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 tax year for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project, excluding certain “soft” costs such as interest. 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 IRS as eligible for the credit. [4]  

Not later than May 23, 2010, the Department of Treasury, in consultation with HHS, must establish a qualifying therapeutic discovery project program to consider and award certifications for qualified investments eligible for the credit to qualifying therapeutic discovery project sponsors. Each applicant for certification must submit an application containing the information as Treasury might require during the period beginning on the date that it establishes the program. [5] Treasury officials have recently indicated that they feel fairly confident that they will meet the May 23, 2010, deadline for issuing the project program guidelines.

Treasury officials anticipate a significant oversubscription of the program. In allocating the credits among applicants, Treasury officials have indicated that the criteria will focus on projects that can reasonably result in new ways to meet unmet medical needs; to reduce long-term U.S. health care costs; to prevent, treat, or detect chronic illnesses; or to significantly further the goal of curing cancer within 30 years. The impact on U.S. jobs and competitiveness also will be a factor in certifying projects. 

The credit is available only to companies having 250 or fewer employees. [6] 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. [7] The grant would be advantageous for taxpayers who have net operating losses or otherwise could not tax full advantage of the credit to reduce their Federal income tax liability.  



[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(d)

[6] I.R.C. §48D(c)(2).

[7] I.R.C. §48D(f).

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