This guest post is brought to you by Patrick Wallace, Senior Manager of R&D Tax Services in BDO’s Atlanta office. Patrick has eight years of experience advising clients on federal and state tax matters. He has extensive experience leading the implementation of R&D tax credit studies. You can email Patrick at pwallace@bdo.com.
For Atlanta-based small businesses in the life sciences, biotech, pharma, and medical manufacturing industries, a new provision buried within the recently enacted healthcare reform legislation provides significant benefits for those who act quickly.
For small and midsized businesses employing no more than 250 employees, the provision offers theopportunity to apply for a tax credit or grant equal to 50% of their investments in 2009 and 2010 in Qualified Therapeutic Discovery Projects (“QTDPs”). For example, if an eligible taxpayer makes a $1 million qualified investment, that business may receive a $500,000 tax credit or cash grant.
QTPDs are projects designed to: 1) treat or prevent a disease by conducting activities for the purpose of securing approval for a new drug or biological product; 2) diagnose a disease or condition; or 3) develop a product, process, or technology to further the delivery or administration of therapeutics.
One of the main incentives is that the program enables the companies that apply to receive an immediate benefit. The possibility of receiving a cash grant in lieu of a tax credit has significantly increased interest in this opportunity in Atlanta. Many companies, particularly smaller businesses or those in the start-up phase, are not paying federal income tax.
Since only $1 billion is available, time is of the essence. Many companies are already pulling together the information expected to be required by the application, due to be published on or around May 22nd.
Treasury Department and Department of Health and Human Services (“HHS”) will decide which projects certify by measuring the projects reasonable potential to:
- Result in new therapies to treat areas of unmet medical need or prevent, detect, or treat chronic or acute diseases or conditions;
- Reduce long-term U.S. health care costs; or
- Significantly advance the goal of curing cancer within 30 years.
Treasury will then consider which projects have the greatest potential to create and sustain high-quality, high-paying jobs in the U.S. and advance U.S. competitiveness in the fields of life, biological, and medical sciences.
Atlanta-based small businesses who hope to take advantage of this incentive should begin to prepare as soon as possible and equally important; they should aim to make their application stand out. To do this, make sure project costs are accounted for on a contemporaneous basis and in a way that enables eligible costs to be easily segregated from ineligible costs. In addition, consider getting the advice of a tax advisor with expertise with the Research Tax Credit and Orphan Drug Credit, as well as with the related Qualifying Advanced Energy Project Credit.
Such an advisor can help facilitate the application process as well as with determining whether a company is eligible for the incentive and its potential impact on other tax positions. Ideally, your advisor will also have access to medical or biological professionals with experience preparing or reviewing grant applications for HHS and the National Institutes of Health, both of which are expected to assist Treasury in the certification process.
