By LANCE HARDIN, special to Local Tech Wire
Editor’s note: Lance Hardin, a CPA, is senior tax manager at
RESEARCH TRIANGLE PARK, N.C. – Part of the Patient Protection and Affordability Care Act, signed by President Obama on March 23, is $1 billion in tax credits and grants available for qualified therapeutic discovery projects in 2009 and/or 2010.
The addition of the Discovery Therapeutic Tax Credit was spearheaded Don DeBethizy, chief executive officer of Targacept, a successful biotech company in Winston-Salem, member of the Bio Industry Organization board and co-chair of its Capital Formation subcommittee.
[Editor’s note: HPG is about the program on May 14. BIO will about the program on May 26.]
“This success was the result of a highly effective collaboration among key biotech stakeholders and key members of Congress including Senators Robert Menendez and Max Baucus,” says Christy Schafer, former CEO of Inspire Pharmaceuticals and member of the Emerging Company Section of the BIO board. “This represents solid support of continued innovation by emerging biotech companies.”
A key feature of the program is the ability to elect a grant in lieu of a tax credit. This means companies not currently paying federal income tax due to operating losses are eligible. In addition, grant awards will not be subject to federal income tax. Treasury Department guidance on how to apply is expected by May 21. It is anticipated that the allocated funding will be quickly claimed. Companies need to be pulling data together now, to meet an expected expedited application period.
The tax credit represents an enormous opportunity for small life science companies,” said Sam Taylor, president of the North Carolina Biosciences Organization. “However, it is likely that the credit will be over-subscribed and the application process will be competitive. We urge companies to begin preparing their submissions now.”
Detail, accuracy and supporting documentation will be very important in writing a successful application. Before you dedicate precious resources to compiling this information, take a moment and assess your company and development projects to make sure they are eligible.
What types of enterprises are eligible?
• Companies engaged in a qualified therapeutic discovery project in 2009 and/or 2010
• C Corporations and pass-through entities may qualify
• Companies with no more than 250 employees including related parties
• Tax exempt entities are not eligible, nor are partnerships with tax exempt partners
What is a qualifying project?
A “qualifying therapeutic discovery project” is a project designed to:
• Treat or prevent a diseases or condition by conducting pre-clinical activities, clinical trials and studies, or carrying out research protocols for the purpose of securing approvals under Section 505(b) of the Federal Food, Drug and Cosmetic Act or Section 351(a) of the Public Health Service Act
• Diagnose diseases/conditions, or determine molecular factors related to diseases/conditions by developing molecular diagnostics to guide therapeutic decisions
• Develop a product, process or technology to further the delivery or administration of therapeutics
How will projects be evaluated?
Projects must show a reasonable potential to:
• Result in new therapies that treat areas of unmet medical need or prevent, detect or treat chronic or acute diseases and conditions
• Reduce long-term health care costs in the U.S.
• Significantly advance the goal of curing cancer within the 30-year period beginning on the date the law passed
With a cap of $1 billion, the Treasury Department is expecting applications to exceed available funding. Even if your company and projects pass eligibility and initial evaluation, there are two additional criteria that will be applied to select between projects:
• Potential to create and sustain high quality, high paying jobs in the U.S., both direct and indirect job creation
• Potential to advance U.S. competitiveness in the fields of life, biological and medical sciences
If you believe your company is engaged in a qualifying project and are interested in applying, there are several additional considerations. These include: determining which costs qualify, obtaining support for addressing the qualitative and quantitative selection criteria, and determining how the credit or grant will impact your tax return and financial statements. Key to a successful application will be how well you differentiate your company’s project from the other applications. The advice of an accounting firm experienced in corporate tax, auditing and grant accounting may go a long way towards being success.
The views expressed do not necessarily represent Hughes Pittman & Gupton, LLP or Hughes Pittman & Gupton, LLP policy and cannot be relied upon as accounting or tax advice. The outcome of any specific matter depends upon the specific facts and circumstances in which the matter arises. Check with a qualified adviser before taking any action.