Small to midsized companies may qualify for significant tax credits or grants for qualifying therapeutic discovery projects under the 2010 Health Care Act. The application process is expected to begin soon. Companies should not delay in assessing whether they can benefit.
Qualifying Projects Target Disease Treatment, Prevention, Diagnosis
The 2010 Health Care Act introduces the new Qualifying Therapeutic Discovery Project (QTDP) credit. The QTDP credit equals 50 percent of the aggregate costs paid or incurred in a tax year for expenses necessary for, and directly related to, the conduct of a qualifying therapeutic discovery. The investment or has to be made in tax years beginning in 2009 or 2010.
A qualifying therapeutic discovery project is designed to achieve any of the following:
- Treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols, for the purpose of securing approval of a product under section 505(b) of the Federal Food, Drug, and Cosmetic Act or section 351(a) of the Public Health Service Act
- Diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions
- Develop a product, process, or technology to further the delivery or administration of therapeutics
Designed for Small to Midsized Companies
The QTDP credit is limited to small to midsized companies, specifically companies that have no more than 250 employees. Certain rules apply that may treat several companies as one company when counting employees.
Credits May Be Available as Grants
A taxpayer can apply for a grant in lieu of the credit. This alternative is particularly important for early-stage companies that may not have taxable income that can be offset by a credit.
Applications to Become Available After May 21
The IRS and the secretary of Health and Human Services must have the program underway by May 21. Applications are expected to be available soon thereafter. Companies that may qualify should not delay in assessing whether their activities may qualify for the credit and whether their accounting is such that they can tie expenditures to a specific therapeutic project.
Of course, other rules and limitations apply—including restrictions on depreciation and other tax benefits. Given the value of the credit and the grant in lieu of the credit, however, it is unlikely these rules would discourage an eligible company from applying for the funds.
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