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May 2010
Health care reform offers Biotech Tax Credit Opportunity
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 By Joel Hamsher, CPA, MTax
Principal
The newly passed healthcare reform package includes an unusual and beneficial opportunity for small to mid sized biotech firms and their investors in the form of a 50% tax credit or tax-free grant for qualified biotech investments for tax years 2009 and 2010. $1 billion is available to qualifying companies from this program.
The intent of the tax credit is to spread the pool of money over as many companies as possible. While funding medical research is a prime purpose, the tax credit truly drives at economic stimulus – helping small biotech companies weather the current economic environment without interrupting research and development activities.
There are two sets of criteria for the tax credit: medical and economic. Medical criteria focus on activities that result in new therapies, reduce long-term health care costs, and advance the goal of curing cancer within 30 years. Terminology from the Act describes these criteria in detail.
• Activities where significant resources have been invested in pre clinical or clinical studies, or where research protocols that require FDA approval for the treatment or prevention of disease have been developed
• The pursuit of the diagnoses of diseases or conditions to determine molecular factors related to them;
• The development of molecular diagnostics to guide therapeutic treatment of diseases or conditions
• The development of a product, process or technology to further the delivery or administration of therapeutics
The economic criteria specify that only private, U.S. companies with fewer than 250 employees are eligible for the tax credit. And companies whose work aims at creating and sustaining high paying jobs and advance U.S. competitiveness in life, biological and medical sciences will fare well in the selection process.
The U.S. Department of Treasury is currently developing the application to be released on May 22. In anticipation of that release, biotech companies who meet the qualifications for the tax credit may start gathering the documentation required to prepare their application. The Treasury will make considerations on a project-by-project basis, so it’s best to “package” documents and substantiated expenses by project. Be sure to gather time tracking documents, invoices, and outcome expectations and exclude non-qualified expenses in the tax credit application. Ultimately, companies who apply first with the right qualifying projects and the best supporting documentation have the most potential to get this credit.
Apple Growth Partners, working with strategic partner Alliant Group, will continue to report on this tax credit opportunity as the Treasury releases information and application guidance.
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