Not a Lexis+ subscriber? Try it out for free.

Tax Law

Qualifying Health-Sciences Companies Should Act Quickly to Secure Available Tax Credits and Grants for Investments in Therapeutic Discovery Projects

The Patient Protection and Affordable Care Act of 2010 has added a section to the Internal Revenue Code, providing a 50 percent tax credit for eligible taxpayers who invest in qualified therapeutic discovery projects in 2009 and 2010.

 The Patient Protection and Affordable Care Act of 2010 added section 48D to the Internal Revenue Code, which provides a 50 percent tax credit or a grant in lieu of the tax credit for "eligible taxpayers" making a "qualified investment" in "qualified therapeutic discovery projects" during 2009 and 2010.  Companies are limited to $5 million in tax credits or grants for 2009 and 2010 combined.


The legislation provides a $1.0 billion fixed pool, from which the total amount of credits or grants will be made by the Internal Revenue Service (IRS), in conjunction with the Department of Health and Human Services (HHS).  The IRS issued preliminary guidance on May 21, 2010, with final guidance expected by June 21.  Although the Act sets forth the selection criteria that the IRS and HHS must use to determine which projects to certify for the credit, it is unknown at this point whether the available funds will be allocated on a first-come, first-served basis, or whether the IRS will set a deadline for applications and then award credits and grants based on a review of all of the applications received.

Accordingly, life sciences companies should act quickly to determine whether their research activities qualify for the credit and be prepared to complete and submit an application to the IRS as soon as the application is available.  In Notice 2010-45, issued by the IRS on May 21, 2010, the IRS stated that the first round of applications will be accepted during the period June 21, 2010, through July 21, 2010, with preliminary review of the applications to be completed by September 30, 2010, and final approval or denial of the applications by October 29, 2010.

Applications for certification will be made on IRS Form 8942, "Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program."  Form 8942 and its instructions will provide the manner for submitting applications.   It will be released no later than June 21, 2010, and will be available to the public on

Key definitions and provisions of new Code section 48D are as follows:

  • "Eligible taxpayers" include C corporations, S corporations, partnerships and LLCs with 250 or fewer employees.
  • A "therapeutic discovery project" is a project designed to treat or prevent diseases or conditions by conducting preclinical studies or clinical trials or carrying out research protocols for the purpose of securing approval from the Food and Drug Administration; diagnose diseases or conditions or to determine molecular factors relating 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.
  • "Qualified investments" include "the aggregate amount of costs paid or incurred in the taxable year for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project."   However, certain items are excluded, including salaries of certain highly compensated executives, interest expense and facility maintenance, such as mortgage, rent, insurance and utility expense.
  • The "selection criteria" to be used by the IRS and HHS in determining which projects to certify, include both health and economic components.  Projects will be certified only if they satisfy both.  The health component is satisfied if HHS determines that the taxpayer's project shows reasonable potential to result in new therapies, treat areas of unmet medical need,or prevent, detect or treat chronic or acute diseases and conditions; reduce long-term health care costs in the United States; or significantly advance the goal of curing cancer within the 30-year period beginning on May 21, 2010.  The economic component is satisfied if the IRS determines that the taxpayer's project is among those projects that have the greatest potential to create and sustain (directly or indirectly) high quality, high-paying jobs in the United States, and advance United States competitiveness in the fields of life, biological and medical sciences.

The content of this article is provided solely for informational purposes: It is not intended as, and does not constitute, legal advice. The Information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax, career, and/or other professional advisors. This article is provided "AS IS," and McDermott Will & Emery makes no representation or warranty of any kind with respect to its contents. McDermott Will & Emery expressly disclaims all representations and warranties, whether express or implied, including, but not limited to, warranties of merchantability, fitness for a particular purpose, and non-infrengement. In addition, McDermott Will & Emery does not represent or warrant that the content of thsi article is timely, accurate or complete.

This article is republished with the permission of McDermott Will & Emery LLP. Further duplication without the permission of McDermott Will & Emery LLP is prohibited. All rights reserved.