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Qualified Therapeutic Discovery
Project Tax Credit
Presented by: Jason Brown, CPA
Date: May 10, 2010
Qualified Therapeutic Discovery Project Credit
 Before the 2010 Health
Care Act, the only credits
available for drug
development were R&D
and orphan drug credits.
 The QTDP credit is equal
to 50% of the “qualified
investment” for any
“qualifying therapeutic
discovery project” of an
“eligible taxpayer”.
What is an Eligible Taxpayer?
 An “eligible taxpayer” employs no more than 250
employees in all businesses at the time of the
submission of the application.
What is a Qualified Therapeutic
Discovery Project?
 A qualified discovery project is designed to:
– Treat/prevent disease or conditions by
conducting pre-clinical activities, clinical trial
studies or research for securing approval
under the Public Health Service Act 351§(a);
– Diagnose diseases/conditions or determine
molecular factors related to companion drugs
and diagnostics to guide therapeutic
decisions; or
– Develop a product, process or technology to
further the delivery or administration of
therapeutics.
What is a Qualified Investment?
 A “qualified investment” is the total costs in the
tax year for expenditures necessary for and
directly related to the conduct of a “QTDP”.
 An investment is considered a qualified
investment if made in 2009 or 2010.
 The credit still applies even if the product is not
placed in service until after 2010.
Excluded Costs
 Excluded Costs:
– Remuneration for CEO
– Interest expense
– Facility maintenance
 Mortgage or rent
payments
 Insurance payments
 Utility and maintenance
– G & A expenses
Ineligible Investments
 A credit is not allowed for:
– Bonus depreciation investments
– Investments funded by treasury grants
– Investments financed with non-qualified non-recourse
debt
– Investments in property that is:
 Predominantly located outside of the US;
 Primarily used for non-transient lodging; or
 Used by governmental entities or by foreign
persons.
Certification Program
 By May 21, 2010, IRS, in conjunction with
the Secretary of Health and Human
Services, must establish a QTDP credit.
 The Treasury Department (TD) must
approve or deny any application within 30
days of submission.
 The application can include a request for
an allocation of credits for both 2009 and
2010.
Certification Program - What’s the Catch?
 The total credits that can be
allocated under the program
cannot exceed $1 billion for the 2
tax years.
 Companies will need to apply
and compete with each other for
the credit.
 The application will need to
include detailed documentation
for all allowable expenditures.
 Apply early because once the
money is gone, the deal is over!
Criteria Used to Award the Credit
 In determining qualifying projects, the TD will consider the
projects’ potential to:
– Result in new therapies to treat unmet need or to
prevent, detect, and treat chronic illness;
– Reduce long-term health care costs in the United
States; or
– Significantly advance the goal of curing cancer within a
30-year period.
 Projects must also have the greatest potential to:
– Create and sustain (directly or indirectly) high quality,
high-paying jobs in the US; and
– Advance US competitiveness in life, biological, and
medical sciences.
Other Restrictive Rules
 Other restrictive rules include:
– Recapture of the credit if property is disposed of or
ceases to meet credit requirements
– Reduction in basis for QTDP credit allowed in relation
to property subject depreciation
– Denial of deductions where double benefit
– Denial of research credit or orphan drug credit when
taking QTDP credit
Grants in Lieu of Credit for QTDP’s
 If a company does not have a tax liability, it
could elect to apply for a grant instead of a
credit.
 The TD will provide guidance on how to elect a
grant instead of a credit.
 The grant will not be taxable.
 Similar to the credit, the grant will be in the
amount of 50% of the costs related to a qualified
investment in a QTDP.
Applying for a Grant
 An application for a grant under the 2010 Health Care
Act for a tax year beginning in 2010 must be submitted:
– Not earlier than the day after the last day of that tax
year; and
– Not later than the due date (including extensions) for
filing the federal tax return for that year.
Timing of the Grant Payment
 The TD must pay the grant amount during the 30-day
period beginning on the later of:
– The date of the application; or
– The date the qualified investment is made.
 In the case of investments of an ongoing nature, the TD
will issue regs determining when payments will be made.
What Entities Are Not Eligible for a Grant?
 The TD cannot make any grant under the 2010
Health Care Act to:
– Any federal, state, or local government;
– Any tax-exempt organization;
– Any entity considered to be a clean
renewable energy bond lender, a cooperative
electric company, or a governmental body; or
– Any partnership or other pass-through entity
with an owner that falls within any of the
categories above.
What Should You Do Now?

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Do not wait! This is not too good to be true.
Draft applications that are properly documented and
that clearly justify expenditures.
Make sure to show investments on a project-byproject basis.
How Can We Help?
We can assist you with:
 Identifying qualifying projects
 Capturing eligible costs
 Collecting appropriate
support
 Preparing and submitting
applications for the credit or
grant
 Providing audit defense as
needed