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Section 48D Services

Helping Life Sciences companies access funds for "Qualifying Therapeutic Discovery Projects"


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The Patient Protection and Affordable Care Act created a new $1 billion federal program to reimburse and/or subsidize certain costs paid or incurred in calendar 2009 and 2010 (or fiscal 2010 and 2011) directly related to the conduct of a “Qualifying Therapeutic Discovery Project.” This subsidy is available to offset 50 percent of eligible project costs in the form of a cash grant or a nonrefundable investment tax credit. The program is available only for companies with 250 employees or fewer (after taking into account certain related companies). Larger companies may be interested to the extent strategic relationships and/or collaboration agreements are in place with eligible companies.

Which projects qualify?

A “qualifying therapeutic discovery project” is a project which is designed to develop a product or therapy to diagnose, treat, or prevent diseases 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 or to further the delivery or administration of therapeutics.

What costs can be included? 

Eligible expenditures include costs paid or incurred that are necessary for and directly related to the conduct of a qualifying project. This would include research costs as well as capital equipment used in the qualifying project. Certain costs are specifically excluded, such as (1) remuneration for the chief executive officer and the four next-highest paid officers, (2) interest expense, (3) rent, mortgage payments and other facility maintenance costs, (4) certain indirect service or general and administrative costs, or (5) other expenditures determined by the Secretary of the Treasury as appropriate to carry out the purposes of the provision.

How will the benefits be awarded? 

The Secretary of Treasury, in consultation with the Secretary of Health and Human Services (HHS), will award certifications for qualified investments. Companies must apply to the Secretary of Treasury to obtain certification for qualifying investments. Project applications will be assessed based on showing a reasonable potential to: (1) result in new therapies to treat areas of unmet medical need or to prevent, detect, or treat chronic or acute diseases 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 would 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.

The government has until May 22, 2010, to establish a program to receive applications, review, and competitively award the $1 billion. The government also has 30 days from the submission of an application to certify and award a project or decline it. Guidance explaining how this program will work is expected to be published in the form of an IRS Notice on or shortly before Friday, May 21, 2010. We do not expect the government to adopt a “first-come, first-served” approach, but rather a 60- to 90-day limited window to file applications before a midsummer deadline. Timely filed applications are then expected to be reviewed and processed within the 30-day review period.

What should you do now? 

In preparation for the IRS Notice, companies should determine if they meet the ownership and eligibility criteria. In addition, companies can begin compiling qualifying costs from calendar 2009 (or fiscal 2010) and budgeted costs for calendar 2010 (or fiscal 2011). This may require detailed analysis of project costs and documenting how projects meet the eligibility criteria. Finally, companies should begin accumulating quantitative data and qualitative narratives in support of their project and its ability to meet the selection criteria described above.

How can Deloitte Tax help?

Deloitte Tax's Federal Incentives & Credits Services (FICS) practice has helped clients explore, apply for, utilize, and monetize federal incentives and credits under similar tax credit programs. We have also assisted businesses of many sizes and in different industries win competitively awarded tax credit allocations similar to the Qualifying Therapeutic Discovery Project Credit (IRC Section 48D). Deloitte’s FICS practice is ready to help you throughout the Section 48D application process with services such as:

  • A low-cost initial assessment to analyze eligibility for the program
  • Frequent updates regarding the latest developments at HHS and Treasury as they finalize program materials
  • Provide insight and answer questions about the program as details are revealed
  • Collect quantitative data not readily available and assist with a draft and/or review of qualitative narratives in support of an application
  • Complete a qualified investment cost study to support the amount of the credit or grant requested
  • Review and/or help you prepare final application materials with a focus on demonstrating how your company has met the government criteria and is entitled to priority consideration for certification
  • Collect supporting documentation to substantiate positions taken on tax returns, applicable program applications, and any subsequent filings required under the program

The Deloitte difference

Deloitte’s Washington National Tax office has been working with the industry trade group that spearheaded the effort to enact Section 48D since inception. The Qualifying Therapeutic Discovery Project Credit (IRC Section 48D) was patterned after the $2.3 billion Qualifying Advanced Energy Project Credit (IRC Section 48C) with a cash grant option similar to the American Recovery and Reinvestment Act Section 1603 cash grant in lieu of program. Deloitte’s FICS group has extensive experience in both programs as well as the New Markets Tax Credit Program, also a competitively awarded tax credit allocation program. With a national team of specialists focused on your success, Deloitte’s record in assisting clients with these programs has a high success rate.

  • More than 72 percent of Deloitte-assisted applicants succeeded in obtaining awards under the Qualifying Advance Energy Project Credit program (IRC Section 48C), as compared to an approximately 33 percent success rate for all applicants.
  • Deloitte-assisted clients have been awarded more than $850 million in New Markets Tax Credit allocations with a 67 percent success rate over the past two years, as compared to an approximately 34 percent rate of success for all applicants.

To learn more about Deloitte’s Life Sciences tax practice or about Section 48D services available through Deloitte’s FICS practice, visit www.deloitte.com.

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