By Patrick Wallace and Edward Jankun of BDO 

A new provision buried within the recently enacted healthcare reform legislation provides significant benefits for companies in the life sciences, biotech, pharma, and medical manufacturing industries.

The provision offers businesses employing no more than 250 employees the opportunity to apply for a tax credit or grant equal to 50 percent 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.

Across the South, the possibility of receiving a cash grant in lieu of a tax credit has significantly increased the interest in this opportunity. Many companies, particularly smaller businesses or those in the start-up phase, are not paying federal income tax. This program enables them to potentially receive an immediate and significant economic benefit.

Time is of the essence, though: only $1 billion is available; and many companies are already pulling together the information expected to be required by the application, due to be published on or around May 22.

The information companies are gathering relates to how their projects meet the definition of “QTDP” and the criteria the Treasury Department and Department of Health and Human Services (“HHS”) will use in deciding which projects to certify.

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.

When evaluating which projects to certify, Treasury and HHS must find that a project shows 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.

As May 22 is rapidly approaching, it is recommended that companies interested in pursuing this incentive begin preparing for the application process as soon as possible.  The aim is to make your 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 by determining whether a company is eligible for the incentive and by assessing 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.

Patrick Wallace is Senior Manager – R&D Tax Services. Patrick is based in the Atlanta office of BDO.

Edward Jankun isRegional Leader – R&D Tax Services. Edward is based in the Charlotte office of BDO

Techjournal South runs guest posts on topics relevant to our readers. If you want to suggest a guest post, contact: Allan at TechJournal South dot com.

Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
www.seventure.org

© 2010, TechJournal South. All rights reserved.

Tags: BDO, Biotech, life sciences tax credit