Form 8820 Orphan Drug Credit

Form

8820

Orphan Drug Credit

(Rev. December 2010)
Department of the Treasury
Internal Revenue Service
Name(s) shown on return

1

▶

OMB No. 1545-1505
Attachment
Sequence No. 103

Attach to your tax return.

Identifying number

Qualified clinical testing expenses paid or incurred during the tax year (see instructions for the
statement to attach) . . . . . . . . . . . . . . . . . . . . . . . . . .

1

Current year credit. Multiply line 1 by 50% (.50) (see instructions)

.

2a

b Enter the portion of the credit from Form 8932, line 2, that is attributable to wages that were also
used to figure the credit on line 2a above . . . . . . . . . . . . . . . . . . .

2b

c

2a

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

2c

3

Orphan drug credit from partnerships, S corporations, estates, or trusts .

.

.

.

.

.

.

.

.

3

4

Add lines 2c and 3. Estates and trusts go to line 5. Partnerships and S corporations, report this
amount on Schedule K. All others, report this amount on the applicable line of Form 3800 (e.g.,
line 1h of the 2010 Form 3800) . . . . . . . . . . . . . . . . . . . . . . .

4

5

Amount allocated to the beneficiaries of the estate or trust (see instructions) .

.

5

6

Estates and trusts. Subtract line 5 from line 4. Report this amount on the applicable line of Form
3800 (e.g., line 1h of the 2010 Form 3800) . . . . . . . . . . . . . . . . . . .

6

Subtract line 2b from 2a. If zero or less, enter -0- .

.

.

.

.

.

.

.

.

General Instructions

Definitions

Section references are to the Internal
Revenue Code unless otherwise noted.

Qualified clinical testing expenses.
Generally, qualified clinical testing
expenses are amounts paid or incurred
by the taxpayer that would be described
as qualified research expenses under
section 41, with two modifications:
• In sections 41(b)(2) and (3), “clinical
testing” is substituted for “qualified
research” and
• 100% (instead of 65% or 75%) of
contract research expenses are treated
as clinical testing expenses.
Qualified clinical testing expenses do
not include expenses to the extent they
are funded by a grant, contract, or
otherwise by a governmental entity or
another person. In addition, qualified
clinical testing expenses do not include
any expenses taken into account in
figuring the amount of the allowable
qualifying therapeutic discovery project
grant or credit. For more details, see
section 48D(e)(2)(C) and Notice 2010-45,
2010-23 I.R.B. 734.
Clinical testing. Generally, clinical
testing means any human clinical testing
that meets all four of the following
conditions.

What’s New
The qualified clinical testing expenses
paid or incurred during the tax year may
have to be reduced by the amount (if
any) of expenses taken into account in
figuring the amount of the allowable
qualifying therapeutic discovery project
grant or credit. See Definitions, below,
for details.

Purpose of Form
Use Form 8820 to claim the orphan drug
credit. The credit is 50% of qualified
clinical testing expenses paid or incurred
during the tax year. See section 45C and
Regulations section 1.28-1 for details.
Taxpayers that are not partnerships,
S corporations, estates, or trusts, and
whose only source of this credit is from
those pass-through entities, are not
required to complete or file this form.
Instead, they can report this credit
directly on Form 3800.

For Paperwork Reduction Act Notice, see back of form.

Cat. No. 11208S

.

.

.

.

.

1. The testing is carried out under an
exemption for a drug being tested for a
rare disease or condition under section
505(i) of the Federal Food, Drug, and
Cosmetic Act (Act).
2. The testing occurs after the date the
drug is designated under Act section 526
and before the date on which an
application for the drug is approved
under Act section 505(b) (or, if the drug
is a biological product, before the date
the drug is licensed under section 351 of
the Public Health Service Act).
3. The testing is conducted by or for
the taxpayer to whom the designation
under Act section 526 applies.
4. The testing relates to the use of the
drug for the rare disease or condition for
which it was designated under Act
section 526.
Rare disease or condition. A rare
disease or condition is one which afflicts:
• 200,000 or fewer persons in the
United States or
• More than 200,000 persons in the
United States, but for which there is no
reasonable expectation of recovering the
cost of developing and making available
a drug in the United States for the
disease from sales of the drug in the
United States.

Form 8820 (Rev. 12-2010)

Page 2

Form 8820 (Rev. 12-2010)

The above determinations are made
as of the date the drug is designated
under Act section 526.

Testing Not Eligible for the
Credit
The credit is not allowed for clinical
testing conducted outside the United
States unless there is an insufficient U.S.
testing population and the testing is
conducted by a U.S. person or by
another person not related to the
taxpayer. Testing conducted either
inside or outside the United States by a
corporation to which section 936 applies
is not eligible for the orphan drug credit.

Coordination With the
Research Credit
Qualified clinical testing expenses used
to figure the orphan drug credit cannot
also be used to figure the credit for
increasing research activities. However,
any of these expenses that are also
qualified research expenses must be
included in base period research
expenses when figuring the credit for
increasing research activities in a later
tax year.

Member of Controlled Group
or Business Under Common
Control
For purposes of figuring the credit, all
members of a controlled group of
corporations (as defined in section 41(f)
(1)(A) and (f)(5)) and all members of a
group of businesses under common
control (as defined in section 41(f)(1)(B)),
are treated as a single taxpayer. As a
member, compute your credit based on
your proportionate share of qualified
clinical testing expenses giving rise to
the group’s orphan drug credit. Enter
your share of the credit on line 2a.
Attach a statement showing how your
share of the credit was figured, and write
“See Attached” next to the entry space
for line 2a.

Specific Instructions
Figure any orphan drug credit from your
own trade or business on lines 1 and 2a.

Line 1
For each orphan drug for which qualified
clinical testing expenses are paid or
incurred during the tax year and included
in line 1, attach a statement showing the
generic name, designation number, and
the date the drug was designated under
section 526 of the Federal Food, Drug,
and Cosmetic Act.

Line 2a
Reduce the deduction for qualified
clinical testing expenses otherwise
allowable on your income tax return by
the amount of the credit shown on line
2a. If the credit exceeds the amount
allowed as a deduction for the tax year,
reduce the amount chargeable to the
capital account for the year for such
expenses by the amount of the excess.
See section 280C(b) for special rules.

Line 2b
If the credit on line 2a includes wages
paid to employees, and you are also
claiming a credit for employer differential
wage payments based on wages paid to
the same employees, enter on line 2b
the portion of the credit from the
employer differential wage credit line
(e.g., line 2 of Form 8932) that is
attributable to wages that were also
used to figure the credit on line 2a.
See Form 8932, Credit for Employer
Differential Wage Payments, for
information on the credit.

Line 5
Allocate the orphan drug credit on line 4
between the estate or trust and the
beneficiaries in the same proportion as
income was allocated and enter the
beneficiaries’ share on line 5.

Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of
the United States. You are required to
give us the information. We need it to
ensure that you are complying with these
laws and to allow us to figure and collect
the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions must
be retained as long as their contents
may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and file
this form will vary depending on
individual circumstances. The estimated
burden for individual taxpayers filing this
form is approved under OMB control
number 1545-0074 and is included in the
estimates shown in the instructions for
their individual income tax return. The
estimated burden for all other taxpayers
who file this form is shown below.
Recordkeeping . . . . 1 hr., 54 min.
Learning about the
law or the form . . . . . . . 1 hr.
Preparing and sending
the form to the IRS . . 1 hr., 4 min.
If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear from
you. See the instructions for the tax
return with which this form is filed.