Client Alert

How would your biotech company or venture fund like a 50% tax credit for investments in qualifying therapeutic discovery projects for tax years beginning in 2009 and 2010, or a grant in the same amount tax free? Section 9023 of the Patient Protection and Affordable Care Act does just that! This means that a biotech company that has a tax liability can see its tax bill for certain expenditures cut in half or a business that has no tax liability can receive a nontaxable grant of equal value. To qualify, a company may not have more than 250 employees in all businesses. This benefit is available for pass-through entities such as most partnerships and S-corporations, as well as traditional C corporations that are investors in the biotech venture.

Congress has given the Treasury Department until May 22, 2010 (60 days from the passage of the act) to implement the tax credit/grant program, including to determine what information needs to be provided in the certification application based on the selection criteria outlined in the statute (more details on the selection criteria are included in the link below). Once an application for certification is filed with the Treasury Department, the Secretary has 30 days to approve or deny the petition. The total amount that can be distributed by the federal government is $1 billion over the two year period. Given the ambitious timetable and the limited funding available, stakeholders need to be taking steps to draft their application(s) for certification on a project-by-project basis following the criteria discussed below with particular emphasis on the justification of expenditures that are qualified investments.

Remember, these are tax people, not scientists; a certification is much more likely to be granted if the application is written IN PLAIN ENGLISH. Stakeholders may file an application for a multi-year tax credit/grant. Once the available funding is spent, the tax credit/grants program will come to an end. Thus, a company should not wait to see what or who is getting certified. If a company is certified for a tax credit/grant, the Treasury Department will make the certification public – which places a government imprimatur on the project incentivizing it for other investors.

For more detail on the exact criteria, click here.

For more information contact:

Chris Jeffers      (202) 857-4447 or email
Karl Knoll          (703) 394-2279 or email
Jeff Lawyer        (336) 747-6611 or email