We would like to make you aware of a new tax credit that could significantly benefit your business.
As you know, on March 23rd, President Obama signed into law the Patient Protection and Affordable Care Act. As part of this Act, new Internal Revenue Code Section 48D was created. Section 48D provides an incentive that may offer you a significant benefit.
Overview of Benefit
- The Act establishes a new investment tax credit for certain expenditures related to “Qualifying Therapeutic Discovery Projects” (QTDPs) made in 2009 and 2010.
- Section 48D provides a tax credit equal to 50 percent of the “qualified investment” of an “eligible taxpayer.”
- In an interesting variation from other tax credits, companies that cannot currently use tax credits may apply for a cash grant for the same amount as the credit.
What is a “Qualified Investment”?
The amount of the credit depends on a business’s investment in a “Qualifying Therapeutic Discovery Project (“QTDP”).
The government defined QTDP Objectives are:
- The development a product, process, or technology to further the delivery or administration of therapeutics;
- The diagnosis of diseases or conditions, or determination of molecular factors related to diseases or conditions, by developing molecular diagnostics to guide therapeutic decisions; or
The treatment or prevention diseases or conditions by:
- Conducting pre-clinical activities, clinical trials, and clinical studies; or
- Carrying out research protocols, for the purpose of securing approval fo a product government guidelines.
In order to qualify for the grant/credit, certification by the Treasury Department is required; therefore, the ability to qualify for the credit requires careful consideration and presentation.
In deciding which projects to certify, Treasury must find that the projects show “reasonable potential” to:
- Result in new therapies to treat areas of unmet medical need, or prevent, detect, or treat chronic or acute diseases or conditions;
- Reduce long-term health care costs in the United States; or
- Significantly advance the goal of curing cancer within 30 years.
As part of their determination, Treasury also will consider which projects 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.
Treasury is required to take action to approve or deny applications within 30 days of their submission.
Who is eligible?
- A taxpayer that employs 250 employees or less in all its related businesses at the time it submits an application is eligible, but complex rules determine related businesses.
- Eligible taxpayers include C corporations as well as pass-through entities like S corporations, LLCs, and partnerships.
- Most not-for-profit entities are not eligible for grants.
The application guidelines are required to be published no later than May 21, 2010, within 60 days of the Act’s signing, and could be published even sooner.
No one knows what the application will look like just yet, but due to the complex rules, the application will likely be complicated, particularly since a considerable amount of information will be required related to the QTDP merits and the likelihood of job creation. We believe the application could be as complex as any government grant request.
Only $1 billion is available for expenditures in 2009 and 2010. If past history, like the credits for Advanced Energy Projects are any indication, the funds could be depleted quickly, so time is of the essence.
As the available funds (only $1 billion) may go quickly, we encourage you to contact Skoda Minotti as soon as you have identified that you may be eligible for a credit or grant. As we have been researching and studying this opportunity since its announcement, we are most qualified to help you position yourself by gathering and organizing the information that will be needed to demonstrate your qualification for the grant/credit. It is advisable to be prepared to fill out the application and prepare the grant request as quickly as possible once guidance is released in order to put yourself in the best position to receive funding.
If you have any questions about moving forward with a Section 48D application, feel free to contact Jim Sacher in our Technology Partners groupat 440-449-6800.