On May 21, 2010, the Department of Treasury announced its program for evaluating and awarding certification for the new Federal income tax credit available to certain small employers for qualifying therapeutic discovery. This program includes a tight deadline for applications, so eligible taxpayers must act quickly to assess potential eligible projects and apply for the Federal subsidy.

Tax Credit/Cash Grant

The Health Care and Education Reconciliation Act of 2010 (the Act) added a new nonrefundable investment tax credit for qualified investments in qualifying therapeutic discovery projects.[1] The provision allocates $1 billion during the two-year period 2009 through 2010 for the program. The Internal Revenue Service (IRS) in consultation with the Secretary of Health and Human Services (HHS) will award certifications for qualified investments.

The amount of the credit generally equals 50 percent of qualified investments in qualifying therapeutic discovery projects.[2] The total amount of credits that the IRS may allocate under the program cannot exceed $1 billion for the two-year period beginning with 2009.

For purposes of the credit, a “qualifying therapeutic discovery project” is a project designed to develop a product, process or therapy to diagnose, treat, or prevent diseases and afflictions by: (1) conducting pre-clinical activities, clinical trials, clinical studies and research protocols, or (2) by developing technology or products designed to diagnose diseases and conditions, including molecular and companion drugs and diagnostics, or to further the delivery or administration of therapeutics.[3] The “qualified investment” for a tax year is the aggregate amount of the costs paid or incurred in the taxpayer’s 2009 and 2010 tax years for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project, excluding certain “soft” costs such as interest and certain executive compensation. The costs must satisfy certification and timing requirements. The amount treated as qualified investment for all tax years for any qualifying therapeutic discovery project may not exceed the amount certified by the IRS as eligible for the credit.[4]  

The credit is available only to companies having 250 or fewer employees.[5] Special rules aggregate certain affiliate companies for purposes of the 250-employee limit.

In lieu of receiving the credit against tax liability, the Act creates a mechanism to allow the taxpayer to receive a cash grant equal to 50 percent of the qualified investment.[6] The grant would be advantageous for taxpayers who have net operating losses or otherwise could not take full advantage of the credit to reduce their Federal income tax liability. The grant is not available for certain governmental entities, tax-exempt entities, issuers of clean renewable energy bonds or partnerships in which any of those entities are partners.

Certification Program

On May 21, 2010, the Department of Treasury, issued Notice 2010-45, establishing the qualifying therapeutic discovery project program to consider and award certifications for qualified investments eligible for the credit to qualifying therapeutic discovery project sponsors. Under this program taxpayers must adhere to the following guidelines.

  • The application opens no later than June 21, 2010, and must be submitted by July 21, 2010, to be eligible for certification in the original round.
  • Taxpayers will submit applications for certification of a particular project on new IRS Form 8924, which the IRS will issue no later than June 21, 2010.
  • The due date for submitting applications is July 21, 2010. 
  • The taxpayer must submit a separate Form 8924 for each project for which the taxpayer is seeking the credit or grant.
  • If the taxpayer seeks to receive a grant in lieu of the tax credit, the taxpayer must affirmatively elect to receive the grant on the Form 8924.
  • Based on the application, HHS will determine whether the project submitted is a qualifying therapeutic discovery project.
  • In addition, HHS will determine whether the project shows reasonable potential (a) to 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 30-year period beginning on May 21, 2010.
  • After review by HHS, the IRS will certify whether the taxpayer’s project is eligible for the credit, based on the IRS’s determination that the project is among those projects that have the greatest potential (a) to create and sustain (directly or indirectly) high quality, high-paying jobs in the United States, and (b) to advance United States competitiveness in the fields of life, biological, and medical sciences.
  • The maximum amount of qualified investment for any taxpayer that the IRS will certify is $10 million, which means that the maximum credit or grant for any taxpayer is $5 million. 
  • The IRS’s deadline for certification is October 29, 2010.



    Treasury officials have previously indicated that they anticipate a significant oversubscription of the program. The time window for applying for certification is short. Given these dynamics, companies undertaking potentially eligible projects in 2009 and 2010 should begin immediately to prepare for the certification process.

    [1] I.R.C. §48D, as added by Act §9023(a).

    [2] I.R.C. §48D(a),

    [3] I.R.C. §48D(c)(1)

    [4] I.R.C. §48D(b)(2) )

    [5] I.R.C. §48D(c)(2).

    [6] I.R.C. §48D(f).

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