Under the Patient Protection and Affordable Care Act – otherwise known as the health care reform legislation – companies investing in qualified life-science research can receive federal tax credits and grants from a program called the Qualifying Therapeutic Discovery Project Credit.
The program makes $1 billion worth of the credits and grants available through a competitive process until July 21.
Michael Corrente, managing director in charge of the life sciences practice at accounting and consulting firm CBIZ Tofias, which has offices in Providence, Newport and New Bedford, answered five questions about this aspect of the health care act.
PBN: What’s the purpose of the program?
CORRENTE: To encourage projects with the potential for medical breakthroughs, generate U.S. jobs and advance U.S. competitiveness in the medical field.
More specifically, the therapeutic goals are:
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- To treat or prevent diseases or conditions by conducting preclinical 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).
- To diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions.
- To develop a product, process or technology to further the delivery or administration of therapeutics as determined by the U.S. Department of Health and Human Services.
The domestic economic benefits are: - To create and sustain (directly or indirectly) high-quality, high-paying jobs in the United States.
- To advance U.S. competitiveness in the fields of life, biological, and medical sciences.
PBN: Who’s eligible for the credits and grants?
CORRENTE: Qualifying firms must have less than 250 employees and be judged by the IRS to have both a reasonable potential to achieve one or more of the therapeutic goals and the greatest likelihood to foster the domestic economic benefits.
PBN: What are the key details of the QTDP Credit?
CORRENTE: The IRS has set July 21 as the deadline to apply. 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. A single applicant is limited to $10 million in qualified investments in all of its QTDPs, such that no taxpayer shall be allocated more than $5 million in credits or grants in the aggregate for 2009 and 2010.
PBN: How does a company apply for it?
CORRENTE: Filing Form 8942, “Application for Certification of Qualified Investments Eligible for Credits and Grants under the Qualifying Therapeutic Discovery Project Program,” no later than July 21. The IRS has provided guidelines on the application process in Notice 2010-45 available at www.irs.gov/. 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.
Initial guidelines under IRS Notice 2010-45 provide that application Form 8942 will require the following information:
1. Applicant’s name, address, taxpayer identification number, type of entity, ownership and contact person information.
2. 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).
3. Whether the applicant is requesting a grant in lieu of the credit.
4. 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.
5. 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.
6. Whether the project: 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 is expected to lead to the construction or use of a contract production facility in the United States in the next five years.
In addition, a project information memorandum must be attached to Form 8942. In the memorandum, the applicant must provide detailed explanations in response to IRS questions that address:
1. 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.
2. A description of the stage of the project development, including a description of relevant preclinical and clinical trial results.
3. A description of the resources, management experience and organizational capacity of the applicant and an explanation of how the applicant believes that such resources, experience and capacity will support successful completion of the project.
PBN: How and when will the tax credits and grants be awarded?
CORRENTE: The health care law has set a tight timeline for the whole project, giving the U.S. Treasury and HHS from July 21 to Sept. 30 to consider all applications and perform preliminary reviews, and until Oct. 29 to complete the final review. By Oct. 29, 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 U.S. jobs and advancing U.S. competitiveness in the medical field.
