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Form 8820

(Rev. December 2006)


Orphan Drug Credit OMB No. 1545-1505

Department of the Treasury © Attachment


Attach to your tax return.
Internal Revenue Service Sequence No. 103
Name(s) shown on return Identifying number

1 Qualified clinical testing expenses paid or incurred during the tax year 1

2 Current year credit. Multiply line 1 by 50% (.50) (see instructions) 2

3 Orphan drug credit from partnerships, S corporations, estates, or trusts 3

4 Add lines 2 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 1k of the 2006 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 1k of the 2006 Form 3800) 6

General Instructions expenses under section 41, with two Rare disease or condition. A rare
modifications: disease or condition is one which
Section references are to the
● In sections 41(b)(2) and (3), afflicts:
Internal Revenue Code unless
“clinical testing” is substituted for ● 200,000 or fewer persons in the
otherwise noted.
“qualified research” and United States or
What’s New ● 100% (instead of 65% or 75%) of ● More than 200,000 persons in the
● The tax liability limit is no longer contract research expenses are United States, but for which there is
figured on this form; instead, it must treated as clinical testing expenses. no reasonable expectation of
be figured on Form 3800, General Qualified clinical testing expenses recovering the cost of developing
Business Credit. do not include expenses to the and making available a drug in the
extent they are funded by a grant, United States for the disease from
● Taxpayers that are not
contract, or otherwise by a sales of the drug in the United
partnerships, S corporations,
governmental entity or another States.
estates, or trusts, and whose only
source of this credit is from those person. The above determinations are
pass-through entities, are not Clinical testing. Generally, clinical made as of the date the drug is
required to complete or file this testing means any human clinical designated under Act section 526.
form. Instead, they can report this testing that meets all four of the
following conditions.
Testing Not Eligible for the
credit directly on line 1k of Form
3800. 1. The testing is carried out under Credit
● The IRS will revise this December an exemption for a drug being The credit is not allowed for clinical
2006 version of the form only when tested for a rare disease or condition testing conducted outside the
necessary. Continue to use this under section 505(i) of the Federal United States unless there is an
version for tax years beginning after Food, Drug, and Cosmetic Act (Act). insufficient U.S. testing population
2005 until a new revision is issued. 2. The testing occurs after the and the testing is conducted by a
date the drug is designated under U.S. person or by another person
Purpose of Form Act section 526 and before the date not related to the taxpayer. Testing
Use Form 8820 to claim the orphan on which an application for the drug conducted either inside or outside
drug credit. The credit is 50% of is approved under Act section 505(b) the United States by a corporation
qualified clinical testing expenses (or, if the drug is a biological to which section 936 applies is not
paid or incurred during the tax year. product, before the date the drug is eligible for the orphan drug credit.
See section 45C and Regulations licensed under section 351 of the Coordination With the
section 1.28-1 for details. Public Health Service Act).
3. The testing is conducted by or
Research Credit
Definitions for the taxpayer to whom the Qualified clinical testing expenses
Qualified clinical testing expenses. designation under Act section 526 used to figure the orphan drug credit
Generally, qualified clinical testing applies. cannot also be used to figure the
expenses are amounts paid or 4. The testing relates to the use of credit for increasing research
incurred by the taxpayer that would the drug for the rare disease or activities. However, any of these
be described as qualified research condition for which it was expenses that are also qualified
designated under Act section 526. research expenses must be included
For Paperwork Reduction Act Notice, see back of form. Cat. No. 11208S Form 8820 (Rev. 12-2006)
Form 8820 (Rev. 12-2006) Page 2

in base period research expenses allowable on your income tax return a form or its instructions must be
when figuring the credit for by the amount of the credit shown on retained as long as their contents
increasing research activities in a line 2. If the credit exceeds the may become material in the
later tax year. amount allowed as a deduction for administration of any Internal
the tax year, reduce the amount Revenue law. Generally, tax returns
Member of Controlled Group chargeable to the capital account for and return information are
or Business Under Common the year for such expenses by the confidential, as required by section
Control amount of the excess. See section 6103.
280C(b) for special rules. The time needed to complete and
For purposes of figuring the credit, all
members of a controlled group of Line 5 file this form will vary depending on
corporations (as defined in section individual circumstances. The
Allocate the orphan drug credit on estimated burden for individual
41(f)(1)(A) and (f)(5)) and all members line 4 between the estate or trust and
of a group of businesses under taxpayers filing this form is approved
the beneficiaries in the same under OMB control number
common control (as defined in proportion as income was allocated
section 41(f)(1)(B)), are treated as a 1545-0074 and is included in the
and enter the beneficiaries’ share on estimates shown in the instructions
single taxpayer. As a member, line 5.
compute your credit based on your for their individual income tax return.
proportionate share of qualified The estimated burden for all other
clinical testing expenses giving rise taxpayers who file this form is shown
Paperwork Reduction Act Notice.
to the group’s orphan drug credit. below.
We ask for the information on this
Enter your share of the credit on line form to carry out the Internal Recordkeeping 1 hr., 54 min.
2. Attach a statement showing how Revenue laws of the United States. Learning about the
your share of the credit was figured, You are required to give us the law or the form 1 hr.
and write “See Attached” next to the information. We need it to ensure
entry space for line 2. Preparing and sending
that you are complying with these the form to the IRS 1 hr., 4 min.
Specific Instructions laws and to allow us to figure and
collect the right amount of tax. If you have comments concerning
Figure any orphan drug credit from You are not required to provide the the accuracy of these time estimates
your own trade or business on lines 1 information requested on a form that or suggestions for making this form
and 2. is subject to the Paperwork simpler, we would be happy to hear
Line 2 Reduction Act unless the form from you. See the instructions for the
displays a valid OMB control tax return with which this form is
Reduce the deduction for qualified filed.
clinical testing expenses otherwise number. Books or records relating to