IRS Sets July 21 Deadline to Apply for Qualifying Therapeutic Discovery Project Credits and Grants
Posted on June 15, 2010 in CBIZ Solutions+
June 7, 2010 — The IRS has set July 21 as the deadline to apply for the Qualifying Therapeutic Discovery Project Credit (QTDP Credit), enacted as part of the recent Healthcare Reform legislation (HCR). The maximum amount available for these tax credits and grants, which apply to investments in qualifying projects from 2009 through 2010, is $1 billion, and the IRS guidance states that no applications received after the deadline will be considered. As we suggested in our earlier Tax Alert, all applicants are further advised to submit complete and fully responsive applications that address all the requirements of the IRS guidelines. The HCR law has set a tight timeline for the whole project, giving the Treasury and Health and Human Services (HHS) Departments from July 21 to September 30 to consider all applications and perform preliminary reviews, and until October 29 to complete the final review. By October 29, 2010, the Treasury will be issuing certification letters approving or denying applications, and in some instances, paying grants for 2009 qualifying investments. This is in line with the program’s main objective of encouraging projects with the potential for medical breakthroughs, generating US jobs and advancing US competitiveness in the medical field. A single applicant is limited to $10 million in total credits or grants for qualified investments in all of its QTDPs — $5 million each for 2009 and 2010.
The IRS will be releasing Form 8942, “Application for Certification of Qualified Investments Eligible for Credits and Grants under the Qualifying Therapeutic Discovery Project Program,” no later than June 21, 2010. The IRS has provided guidelines on the application process in Notice 2010-45. Appendix A to the notice describes the content and format for the information required to be filed as part of the application, provides the questions that must be answered in a Project Information Memorandum to be filed with the Form 8942, and identifies the evaluation criteria that will be used by the IRS and HHS in the review of applications for certification.
Only those QTDPs that the IRS determines have both a reasonable potential to achieve one or more of the therapeutic goals and the greatest likelihood to foster the domestic economic benefits will receive a certification for all or a portion of their qualified investments. The therapeutic goals are:
(a) To treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols, for the purpose of securing approval of a product under the Federal Food, Drug, and Cosmetic Act (new drugs) or the Public Health Service Act (biological products);
(b) To diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; or
(c) To develop a product, process, or technology to further the delivery or administration of therapeutics as determined by HHS.
The stated domestic economic benefits are:
(a) To create and sustain (directly or indirectly) high quality, high-paying jobs in the US, and
(b) To advance US competitiveness in the fields of life, biological, and medical sciences.
Initial guidelines under IRS Notice 2010-45 provide that application Form 8942 will require the following information:
- Applicant’s name, address, taxpayer identification number, type of entity, ownership, and contact person information.
- Number of full and part-time employees and contractors employed by the applicant (indicating how many are in the United States whose work is directly billed to the project and the average salaries of the employees in each category).
- Whether the applicant is requesting a grant in lieu of the credit.
- Description of the applicant’s qualified investments for 2009, 2010 or both, as applicable, and the amounts thereof. This may include expenses for wages, supplies and lab costs, depreciable property, contractor costs, and any other costs that would be considered part of the qualified investment for the project.
- Whether, as of the date on which the application is submitted, the project is active, terminated, or suspended and, if the project is terminated or suspended, whether this is because the project failed a clinical trial, failed a pre-clinical research milestone, or failed to secure FDA licensure. These projects will be determined to have insufficient potential to advance United States competitiveness in the fields of life, biological and medical sciences and thus will be determined to be ineligible for certification.
- Whether the project:
(a) Will produce a new or significantly improved technology, or a new application or significant improvement to existing technology, as compared to commercial technologies currently in service; and
(b) Is expected to lead to the construction or use of a contract production facility in the United States in the next 5 years.
In addition, a Project Information Memorandum must be attached to Form 8942. The Memorandum must contain a description of the product, process or technology under development. In the Memorandum, the applicant must provide detailed explanations in response to IRS questions that address:
- The scientific rationale, based on prior conceptual and empirical work, that the proposed project will lead to the outcome the applicant has identified; the research and development plan that will lead to the outcome identified; and the scientific evidence relied on, including a description of any peer review of the project and a list of no more than five literature citations.
- A description of the stage of the project development, including a description of relevant preclinical and clinical trial results.
- A description of the resources, management experience and organizational capacity of the applicant and an explanation of how applicant believes that such resources, experience and capacity will support successful completion of the project.
The final version of the application, Form 8942, will be released in the next two weeks. It is critical to have a clear understanding of the application requirements to ensure that the IRS and HHS review criteria are met, as well as the allocation procedure by which the credit or grant will be issued. Contact your CBIZ MHM tax professional immediately to assist you with your application process so you can share in this unique credit and grant opportunity.
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