Investment Tax Credit or Cash Grant in Lieu of Investment Tax Credit for Qualifying Therapeutic Discovery Projects
As part of the new health reform law, consisting of H.R. 3590, the Patient Protection and Affordable Care Act (P.L. 111-148), and H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152), there is a new nonrefundable investment tax credit for certain taxpayers with “qualified investment” in a “qualified therapeutic discovery project” (a “QTDP”). A taxpayer also may request a cash grant in lieu of the investment tax credit, likely very similar to the cash grant in lieu of tax credit procedure that currently is in place for certain specified energy property. The new nonrefundable investment tax credit (the “QTDP tax credit”) and cash grant in lieu of the QTDP tax credit are included in the new Section 48D of the Internal Revenue Code of 1986, as amended (the “Code”). Because qualified investment includes certain costs paid or incurred in a tax year beginning in 2009 or 2010 and the total amount of QTDP tax credits and cash grants that can be allocated by the Treasury Department cannot exceed $1 billion for the two-year period beginning with 2009, it is anticipated that the application process will be time-sensitive and highly competitive.
Qualified Investment in a QTDP
The QTDP tax credit or cash grant may be claimed for up to 50% of qualified investment in a QTDP. Qualified investment includes costs paid or incurred in a tax year beginning in 2009 or 2010 for expenses necessary for and directly related to the conduct of a QTDP. The amount treated as qualified investment for all tax years cannot exceed the amount certified by the Treasury as eligible for the QTDP tax credit.
- to 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 by the Food & Drug Administration or Public Health Service;
- to diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics, molecular drugs and companion drugs and diagnostics to guide therapeutic decisions; or
- to develop a product, process, or technology to further the delivery or administration of therapeutics.
- remuneration for certain executives;
- interest expense;
- facility maintenance expenses, including mortgage or rent payments, insurance payments, utility and maintenance costs and costs of employment of maintenance personnel;
- certain indirect costs (e.g., general and administrative costs) identified as costs attributable to service departments, such as personnel, accounting, etc.;
- any other expense that is determined by the Treasury to be appropriate to carry out the purposes of Code Sec. 48D; and
- expenses that are financed by certain types of nonrecourse financing.
- any federal, state or local government (or any political subdivision, agency or instrumentality);
- any tax-exempt organization described in Code Section 501(c);
- any clean renewable energy bond lender, cooperative electric company or governmental body; or
- any partnership or other pass-through entity any holder of an equity or profits interest of which is described in the three preceding bullet points.