Is there a tax credit for therapeutic products and technology?

Christopher Axene | July 12th, 2010

Yes, there is. If your small company develops products or technology that diagnose, treat or prevent diseases, you may be eligible to apply for tax credits or grants.

Small companies that have 250 or fewer employees can receive a new 50 percent investment tax credit on investments in qualifying therapeutic discovery projects. The tax credit is applicable for expenses incurred in tax years beginning in either 2009 or 2010. Start-up firms that are not yet profitable will have a mechanism to receive a grant instead of a tax credit, to allow these firms to benefit from the grant.

A “qualifying therapeutic discovery project” is a project that is designed to develop a product, process or therapy to diagnose, treat or prevent diseases or afflictions. The project can conduct pre-clinical activities, clinical trials, clinical studies and research protocols or develop technology or products designed to diagnose diseases and conditions (including molecular and companion drugs, diagnostics or further delivery or administration of the therapeutics).

The tax credit and grant program was created by the Qualifying Therapeutic Discovery Project Program as part of the Patient Protection and Affordable Care Act. The provision has allocated $1 billion to the program for tax years beginning in 2009 and 2010. The IRS in conjunction with the Secretary of Health and Human Services will award certifications for qualified investments.

To be eligible for the tax credit or grant, a qualified investment must consist of costs paid for expenses necessary for and directly related to the qualified therapeutic discovery project. The expense amount cannot exceed certain limits set by the IRS, and must occur in the tax years 2009 or 2010. Certain types of expenses such as salaries of covered employees such as CEOs, interest expense, facility maintenance and certain service costs are excluded from qualifying expenses.

On Monday, June 21, the IRS released Form 8942 “Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program,” for the application process. The IRS must receive the application with a postmark no later than July 21, 2010, for consideration. Applicants will be notified of their eligibility by October 29, 2010.

Be sure to contact your financial advisor for assistance if you believe your company may be eligible for this tax credit.

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