Form 8942: Instructions for Filing and Eligibility

Form 8942 was the application used to seek certification for the Qualifying Therapeutic Discovery Project (QTDP) Program. This program is no longer active, as it was limited to qualified investments made during 2009 and 2010, and the application period closed on July 21, 2010.

The initiative was established under the Patient Protection and Affordable Care Act to offer tax credits or grants to small businesses for research and development. The program supported projects with the potential to create new therapies, diagnose diseases, or lower healthcare costs in the United States, providing a tax credit or grant for 50 percent of a company’s qualified investment.

Eligibility for the Qualifying Therapeutic Discovery Project

Applicant Eligibility

An eligible applicant for the QTDP program was required to employ no more than 250 employees across all of its businesses. This employee count included both full-time and part-time staff but excluded leased employees. For the purpose of this calculation, all entities treated as a single employer under the Internal Revenue Code were combined. This aggregation rule ensured that larger, affiliated groups of companies could not circumvent the size limitation.

Project Eligibility

A project had to meet distinct standards to be certified as a “qualifying therapeutic discovery project.” It needed to be designed to treat or prevent diseases through activities aimed at securing Food and Drug Administration approval, or to develop diagnostics to identify diseases. Projects that aimed to develop a product or process to further the delivery of therapeutics were also eligible.

The project was also evaluated on whether it showed reasonable potential to treat areas of unmet medical need or reduce long-term healthcare costs in the U.S. Other considerations included if the project could significantly advance the goal of curing cancer within 30 years, create high-quality jobs, and advance U.S. competitiveness in medical sciences.

Required Information for Form 8942

A separate Form 8942 application was necessary for each individual project. The form required basic taxpayer identification information, including the company’s name, address, and taxpayer identification number. Applicants also had to specify the tax year and indicate whether they were electing to receive a grant in lieu of a tax credit. This choice was important, as the grant provided an immediate cash infusion, while the credit would offset tax liabilities.

A detailed description of the project was required via an attached Project Information Memorandum. This HHS form was reviewed to confirm the project met the program’s scientific and medical criteria. The memorandum required an explanation of the project’s objectives, its stage of development, and its potential to meet program goals.

The form also demanded a breakdown of the qualified investment associated with the project. Applicants had to report costs in specific categories, including employee wages, supplies and lab costs, depreciable property, and payments to third-party contractors. The total qualified investment for any single applicant could not exceed $10 million, which capped the maximum credit or grant at $5 million per firm for the 2009 and 2010 allocation rounds.

Submission and Post-Filing Procedures

Form 8942 and the Project Information Memorandum had to be filed together as a single application package. The form required a signature from a person authorized to sign on behalf of the company, such as a corporate officer. This individual had to be the same person who signed the Project Information Memorandum.

After submission, the application underwent a dual-review process. First, the Department of Health and Human Services evaluated the Project Information Memorandum to determine if the project met the scientific and medical requirements. Following the HHS review, the IRS assessed the application to confirm the applicant’s eligibility and to evaluate the project’s potential for job creation and advancing U.S. competitiveness.

If the application was approved, the IRS would issue a certification letter to the applicant. This letter assigned a unique project number and specified the certified amount of the qualified investment eligible for the credit or grant. The applicant would then use this certification to claim the benefit on their federal tax return. If the investment later ceased to be a qualified investment, the credit or grant amount could be subject to recapture.