Life Sciences Companies Must Act Quickly to
Receive Benefit of
New Federal Tax Credit/Grant Program
July
21 Deadline Looms
On May 21, 2010, the federal government passed a $1 billion tax credit and grant program for qualifying expenditures toward discovery projects (e.g. research, development and/or clinical activities) made by small to mid-sized biotechnology, pharmaceutical and life sciences companies. For approved companies, the amount of the tax award or grant is 50 percent of the amount of the qualified expenditure. Because the grants are generally nontaxable to the recipients, they may be especially beneficial for companies with low or no tax liability.
Eligibility
To be eligible under this program, a company must have 250 or fewer employees, and have "invested" in eligible projects during the 2009 and 2010 tax years. As defined in this program, eligible projects are those designed:
· 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 the U.S. Food and Drug Administration approval of a product;
· to diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; or
· to develop a product, process or technology to further the delivery or administration of therapeutics.
Investments that may qualify for the credit or grant funds include expenses that are "necessary for and directly related to the conduct of a qualifying therapeutic discovery project" including "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."
Application Process
Companies must act quickly in order to take advantage of this program. The application process for this program involves filing Form 8942 for each qualifying project no later than July 21, 2010, which requires completion of a brief questionnaire about the project, and a summary of the project and certain supporting materials that demonstrate the merits of the project in relation to the goals of the program.
Unfortunately, Form 8942, a new federal form, has not been released by the Internal Revenue Service (IRS). However, the questions, content and general format to be provided by an applicant are available in an IRS Notice and Appendix A that can be found at: http://www.irs.gov/pub/irs-drop/n-10-45.pdf. The IRS plans to advise successful applicants by October 29, 2010.
Generally, in order to be approved, a project must 1) be deemed a qualified therapeutic discovery project and 2) be judged to have a reasonable potential for success. In determining potential for success, the Department of Treasury will consider additional factors including a qualified applicant's demonstrated ability to:
· develop new therapies or to prevent, detect, or treat chronic or acute disease conditions;
· reduce long-term health care costs in the U.S.; or
· advance the goal of curing cancer within a 30-year period.
Additionally, in deciding which projects will receive grants or tax credits, the Treasury will determine those projects with the greatest potential to create and sustain high quality, high paying jobs in the U.S., and advance the U.S.'s competitiveness in the fields of life, biological and medical sciences.
The application process for these funds has been designed to be very rapid, as the Treasury is required to pay amounts of any grant awarded within 30 days from the later of the application date or the date of the qualified investment. Given this quick turnaround and the broad eligibility requirements, a large number of applications and competition for funds are anticipated. Once the $1 billion allocated to this program is issued, there is no assurance that additional funding will be allocated.
As discussed above, Form 8942 must be submitted for each qualifying project. In order to facilitate the application process, Ice Miller can assist you by providing pre-submission reviews of your projects and related accompanying documentation. In addition, because the applications must be certified, we can review your application for consistency with your company's representations to other governmental organizations.
Please contact any of the professionals listed below for assistance with applications for the Qualifying Therapeutic Discovery Project Tax Credit, or if you have any other questions related to the program.
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(317) 236-2251 |
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(317) 236-2172 |
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(317) 236-2183 |
Ice Miller's
Intellectual Property Group
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(317)236-2363 |
This publication is intended for general information
purposes only and does not and is not intended to constitute legal
advice. The reader must consult with legal counsel to determine how laws
or decisions discussed herein apply to the reader's specific circumstances.
June 2, 2010