IRS Starts Accepting Biotech Tax Credit Applications

The Internal Revenue Service has released an application form that will allow small firms to begin applying for certification for tax credits or grants available under the Qualifying Therapeutic Discovery Project Program, created by the Affordable Care Act.

These credits or grants are available for projects that show significant potential to produce new cost-saving therapies, create U.S. jobs, and increase U.S. competitiveness (see Treasury Offers $1 Billion in Tax Credits for Biotech).

Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program, and its instructions are now available. Companies may submit applications for certification beginning today. Applications must be postmarked no later than July 21, 2010.

“This new tax credit was designed to promote medical research that could improve health and save lives," IRS Commissioner Doug Shulman said in a statement. "I encourage companies that are involved in this groundbreaking type of work to apply."‬‪

The qualifying therapeutic discovery project program is targeted to projects that show potential to produce new therapies, reduce long-term health care costs, or significantly advance the goal of curing cancer within the next 30 years.

The credit or grant covers up to 50 percent of the cost of qualifying biomedical research, up to a maximum credit of $5 million per firm and $1 billion overall, and is only available to firms with no more than 250 employees. Credits and grants are available for investments made in 2009 and 2010.

As part of the review process for research projects, the Department of Health and Human Services will evaluate each project for its potential to produce new therapies, reduce long-term health care costs or cure cancer within 30 years. Only projects that show a reasonable potential to meet these goals will be certified as eligible for the credit or grant.  HHS also released the “scoring criteria” it will use in evaluating applications, so applicants will have a clear sense of how their applications will be judged.

The IRS will issue certifications by the end of October, based on the determinations made by HHS. More information, including questions and answers on this program, can be found on the Affordable Care Act page of IRS.gov.

“The IRS release of Form 8942, coupled with the HHS release of the Project Information Memorandum, gives the last pieces for the biotech credit,” said alliantgroup national managing director Dean Zerbe, a former tax counsel and senior counsel on the Senate Finance Committee. “The IRS form and guidance follows closely Treasury Notice 2010-45. Today's new guidance from IRS and HHS underscores that there are traps for the unwary, and the need for businesses seeking the biotech credit to have an application that crosses every "t" and dots every "i," with the dollars for qualified investments fully justified.” This remains a tremendous opportunity for the biotech industry but businesses need to be working on applications now. We have found by working with scores of companies that are applying for the biotech credit that it is going to take a significant amount of time and effort to bring together all the necessary material for a successful application.”