In Notice 2010-45, the Department of Treasury released the long awaited administrative procedures under Section 48D for the Qualifying Therapeutic Discovery Project tax credit. Although consistent with the Internal Revenue Code Section 48D, there are a number of interesting points to note:
- The application for credit or grant must be made on Form 8942, which must be released by the IRS by June 21, 2010. That means that taxpayers that have been preparing to file the application early must now wait for the Form 8942 to be released.
- The Form 8942 will require a good deal of additional information, and that portion of the filing has some very specific requirements as to structure and content. Many of the questions relating to whether a project qualifies will be limited to 250 words. This means that any applicants must be very concise and descriptive in their application.
- Applications for the credit must be filed by July 21, 2010. A preliminary review of timely applications will be completed by September 30, 2010 and all applications will be considered to have been made on that date. As a result approval will happen by October 29, 2010, 30 days after the deemed application date.
- If a taxpayer is claiming the credit (rather than the grant) the applications can be made for costs incurred in 2009 and expected to be incurred in 2010. An application can be made for 2009, 2010 or both, even though the 2010 tax year has not yet ended. This does not apply for applicants seeking a grant.
- A separate application for certification must be submitted for each project for which a taxpayer is seeking certification.
- Taxpayers have no right of appeal on the certification ruling.
- The application on Form 8942 will allow taxpayers to elect the grant instead of the credit.
- Similar to the submission requirement of the credit, grant applications filed by July 21, 2010 will be subject to a preliminary review, which will be completed by the Treasury by September 30, 2010. The Department of Treasury will authorize grant payments for certified costs no later than October 29, 2010.
- A request for a grant instead of a tax credit has some very special rules. Unlike the credit, in order to request the grant for 2010, the application can’t be submitted any earlier than the day after the end of the 2010 tax year, January 1, 2011 for most companies.
- All grant applicants must have a Data Universal Numbering System (DUNS) number from Dun and Bradstreet, and, must be registered with the Central Contractor Registration (CCR).
- But here’s an interesting observation: If a taxpayer requests a credit (and includes expected expenditures for 2010) then the application can be later amended to instead request a grant. One strategy might be to apply for the credit, including 2009 and the 2010 expected investment, and on January 1, 2011 amend the application to claim the grant for 2010. Assuming the funds have been allocated as part of the original filing they should be available as a grant, even if the $1billion allocation has been expended.
- Note: The Service will publicly disclose the identity of the applicant and the amount of the credit or grant issued for certified costs. In addition, with respect to applicants who elect to receive a grant in lieu of the credit for the 2009 tax year or provide a consent to disclose information concerning the allocation, the Service will also publish the type and location of the project which costs were certified.
The Appendix A to Notice 201-45 provides very specific filing information with what to include with Form 8942. The information is very limited, many sections limited to 250 words or less. The appendix also provides more detailed guidance on what will be deemed a Qualifying Therapeutic Discovery Project. Obviously the words used in the appendix should be used in drafting the application question responses wherever possible.
The text of Notice 2010-45 can be found at http://www.irs.gov/pub/irs-drop/n-10-45.pdf.
If you would like further information Section 48D or would like to talk about how we can help you obtain credits or grants, post a comment below or contact us at 440-449-6800.