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On May 21, the Treasury Department
released Notice 2010-45 (Notice) for guidance on the Qualifying Therapeutic
Discovery Projects credits program under Section 48D. As we described in our
April 6 Client Alert, to
qualify for the credit, taxpayers must receive a certification from the IRS
that they have a Qualifying Therapeutic Discovery Project (QTDP) before they
claim the credit on a federal income return or receive a grant in lieu of the
Background on Section 48D
The Health Care and Education
Reconciliation Act established the investment tax credit for certain
expenditures related to a QTDP made in 2009 or 2010 under newly created Section
48D for eligible taxpayers with less than 250 employees.1 The federal credit is equal to 50 percent
of the aggregate costs paid or incurred in a taxable year that are directly
related to a QTDP. Importantly, the new provision also permits the Treasury to
provide taxpayers with a grant in lieu of the tax credit, so that even
companies that are unable to use the tax credit to offset future taxable income
may receive the cash grant.
A QTDP is a project designed to
develop a product, process or therapy to diagnose, treat, or prevent diseases
and afflictions by: (1) conducting pre-clinical activities, clinical trials,
clinical studies, and research protocols, or (2) by developing technology or
products designed to diagnose diseases and conditions, including molecular and
companion drugs and diagnostics, or to further the delivery or administration
The Notice and its appendices
provide applicants with the information required to be submitted for taxpayers
seeking an HHS recommendation, as well as information to be supplied to the IRS
for certification. The Notice also provides a series of helpful definitions and
rules for eligible applicants. Key rules to note include:
Certain Medical Devices May Qualify
Appendix A of the Notice states that
to qualify, a QTDP must be a product, process, or technology that furthers the
delivery or administration of therapeutics and that the term
"therapeutics" means drugs or medical devices, as those terms are
defined in Section 201(g) and (h) of the FFDCA, 21 U.S.C. 321(g) and (h).
Biologics that are licensed under the PHSA will generally be either drugs or
The Appendix has an example of a
drug-eluting stent or infusion pump as meeting the requirements of this
provision. A medical device, or other product, process or technology, however,
that does not further the delivery or administration of a drug or medical
device would not meet the requirements of the Notice because those types of
products do not deliver or administer a therapeutic. Products, processes or
technologies that deliver other therapies that are not therapeutics, such as
speech, physical and cognitive therapies, are excluded.
To receive a certification, the
taxpayer must submit for each project a Form 8942, "Application for
Certification of Qualified Investments Eligible for Credits and Grants Under
the Qualifying Therapeutic Discovery Project Program," a penalties of
perjury statement, a power of attorney, and a consent for public disclosure of
Also, applicants will need a Data
Universal Numbering System (DUNS) number from Dun and Bradstreet when applying.
Taxpayers may want to get a DUNS number ahead of time due to the short window
Form 8942 will be released by the
Treasury on June 21, 2010, and the complete application must be submitted by
July 21, 2010, giving eligible taxpayers a 30-day window to apply. IRS will
make award certifications no later than Oct. 29 according to the Notice.
The Notice makes it clear that the
IRS and HHS will be looking for projects that can reasonably result in new ways
to meet unmet medical needs; to reduce long-term U.S. health care costs; to
prevent, treat, or detect chronic illnesses; or to significantly further the
goal of curing cancer within 30 years. Applicants should clearly state the
illness the company is attempting to cure or treat, the need that exists for a
cure or treatment, and how it will overcome any barriers to the cure. The
Notice also makes it clear that applicants need to demonstrate that their
science will result in future U.S. jobs and make the U.S. economically
competitive around the world.
This process will be very
competitive and the Notice states that the IRS anticipates 1,200 applicants.
With those criteria in mind, eligible applicants should begin to gather their
data and information in anticipation of the 30-day window. Applicants are
encouraged to follow all of the instructions in the Notice since applications
that fail to comply with the instructions set will not be considered.
Unless otherwise stated, all references to "Section" are to the
Internal Revenue Code of 1986 (the Code), and all references to "Treas.
Reg. Section." are to the Treasury Regulations promulgated thereunder (the
The material in this
publication is based on laws, court decisions, administrative rulings, and
congressional materials, and should not be construed as legal advice or legal
opinions on specific facts. The information in this publication is not intended
to create, and the transmission and receipt of it does not constitute, a
lawyer-client relationship. Internal Revenue Service rules require that we
advise you that the tax advice, if any, contained in this publication was not
intended or written to be used by you, and cannot be used by you, for the
purposes of (i) avoiding penalties under the Internal Revenue Code or (ii)
promoting, marketing or recommending to another party any transaction or matter
This article is
republished with permission of Pepper Hamilton, LLP. Further duplication
without the permission of Pepper Hamilton, LLP is prohibited. All rights