Biotechs: Prepare Now for Tax Credits
On May 21 the IRS released guidance (Notice 2010-45) which provides the procedures under which an eligible taxpayer may apply for certification from the IRS of a qualified investment with respect to a qualifying therapeutic discovery project as eligible for a credit, or for certain taxpayers, a grant.
The IRS will consult with the Department of Health and Human Services (HHS), as described in the notice, in conducting this program. The notice includes an Appendix that is designed to illustrate the type of information necessary to complete the application. In general, the key components of a completed application for certification include a Form 8942 (to be released by June 21) and a Project Information Memorandum.
With the issuance of this Notice, The Credit application process is greatly better defined and businesses who plan on submitting an application should be beginning the process as soon as practicable. There is a good likelihood that there will be only a short window of time in which to submit an application, and businesses should be ready to drop information into the application and send in the application within a relatively short timeframe.
Our recommendation is that an Applicant be ready to submit as soon as the Form 8942 is released by the IRS.
From the guidance provided in Notice 2010-45 and from experience gained in similar Credit programs, a number of general guidelines for the Application can be summarized:
The first guideline is to not provide any reason to deny application. The format is very specific: the application must also be clear to the reader and concise in the narrative - don’t use flowers, provide facts. Remember also you are writing to relative laypersons, highly technical language will likely not help communicating your project.
Secondly, be aware that you are in a competition of sorts: you should strive to explain why you are different: i.e. jobs created, past successes, be clear why you expect your project to be successful.
Thirdly, there are five selection criteria set forth in Notice 2010-45: an Applicant must demonstrate they satisfy these criteria and your application should be specific as to how you meet them, as needed.
Fourth, remember that the credit is focused on those Applicants whose project deliver the maximum benefit to society. your task is to make that aspect clear and to drive the message across. Remember that the Application process is essentially a quantitative ranking regarding job creation, U.S. healthcare cost reduction and benefit to society: provide the numeric data to support your maximum ranking.
Lastly, remember that you will need a DUNS number and to make a valid election, applicants for a grant must also register with the Central Contractor Registration (CCR).
AMS can help with the application process and the development of the financial information required to determine the size of their qualified investment.
For more information please contact Dan Davis, Director, Life Sciences at 781-419-9218.