Presented by: Jason Brown, CPADate: May 10, 2010

Qualified Therapeutic Discovery Project Tax Credit

Qualified Therapeutic Discovery Project Credit

Before the 2010 Health Care Act, the only credits available for drug development were R&D and orphan drug credits.

The QTDP credit is equal to 50% of the “qualified investment” for any “qualifying therapeutic discovery project” of an “eligible taxpayer”.

What is an Eligible Taxpayer?

An “eligible taxpayer” employs no more than 250 employees in all businesses at the time of the submission of the application.

A qualified discovery project is designed to:– Treat/prevent disease or conditions by

conducting pre-clinical activities, clinical trial studies or research for securing approval under the Public Health Service Act 351§(a);

– Diagnose diseases/conditions or determine molecular factors related to companion drugs and diagnostics to guide therapeutic decisions; or

– Develop a product, process or technology to further the delivery or administration of therapeutics.

What is a Qualified Therapeutic Discovery Project?

What is a Qualified Investment?

A “qualified investment” is the total costs in the tax year for expenditures necessary for and directly related to the conduct of a “QTDP”.

An investment is considered a qualified investment if made in 2009 or 2010.

The credit still applies even if the product is not placed in service until after 2010.

Excluded Costs:– Remuneration for CEO – Interest expense– Facility maintenance

Mortgage or rent payments

Insurance payments Utility and maintenance

– G & A expenses

Excluded Costs

Ineligible Investments

A credit is not allowed for:– Bonus depreciation investments– Investments funded by treasury grants– Investments financed with non-qualified non-recourse

debt– Investments in property that is:

Predominantly located outside of the US; Primarily used for non-transient lodging; or Used by governmental entities or by foreign

persons.

Certification Program

By May 21, 2010, IRS, in conjunction with the Secretary of Health and Human Services, must establish a QTDP credit.

The Treasury Department (TD) must approve or deny any application within 30 days of submission.

The application can include a request for an allocation of credits for both 2009 and 2010.

Certification Program - What’s the Catch?

The total credits that can be allocated under the program cannot exceed $1 billion for the 2 tax years.

Companies will need to apply and compete with each other for the credit.

The application will need to include detailed documentation for all allowable expenditures.

Apply early because once the money is gone, the deal is over!

In determining qualifying projects, the TD will consider the projects’ potential to:– Result in new therapies to treat unmet need or to

prevent, detect, and treat chronic illness;– Reduce long-term health care costs in the United

States; or– Significantly advance the goal of curing cancer within a

30-year period. Projects must also have the greatest potential to:

– Create and sustain (directly or indirectly) high quality, high-paying jobs in the US; and

– Advance US competitiveness in life, biological, and medical sciences.

Criteria Used to Award the Credit

Other Restrictive Rules

Other restrictive rules include:– Recapture of the credit if property is disposed of or

ceases to meet credit requirements– Reduction in basis for QTDP credit allowed in relation

to property subject depreciation– Denial of deductions where double benefit – Denial of research credit or orphan drug credit when

taking QTDP credit

Grants in Lieu of Credit for QTDP’s

If a company does not have a tax liability, it could elect to apply for a grant instead of a credit.

The TD will provide guidance on how to elect a grant instead of a credit.

The grant will not be taxable. Similar to the credit, the grant will be in the

amount of 50% of the costs related to a qualified investment in a QTDP.

An application for a grant under the 2010 Health Care Act for a tax year beginning in 2010 must be submitted: – Not earlier than the day after the last day of that tax

year; and– Not later than the due date (including extensions) for

filing the federal tax return for that year.

Applying for a Grant

Timing of the Grant Payment

The TD must pay the grant amount during the 30-day period beginning on the later of:– The date of the application; or – The date the qualified investment is made.

In the case of investments of an ongoing nature, the TD will issue regs determining when payments will be made.

What Entities Are Not Eligible for a Grant?

The TD cannot make any grant under the 2010 Health Care Act to: – Any federal, state, or local government;– Any tax-exempt organization; – Any entity considered to be a clean

renewable energy bond lender, a cooperative electric company, or a governmental body; or

– Any partnership or other pass-through entity with an owner that falls within any of the categories above.

What Should You Do Now?

Do not wait! This is not too good to be true. Draft applications that are properly documented and

that clearly justify expenditures. Make sure to show investments on a project-by-

project basis.

How Can We Help?

We can assist you with: Identifying qualifying projects Capturing eligible costs Collecting appropriate

support Preparing and submitting

applications for the credit or grant

Providing audit defense as needed