An important tax credit incentive to “therapeutic discoveries” was included in the health care legislation (Public Law 11-148). The Congress instructed the Treasury Department to initiate a new tax credit for “therapeutic discovery projects.” The credit is available only to businesses with less than 250 employees and can be taken on 50 percent of the qualifying investment. Best of all, for a start-up company, the credit may also be received in the form of a grant.

A big unknown factor is whether the total amount of the tax credits may be limited to $1 billion. That means the IRS, presumably assisted by experts from the Department of Health and Human Services, will end up evaluating the applications. The credit/grant program is estimated by the Congress to cost $1 billion.  If Treasury regards that as a cap, rather than an estimate of what the program will cost, IRS will have to select winners and losers. In other words, the tax credits may be allocated on a competitive basis, up to $1 billion in total credits.

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