A taxpayer planning on applying for the discretionary tax credit under new Internal Revenue Code (IRC) §48D must immediately begin documenting why the IRS should choose its qualifying therapeutic discovery project and award the taxpayer credits rather than awarding these to other applicants’ therapeutic discovery projects.
This new tax credit was added to the IRC under the Patient Protection and Affordable Care Act (P.L. 111-148). It provides that a taxpayer, which is a company employing no more than 250 people, through either a tax credit or cash grant, may seek to recover up to 50% for a qualified investment made in 2009 and 2010 in a qualifying therapeutic discovery project.
A qualified investment is described in the legislation as the aggregate amount of costs paid or incurred in 2009 and 2010 for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project. A qualifying investment does not include compensation paid to the company’s CEO or certain other officers, interest expense, facilities maintenance expense, certain indirect general and administrative costs, or any other expenditure as determined by the Secretary of the Treasury as appropriate to carry out the purpose of the legislation.
A qualifying therapeutic discovery project is a project designed to develop a product, process, or therapy to diagnose, treat, or prevent diseases and afflictions by conducting pre-clinical activities, clinical trials, clinical studies, and research protocols, or by developing technology or products designed to diagnose diseases and conditions, including molecular and companion drugs and diagnostic, or to further the delivery or administration of therapeutics.
A taxpayer interested in qualifying for these credits must first apply for IRS/ Department of Health and Human Service (HHS) certification, explaining, in a compelling, well-written, believable narrative which nonscientists can understand, why the taxpayer and the project qualify for the credit. In evaluating applications the IRS and HHS are seeking projects which will reasonably result in:
1) new ways to treat unmet medical needs;
2) prevention, treatment, or detection of chronic or acute diseases;
3) reduced U.S. healthcare costs over time; or
4) significant advances toward curing cancer within 30 years.
It is expected competition for the $1billion of tax credits allotted under IRC §48D will be stiff. A taxpayer interested in applying for these credits must be ready to submit its application as soon as the program commences, which is currently planned for May 23.
–
Contact Robert Tobey if you would like to discuss how your company may qualify for the IRC §41D credit or would like to engage us to help draft your application. We will post updates on guidance for applying for these credits as it becomes available.
On Friday, May 21, Treasury Secretary Geithner announced guidance for the IRC §48D Qualified Therapeutic Discovery Tax Credit (IRS Notice 2010-45, 2010-23 IRB 1).
The application period for this credit opens June 21, 2010 and ends July 21, 2010. Applicants will receive a determination letter no later than October 29, 2010. Reviews of applications are scheduled to be completed by September 30, 2010. Credits will be awarded pro-rata to successful candidates from a $1 billion pool.
Things are not necessarily as good or as simple as they first appear
As I previously reported, on Friday, May 21, Treasury Secretary Geithner announced guidance for the IRC §48D, Qualified Therapeutic Discovery Project Tax Credit (QTDPTC). (IRS Notice 2010-45, 2010-23 IRB 1). The devil is in the details. After reading and analyzing this notice, taxpayers must contemplate whether it is advisable to apply for credits prospectively for 2010 only, or to apply for credits based on 2009 costs and prospective 2010 costs. This decision will be partly based on whether a taxpayer has already filed its 2009 return and the positions it has taken on this return regarding depreciation, increasing research and development expenses and claiming the credit for increasing research activities. Taxpayers should completely analyze the facts and circumstances of their 2009 and 2010 research development activities in order to determine if it is economically advisable to expend the effort to complete the qualified therapeutic discovery tax credit application.
Call me or email me (rtobey at kshgs dot com) if you would like to discuss how your company may qualify for the IRC §41D credit, need help with the analysis required to determine whether to submit an application, or would like to engage us to help draft your application.