Section 48D Tax Credits
Background
- On March 23, 2010 President Obama signed the Patient Protection and Affordable Care Act. The act created Internal Revenue Code Section 48D, which provided for a tax credit or grant for qualified investments.
- Allows qualifying companies to claim a tax credit or receive a grant for a "Qualifying Therapeutic Discovery Project" (QTDP) during tax years 2009 and 2010.
- $1 Billion has been allocated under the program.
- The credit is equal to 50% of allowable expenses of the Qualifying Therapeutic Discovery Project. Companies can also apply for a cash grant for the same amount instead of a credit.
- Projects need to be certified by the Treasury Department on a project by project basis
What does Section 48D involve?
Selection Criteria
In determining projects to be certified by the Treasury Department, the Secretary will only take into consideration projects that show reasonable potential that:
- Result in new therapies to treat areas of unmet medical need or to prevent, detect, or treat chronic or acute diseases and conditions, or
- Reduce long-term health care costs in the United States, or
- Significantly advance the goal of curing cancer within 30 years
In addition, the Treasury Department will also consider which projects have the greatest potential to:
- Create and sustain, directly or indirectly, high quality, high-paying jobs in the United States, and;
- Advance United States competitiveness in the fields of life, biological, and medical sciences.
Who qualifies?
- A taxpayer with no more than 250 employees of all its businesses on the date the application is submitted.
- Eligible taxpayers include C corporations and pass-through entities like S corporations and partnerships.
- Government agencies and most not-for profit entities are not eligible. Also, pass-through entities which have an interest in a 501(c) organization or government agency are not eligible.
What qualifies?
- Expenses necessary and directly related to a Qualifying Therapeutic Discovery Project
- Qualifying Therapeutic Discovery Projects need to be designed to:
- Treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols; or
- Diagnose diseases or conditions or to determine molecular factors related to diseases 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
What items are excluded?
There are five types of excluded costs:
- Renumeration for any employee described in sec 162(m)(3)
CEO, plus any additional person required by the SEC to disclose their salary for reporting purposes (four highest paid employees, excluding CEO)
- Interest expense
- Facility maintenance expenses
Costs paid or incurred to maintain a facility, including mortgage or rent payments, insurance payments, utility and maintenance costs and the costs of employing maintenance personnel
- Service costs identified under section 1.263A-1(e)(4)
Type of indirect costs (e.g., general and administrative costs) that can be identified specifically with a service department or function or that directly benefit or are incurred by reason of a service department or function
- Other expenses as determined by the Secretary as appropriate to carry out section 48D
Additional Information
- Companies are not allowed to take expenditures towards the Section 48D as well as the R&D credit. However, they will need to be included in determining base year expenditures in calculating future year R&D credit calculations.
- The credit may not be claimed for any investment which bonus depreciation is allowed under section 168(k).
- Application guidelines to consider and award certification are required to be released by May 21, 2010.
- The Secretary shall take action within 30 days of the submission of applications.
For more information, please email our experts at EmergingTechnologyTeam
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