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.

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