Friday, May 21, 2010

IRS releases guidance on Therapeutic Discovery Project Credit / Grant

This morning, the IRS released advance guidance on the Therapeutic Discovery Project Credit / Grant.

A few items stand out:
  • Applications must be filed on Form 8942 (and in conformity with the form's instructions) and each project must be applied for separately.
  • That form is expected to be released no later than June 21, and applications must be filed (i.e., postmarked) no later than July 21.
  • The Department of Health & Human Services seems to be the primary determiner of which projects should be funded.
  • There will be a $5 million per-taxpayer limitation on allocations of credits/grants (for 2009 and 2010 together), regardless of the number of projects sponsored.
  • In the first round of allocations, the IRS will approve or deny applications no later than October 29, 2010 and will notify taxpayers by letter.
  • Taxpayers will not have a right to Conference or Appeal related to any matters under the Notice.  i.e., all decisions are final.
  • The 250-employee limit includes both full-time and part-time employees (but not leased employees).
  • Taxpayers are required to inform the IRS of any significant changes in plans that arise prior to the date of IRS certification of the projects.  A significant change is any change (including any change that would affect the continuing accuracy of a statement made in the application) that a reasonable person would conclude might have influenced HHS’ evaluation.
  • Grant applicants must provide a DUNS number with their application.  If the applicant does not already have a DUNS number, it may request one at no cost by calling the dedicated toll-free DUNS Number request line at 1-866-705-5711.
  • Grant applicants must also register with the Central Contractor Registration ("CCR"). To register, go to The registration must be completed before a payment can be made.
  • Approved credit and grant applicants are advised that the IRS will publicly disclose their identities, and the amount of their credit or grant.
  • The statute authorizes public disclosure of more information for taxpayers awarded grants than for those awarded credits (e.g., types of projects).  As a result, the IRS requests authorization to publish such information for approved projects awarded credits.  While such consent is not required to receive a credit allocation, it's not clear whether withholding it could have any impact on a borderline project being approved.
  • Unnecessarily elaborate applications are discouraged and brochures or other presentations are not permitted as part of the applications and will not be considered.

The release read as follows:

Notice 2010-45 establishes the qualifying therapeutic discovery project program under § 48D of the Internal Revenue Code.   Section 9023(a) of the Patient Protection and Affordable Care Act (Act) added § 48D to the Code as part of the investment credit under § 46.  Section 48D provides a nonrefundable tax credit equal to 50 percent of an eligible taxpayer’s qualified investment in a qualifying therapeutic discovery project.  Under section 9023(e) of the Act, an eligible taxpayer may elect to receive a grant in lieu of credits.  Section 48D(d)(1)(B) limits the total amount of credits or grants to be allocated under the program to $1 billion during the two-year period from 2009 through 2010.  The Service, in consultation with Department of Health and Human Services, will award certifications for qualified investments.  The credits or grants will only be available to taxpayers having 250 or fewer full-time and part-time employees.

Notice 2010-45 will appear [in] IRB 2010-23, dated June 7, 2010. 

link to Notice:

Monday, May 3, 2010

Draft application for Therapeutic Discovery Project Tax Credit (or Grant)

Many of you have heard about the very lucrative Therapeutic Discovery Project Tax Credit, which can alternatively be taken as a nontaxable (for federal income tax purposes) grant.

Unfortunately, there has been no official guidance (except for the text of new IRC section 48D itself) about how taxpayers will be able to apply for an allocation from the $1 billion available for the program.  Treasury has until May 21, 2010 to provide that guidance.  However, since (a) there is a limited pool of funds available, (b) the promised turnaround time for application review is 30 days from receipt by Treasury, and (c) there is likely to be a mad rush to apply, it makes sense for all qualified taxpayers to submit their applications as soon as possible.

For that reason, I've prepared a draft  and unofficial application for use in gathering the information until further information becomes available.  The standard caveats apply (i.e., my version is not official, use at your own risk, talk to your professional tax advisor before taking any action on this, etc.).  Nevertheless, I hope you find it useful in starting the application process.  If you do use it, I'd love to hear from you.  If you want to use it for others, please go ahead and do so but (1) please keep my attribution on it, and (2) please provide caveats to your users as well.

Quick recap of my post from April 5 on this subject:
    • Provides a 50% nonrefundable investment tax credit to certain small businesses (with no more than 250 employees) that invest in qualifying “therapeutic discovery” projects in years beginning in 2009 or 2010. Covered projects are those designed to:
      • Treat or prevent diseases or conditions via pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols, for the purpose of obtaining approval of a product under specific sections of the Federal Food, Drug, and Cosmetic Act or the Public Health Service Act;
      • Diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; or
      • Develop a product, process or technology to further the delivery or administration of therapeutics.
    • Qualified investments are the aggregate amount of costs paid or incurred for the tax year for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project, but exclude (1) compensation paid to the CEO and the four highest paid officers other than the CEO, (2) interest expense, (3) facility maintenance expenses, (4) service costs as determined under the uniform capitalization rules, and (5) any other expense determined by the Secretary to be appropriate under the circumstances.
    • Alternatively, qualifying taxpayers may generally elect to receive a grant instead of a credit with respect to their qualifying investment.
    • Note: This provision is not automatic for potentially qualifying small businesses. It requires potential recipients to apply to the program which is to be established by the Secretary (in consultation with the Department of Health and Human Services) within 60 days after 3/23/10. Following the submission of an application, the Secretary will have 30 days to approve or reject the application. Selection criteria will take into consideration only those projects
      • That show reasonable potential to result in new therapies to treat areas of unmet medical need, or to prevent, detect, or treat chronic or acute diseases and conditions, to reduce long-term health care costs in the United States, or to significantly advance the goal of curing cancer within 30 years, and
      • That have the greatest potential to create and sustain high quality, high-paying jobs in the United States, and to advance U.S. competitiveness in the fields of life, biological, and medical sciences.
    • Effective for amounts paid or incurred in tax years beginning after 12/31/08.