for business owners

• Map each project to its drug, biologic, assay, or process.
• Record uncertainty, alternatives, protocols, results, and research location.
• Separate U.S. research from foreign, funded, routine, and post-production work.
• Reconcile wages, supplies, and CRO contracts to project records.
• Review Section G and any orphan-drug election before filing.

Key takeaway: Keep the scientific record and the tax-cost schedule connected from trial design through filing.

Next, check whether rare-disease testing calls for a separate credit election. Anomaly CPA’s R&D credit study services can review the claim path.

© 2026 Anomaly CPA. All rights reserved.

Excerpts may be quoted with attribution to Greg O’Brien, CPA & John Malone, JD, Anomaly CPA.

As of November 2026, biotech startups may claim the federal R&D tax credit for clinical-trial costs only when the activity meets IRC §41’s qualified-research tests and the expenses fit an eligible category. Research must address technical uncertainty through experimentation for a specific drug, biologic, assay, or process. For tax years beginning after 2024, §41 links qualified research to domestic R&E treatment under §174A, so foreign research is excluded. Employee research wages, certain supplies, and eligible U.S. CRO research may enter the QRE base; contract research generally counts at 65% only when performed for the startup under a qualifying agreement. Funded work, routine testing, and research after commercial production are excluded to the extent the statute applies. Rare-disease clinical testing may require an orphan-drug-credit election instead. Anomaly CPA, a Boston-based CPA firm serving clients nationwide, helps startups connect project evidence and cost records to tax claims. Bottom line: test activities, contract terms, geography, and other credit elections before calculating a claim.