Treasury releases Therapeutic Discovery Credit guidance

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Steve Levy, C.P.A., J.D. is a Tax Manager with the Donovan CPAs and Advisors. He has specialized in the research credit and related incentives for over 13 years.  For more information about the Therapeutic Discovery Credit, visit www.cpadonovan.com

On May 21, 2010, the U.S. Treasury released its guidance for applying for the Therapeutic Discovery Credit or Grant. The credit covers up to 50 percent of the cost of qualifying biomedical research, up to a maximum credit of $5 million per company. The guidance released describes the process which companies can apply to have their projects certified as eligible for the credit. Notice 2010-45 contains the rules that each applicant needs to follow in order to ensure consideration for the benefit. 

One key rule is that companies may submit applications for certification under the program beginning June 21, 2010, and applications must be postmarked no later than July 21, 2010. The notice also describes the costs that may be included as qualified investments, which includes expenses for wages, supplies, lab costs, depreciable property, contractor costs, and any other costs that would be considered part of the qualified investment for the project.

The notice also explains that a separate application for each qualifying project for which a company is seeking certification needs to be submitted. The application may include a request for certification of costs incurred in 2009, 2010, or both, as the investment includes those made or expected to be made in 2009 or 2010. The Internal Revenue Service will approve or deny the application no later than October 29, 2010. As most applicants are expected to request a grant in lieu of a credit, grant applicants can expect payments for 2009 investments to be authorized by October 29th and payments for 2010 investments to be made sometime in January 2011. The IRS will publicly disclose the identity of the applicant and the amount of credit or grant, as well as the type and location of the project with consent.

The application itself will consist of three parts: 1) Form 8942, which has yet to be developed but will be completed by the start of the application process; 2) Project Information Memorandum; and 3) a Consent to Public Disclosure if applicable. Brochures and other presentations are not permitted as part of the application and will not be considered. While not yet published, Notice 2010-45 explained Form 8942 will request basic applicant information, including the amount of employees for the 250-employee test, a description of the investments and amounts, as well as information on employees and contractors on the project to determine potential for creating jobs.

The Project Information Memorandum contains the technical portion of the application, with an overview of the project requested, eight questions needing Yes or No answers based on project qualifications, and three more questions asking for the project's scientific rationale, development stage, and resources leading to project completion. Correctly addressing the first four questions will permit consideration of the next four, and then the Department of Health and Human Services will consider the last three if satisfied with questions 5-8. Throughout the Memorandum there are word limits to the amount of explanation allowed, and in only the scientific rationale are you allowed to provide outside materials in the form of up to five literature citations.

While there are still open items such as Form 8942, the guidelines provide a comprehensive outline of the application process to ensure an objective acceptance process.  Companies applying for this valuable benefit should be certain to follow each of the rules explained in Notice 2010-45 to maximize its chances of obtaining a credit or grant.