US Announces USD1bn In Bio-science Tax Credits

by Leroy Baker, Tax-News.com, New York

25 May 2010

The US Department of the Treasury has announced details of a USD1bn program to stimulate the bio-science industry. The program, approved in March 2010, will provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support good jobs and increase US competitiveness.

"This new tax credit will help advance research to find life-saving treatments and help US companies lead the way in innovative medical discoveries," said Treasury Secretary Tim Geithner.

The new Therapeutic Discovery Project Program created by the Affordable Care Act is targeted to projects that show significant potential to produce new therapies, address unmet medical needs, reduce the long-term growth of health care costs and advance the goal of curing cancer within the next 30 years.

The credit's allocation will also take into consideration which projects show the greatest potential to create and sustain high-quality, high-paying jobs in the United States and to advance America's competitiveness in the fields of life, biological, and medical sciences. Today, the biotechnology industry employs 1.3 million workers, and the industry continues to be a key growth engine for the country's economy.

The Biotechnology Industry Organization (BIO) had been pressing for a program similar to the USD2.3bn alternative energy tax credits included in last year's economic stimulus package.

BIO Chief Executive Officer Jim Greenwood applauded the initiative and commented: “This program brings a much-needed shot in the arm to small life science companies for whom the capital markets have been frozen. It allows research-intensive small businesses to continue cutting-edge projects to develop advanced medicines and, ultimately, cures to help patients suffering from the world’s most debilitating diseases.

The credit covers up to 50% of the cost of qualifying biomedical research, up to a maximum credit of USD5m per firm and USD1bn overall and is only available to firms with fewer than 250 employees. To provide an immediate boost to US biomedical research and the small businesses that conduct it, the credit is effective for investments made in 2009 and 2010. Firms can opt to receive a grant instead of a tax credit, so start-ups that are not yet profitable can benefit as well.

The Internal Revenue Service (IRS) has released guidance on the process by which firms can apply to have their research projects certified as eligible for the credit. Companies may submit applications for certification beginning June 21, 2010, and applications must be postmarked no later than July 21, 2010.

Facility maintenance costs, interest expenses and compensation of certain executives do not qualify under the scheme and applicants are not allowed to claim costs already enjoying incentives under any other programs or funds received through other government grants. Companies also excluded from the program include those wholly or partially owned by tax-exempt institutes such as a universities.

“The Obama Administration’s prompt dissemination of TDPP guidance will give small biotechnology companies a clearer sense of their eligibility and allow them to begin to develop their applications", added Greenwood.

As part of the review process for research projects, the Department of Health and Human Services (HHS) will evaluate each project for its potential to produce new therapies or reduce health care costs. Only projects that show a reasonable potential to meet these goals will be certified as eligible for the credit. The IRS will issue certifications by the end of October based on the determinations made by HHS.

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