Code Section 48D

Code Section Effective Date Name of Act Name of Provision 10yr Revenue Estimate ($millions)
48D 12/31/2008 Patient Protection and Affordable Care Act Investment Credit for Qualifying Therapeutic Discovery

Investment Credit for Qualifying Therapeutic Discovery Projects

Explanation of Provision

In general

The provision establishes a 50-percent nonrefundable investment tax credit for qualified investments in qualifying therapeutic discovery projects. The provision allocates $1 billion during the two year period 2009 through 2010 for the program. The Secretary, in consultation with the Secretary of HHS, will award certifications for qualified investments. The credit is available only to companies having 250 or fewer employees.961

A ‘‘qualifying therapeutic discovery project’’ is a project which is 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.

The qualified investment for any taxable year is the aggregate amount of the costs paid or incurred in such year for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project. The qualified investment for any taxable year with respect to any qualifying therapeutic discovery project does not include any cost for: (1) remuneration for an employee described in section 162(m)(3), (2) interest expense, (3) facility maintenance expenses, (4) a service cost identified under Treas. Reg. Sec. 1.263A–1(e)(4), or (5) any other expenditure as determined by the Secretary as appropriate to carry out the purposes of the provision. Companies must apply to the Secretary to obtain certification for qualifying investments.962 The Secretary, in determining qualifying projects, will consider only those projects that show reasonable potential to: (1) result in new therapies to treat areas of unmet medical need or to prevent, detect, or treat chronic or acute disease and conditions, (2) reduce long-term health care costs in the United States, or (3) significantly advance the goal of curing cancer within a 30-year period. Additionally, the Secretary will take into consideration which projects have the greatest potential to: (1) create and sustain (directly or indirectly) high quality, high paying jobs in the United States, and (2) advance the United States’ competitiveness in the fields of life, biological, and medical sciences.

Qualified therapeutic discovery project expenditures do not qualify for the research credit, orphan drug credit, or bonus depreciation. 963 If a credit is allowed for an expenditure related to property subject to depreciation, the basis of the property is reduced by the amount of the credit. Additionally, expenditures taken into account in determining the credit are nondeductible to the extent of the credit claimed that is attributable to such expenditures.

Election to receive grant in lieu of tax credit

Taxpayers may elect to receive credits that have been allocated to them in the form of Treasury grants equal to 50 percent of the qualifying investment. Any such grant is not includible in the taxpayer’s gross income.

In making grants under this section, the Secretary of the Treasury is to apply rules similar to the rules of section 50. In applying such rules, if an investment ceases to be a qualified investment, the Secretary of the Treasury shall provide for the recapture of the appropriate percentage of the grant amount in such manner as the Secretary of the Treasury determines appropriate. The Secretary of the Treasury shall not make any grant under this section to: (1) any Federal, State, or local government (or any political subdivision, agency, or instrumentality thereof), (2) any organization described in section 501(c) and exempt from tax under section 501(a), (3) any entity referred to in paragraph (4) of section 54(j), or (4) any partnership or other pass-thru entity any partner (or other holder of an equity or profits interest) of which is described in
paragraph (1), (2), or (3).

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961- The number of employees is determined taking into account all businesses of the taxpayer at the time it submits an application, and is determined taking into account the rules for determining a single employer under section 52(a) or (b) or section 414(m) or (o).
-Return to Explanation of Provision

962- The Secretary must take action to approve or deny an application within 30 days of the submission of such application.
-Return to Explanation of Provision

963- Any expenses for the taxable year that are qualified research expenses under section 41(b) are taken into account in determining base period research expenses for purposes of computing the research credit under section 41 for subsequent taxable years.
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