Over $1 Billion Available in Federal Tax Credits and Grants for Life Science Companies
By: JESSICA D. MANIVASAGER & JOHN S. PARZYCH
June 18, 2010
Under the Patient Protection and Affordable Care Act, businesses that invest in qualifying therapeutic discovery projects can qualify for tax credits or grants. In particular, there are $1 billion dollars in tax credits and grants available for businesses that qualify and certify their qualification with the IRS. The following provides you some key dates to watch in the process as well as information on how to apply and criteria to help determine whether your business qualifies for these credits and grants.
- May 21, 2010, IRS Revenue Notice 2010-45 Released: This Notice contains the application criteria that will be needed to apply for tax credits or grants for investments in qualifying therapeutic discovery projects.
- June 21, 2010, IRS Form 8942 Release: Form 8942 will be released and will need to be used to apply for certification for the credits or grants.
- June 21-July 21, 2010, IRS Application Filing Period: This is the window during which the IRS will accept applications.
- July 21, 2010, Application Deadline: All applications will need to be received by the IRS by this date.
- September 30, 2010, Preliminary Review: All applications will be preliminarily reviewed by the IRS by this date.
- October 29, 2010, Approval Date: All applications will either be approved or denied by this date. Notification of such approval or denial will be sent by letter.
How Do You Apply?
As noted above, on May 21, 2010, the IRS released the application criteria that will be required from companies in applying for certification for credits or grants for investments in qualifying therapeutic discovery projects. While the application window does not open until June 21, 2010, the Notice outlines the information and documentation that should be collected now in anticipation of submitting an application.
Applications will only be accepted between June 21 and July 21, 2010.
Applications That Receive IRS Priority
The IRS will give priority to qualifying therapeutic discovery projects that can show certified qualified investments in the application process. The IRS will consider projects that show reasonable potential to:
- result in new therapies including those that treat areas of unmet medical need, or to prevent, detect, or treat chronic or acute diseases and conditions,
- reduce long-term health care costs, and/or
- significantly advance the goal of curing cancer within 30 years.
The IRS will also consider which projects have the greatest potential to:
- create and sustain (directly or indirectly) high-quality, high-paying U.S. jobs, and/or
- advance U.S. competitiveness in the field of life, biological, and medical sciences.
Although the application form to apply for the tax credits or grants will not be available until June 21, in the Notice, the IRS has provided the questions that must be answered in a Project Information Memorandum, which must be submitted with an application.
Generally, the Project Information Memorandum requires various demographic information regarding the applicant, but also other substantive submissions such as project descriptions, explanations of scientific rationale which support a project, and a project’s research and development plan, all of which have 250-word limit restrictions.
Does Your Business Qualify for Credits and Grants?
Only investments in certain qualifying therapeutic discovery projects will qualify for credits or grants. Qualifying therapeutic discovery projects are defined as projects designed to:
- treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, while carrying out research protocols, for the purpose of securing approval from the Food and Drug Administration;
- diagnose diseases or conditions;
- 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.
In addition, the credits or grants are limited to certain small and medium-sized businesses. An applicant needs to be an eligible taxpayer, which is defined as a business that does not employ more than 250 people. In the event the taxpayer is a partnership or other pass-through entity such as a LLC, grants may not be available to the taxpayer if its partners or members are ineligible taxpayers.
Only qualified investments in qualifying therapeutic discovery projects are eligible for credits or grants. Qualified investments are expenses from 2009 and/or 2010 that were necessary for and directly related to the conduct of a qualifying therapeutic discovery project. Qualified investments do not include, however, expenses such as:
- remuneration for certain highly compensated employees,
- interest expenses, or
- facility maintenance expenses (which include mortgage or rent payments, insurance payments, utility and maintenance costs, and costs of employment of maintenance personnel).
Beginning the Process
One billion dollars total in credits and grants are available with up to a maximum credit of $5 million per taxpayer applicant. The credit is worth up to 50% of qualified investments in qualifying therapeutic discovery projects. Also, there are grants available for newer businesses that are not yet profitable. Based on the one-month window for submissions (June 21, 2010-July 21, 2010), we recommend businesses begin collecting their information and documentation for the application process.
For more information on preparing for the application process or if you would like help in determining whether or not your business should prepare for the application process, contact Jessica Manivasager or John Parzych. Also, more information on this program is available at the IRS website.