By Matthew Becker & John Marquardt
July 15, 2010
This year’s historic health care reform legislation enacted in March includes a provision for small businesses in the life sciences, biotech, pharma and medical manufacturing industries. For those who have not already heard of the Qualifying Therapeutic Discovery Project (QTDP) credit, eligible companies hoping to receive this benefit must complete separate applications for certification for each QTDP and submit them to the IRS by July 21, 2010. Eligible companies may elect to receive a cash grant in lieu of a tax credit. $1 billion has been set aside for this incentive program.
The provision allows businesses with no more than 250 employees an opportunity to apply for a tax credit or grant equaling 50 percent of their qualified investments in tax years beginning in 2009 and 2010. For example, a $1 million qualified investment may result in a $500,000 tax credit, or cash grant. The application process is not first come, first serve. The IRS will certify an equal amount for each certified project, up to the amount of the project’s qualified investment. Additionally, the IRS will not certify more than $10 million as a qualified investment for any single taxpayer, such that no taxpayer is allocated more than $5 million in credits or grants for 2009 and 2010 combined, regardless of the number of projects that are certified.
Generally, QTDPs are projects designed to:
• Treat or prevent a disease or condition by conducting activities for the purpose of securing Federal approval for a new product;
• Diagnose a disease or condition; or
• Develop a product, process, or technology to further the delivery or administration of therapeutics.
In determining which projects will receive the money, the IRS will certify a QTDP only if the:
• Department of Health and Human Services (HHS) determines the project meets the definition of a QTDP and that the project shows reasonable potential to:
- result in new therapies to treat unmet medical needs or prevent, detect, or treat chronic or acute diseases or conditions;
- reduce long-term U.S. health care costs; or
- significantly advance the goal of curing cancer within 30 years; and
• The IRS determines that the project is among those projects with the greatest potential to both create and sustain high-quality, high-paying jobs in the U.S. and advance U.S. competitiveness in the life, biological, and medical sciences fields.
Projects will be certified or denied, and payments will be authorized, by October 29, 2010 and be paid within 30 days of authorization.
Companies applying for the grant in lieu of the credit must include their Data Universal Numbering System (DUNS) number and register with Central Contractor Registration (CCR) before payment of any grant can be processed. See grants.gov for more information.
Preparation is a “must.” Those who want to receive a portion of the $1 billion set aside for the program should ensure that their application(s) stand out from the rest. Tax advisors with knowledge and expertise of similar programs—e.g., the Research Tax Credit, Orphan Drug Credit, Qualifying Advanced Energy Project Credit—can help with this, as well as with determining whether a company is eligible for the incentive and the incentive’s potential impact on the company’s other tax positions. Ideally, your advisor will also have access to medical or biological professionals with experience preparing and reviewing grant applications for HHS and the National Institutes of Health, both of which are assisting the IRS in the certification process.
Matt Becker is a Partner and West Michigan Tax Business Line Leader for the Grand Rapids office of BDO. John Marquardt, is a Partner and Tax Business Line Leader for the Detroit office of BDO.