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Tax Bulletin (June 2010)

July 21st Deadline for Therapeutic Discovery Grant or Tax Credit Applications

By Dana Proud Newman, a tax partner in the Los Angeles office of Pillsbury Winthrop Shaw Pittman LLP, and Clare Stoudt, a tax associate in the firm's Washington, D.C. office. See Available Material for links to the legislative and administrative material discussed in this bulletin.

If you have or can obtain the Acrobat Reader, or have an Acrobat-enabled web browser, you may wish to download or view our June 2010 Tax Bulletin (a 188K pdf file), containing a printed version of this article and also available via ftp at:


This bulletin concerning tax matters is part of the Tax Page, a World Wide Web demonstration project, no portion of which is intended and cannot be construed as legal or tax advice. Comments are welcome on the design or content of this material.

On May 21, the Internal Revenue Service issued Notice 2010-45 ("IRS Notice") providing details on applying for the Qualifying Therapeutic Discovery Project Program ("QTDP Program") established by the Patient Protection and Affordable Care Act of 2010, including the application deadline of July 21, 2010. The $1 billion QTDP Program established both a tax credit ("QTDP Credit") and a grant ("QTDP Grant") for investments in 2009 and 2010 by small and mid-size companies developing therapeutic medical projects.


    Who Qualifies

The QTDP program is limited to companies with no more than 250 employees at the time of the application. Commonly controlled and affiliated employers will be aggregated together and treated as a single employer for purposes of applying the 250-employee limitation. A company will not qualify for a QTDP Grant if it is (a) a federal, state or local governmental entity, (b) a tax-exempt organization, or (c) a partnership or other pass-through entity which has one or more owners which are either governmental entities or tax-exempt organizations.

    Qualifying Therapeutic Discovery Project

A qualifying therapeutic discovery project includes any project which is designed to:

  • treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials and clinical studies, or carrying out research protocols,

  • diagnose diseases or conditions or to determine molecular factors related to disease or conditions by developing molecular diagnostics to guide therapeutic decisions, or

  • develop a product, process or technology to further the delivery or administration of therapeutics.

    Qualified Investments

Qualified investments include expenses incurred in 2009 and 2010 that were necessary for, and directly related to, the conduct of a qualifying therapeutic discovery project. Certain expenses are specifically excluded, including (1) salaries of certain highly compensated employees, (2) interest expenses, (3) facility maintenance expenses, (4) certain indirect costs, and (5) other expenses to be identified by the Secretary of the Treasury ("Secretary").

    Amount of QTDP Credit and QTDP Grant

The QTDP Credit will equal 50 percent of the "qualified investment" in any tax year with respect to a "qualifying therapeutic discovery project."

The QTDP Grant will equal 50 percent of the "qualified investment" in any tax year with respect to a "qualifying therapeutic discovery project." A QTDP Grant will not be includable in a company's taxable income.

A variety of rules will limit the ability of a company that receives either the QTDP Credit or the QTDP Grant to receive a "double benefit." First, a company that receives the QTDP Grant will not be eligible for the QTDP Credit. Further, a company that receives either the QTDP Credit or the QTDP Grant will not be eligible to claim bonus depreciation, research credits and other tax benefits for the same expenditures. Finally, the tax basis of the property must be reduced by the amount of the QTDP Credit or QTDP Grant.

Notice 2010-45

    Application Deadlines

The application timeframe under the QTDP Program is very limited—applications will be accepted from June 21, 2010 through July 21, 2010. The IRS Notice states that the complete application (including the Project Information Memorandum described below) must be postmarked on or before July 21, 2010 to be eligible. Applications postmarked after that date will be rejected.

    Form of Application

Applications for the QTDP Program are to be made on Form 8942. The IRS released Form 8942 and its instructions on June 18, 2010. A separate Form 8942 must be filed with the IRS for each qualifying therapeutic discovery project for which a QTDP Grant or QTDP Credit is sought. Completion of the Project Information Memorandum will require significant information about each project.


No taxpayer will be entitled to receive more than a combined allocation of $5 million for both of QTDP Credits and QTDP Grants for 2009 and 2010.

    Form of Project Information Memorandum

Each Form 8942 application must be accompanied by a Project Information Memorandum. The IRS Notice sets forth the required format and content of the memorandum, which includes both specific yes/no questions as well as provision for short narrative answers that support each yes answer and limited citations to scientific literature supporting the project claims. The rules for completion of the Project Information Memorandum include detailed requirements with respect to the format, including word limitations and font and margin size. An application that fails to satisfy these requirements may be rejected or portions of the application may not be considered.

    Other Requirements

Applicants for a QDTP Grant must satisfy certain additional requirements. First, the applicant must have a Data Universal Number System (DUNS) number from Dun and Bradstreet. Applicants who do not yet have this number may request one at no cost. Second, the application must register with the Central Contractor Registration, which can be done online.

    Preliminary Review Deadline

The IRS Notice provides that a preliminary review of each application will be completed on September 30, 2010.

    Award Deadline

The IRS will approve or deny applications for certification no later than October 29, 2010; successful applicants will be notified by mail of the amount of the qualified investment that is certified as eligible for the QTDP Credit or QTDP Grant.

    Selection Criteria

Each application will undergo review by the Department of Health and Human Services ("HHS") to determine if it meets the QDTP award criteria. In its review, HHS will determine whether the application is for a project that is a qualifying therapeutic discovery project. If the project meets this hurdle, HHS will determine whether the project shows reasonable potential to (a) result in new therapies (i) to treat areas of unmet medical need, or (ii) to prevent, detect, or treat chronic or acute diseases and conditions, (b) to reduce long-term health care costs in the United States, or (c) to significantly advance the goal of curing cancer within the next 30 years. In approving applications for certification, the IRS will consider the results of the HHS review together with the potential of the project to create and sustain high-quality, high-paying jobs, and to advance U.S. competitiveness in the fields of life, biological, and medical sciences.

    Action Needed

Completing the Form 8942 application and the Project Information Memorandum will require significant time and effort. Given the absolute deadline of July 21, anyone interested in the QTDP Program should immediately note the requirements set forth in the IRS Notice and begin putting together the application.

Available Material

The following legislative and administrative material is available with the indicated file sizes:

This material is not intended to constitute a complete analysis of all tax considerations. Internal Revenue Service regulations generally provide that, for the purpose of avoiding United States federal tax penalties, a taxpayer may rely only on formal written opinions meeting specific regulatory requirements. This material does not meet those requirements. Accordingly, this material was not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal or other tax penalties or of promoting, marketing or recommending to another party any tax-related matters.

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