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26 U.S.C. § 45C — Clinical testing expenses for certain drugs for rare diseases or conditions

submitted 43 years ago by Pub. L. 97-414 to r/title-26-INTERNAL-REVENUE-CODE · 774 words · no verdicts yet

in plain englishAI-generated · not legal advice

This law gives businesses a tax credit for testing new drugs for rare diseases. The credit equals 25% of qualified clinical testing expenses. Businesses must elect to use it, and some foreign testing and government-funded costs do not qualify.

(a) General rule: A business gets a tax credit under section 38. The credit equals 25% of its qualified clinical testing expenses for the year. (b) Qualified clinical testing expenses: These are costs the business paid for testing a drug, figured the same way as section 41(b), but with two changes: wherever section 41(b) says "qualified research," this section reads it as "clinical testing." And instead of counting 65% of certain costs, this section counts 100% of them. These expenses do not include any amount that came from a grant, a contract, or funding from someone else, including a government. "Clinical testing" means human testing of a drug that: - is done under a special FDA exemption for testing drugs for a rare disease, under section 505(i) of the Food, Drug, and Cosmetic Act; - happens after the drug is officially designated as a rare-disease drug under section 526 of that Act, and before the drug is approved for sale under section 505(b) — or, for a biological product, before it gets a license under section 351 of the Public Health Service Act; and - is done by or for the taxpayer who holds that rare-disease designation. The testing only counts if it is actually related to treating the rare disease the drug was designated for. (c) Coordination with the research credit: A business normally cannot count the same clinical testing expenses toward both this credit and the general research credit in section 41 for the same year. But if those same expenses would also have counted as "qualified research expenses" under section 41, they still get used later, when figuring a business's base-period research expenses for future years under section 41. (d) Definitions and special rules: - "Rare disease or condition" means a disease that affects fewer than 200,000 people in the U.S., or one that affects more people but where there is no real chance the drug's development costs will be paid back through U.S. sales. This is decided based on the facts as of the date the drug gets its rare-disease designation. - Testing done outside the U.S. does not qualify for the credit, unless there were not enough people to test in the U.S., and the testing was done by a U.S. person or by someone unrelated to the taxpayer who holds the rare-disease designation. - Special rules similar to section 41(f)(1) and (2), about combining related businesses, apply here too. - A business only gets this credit for a year if it elects to use it, following rules the Secretary of the Treasury sets.
the actual law source: uscode.house.gov ↗public domain
(a) General rule

For purposes of section 38, the credit determined under this section for the taxable year is an amount equal to 25 percent of the qualified clinical testing expenses for the taxable year.

(b) Qualified clinical testing expenses

For purposes of this section—

(1) Qualified clinical testing expenses
(A) In general

Except as otherwise provided in this paragraph, the term “qualified clinical testing expenses” means the amounts which are paid or incurred by the taxpayer during the taxable year which would be described in subsection (b) of section 41 if such subsection were applied with the modifications set forth in subparagraph (B).

(B) Modifications

For purposes of subparagraph (A), subsection (b) of section 41 shall be applied—

(i)

by substituting “clinical testing” for “qualified research” each place it appears in paragraphs (2) and (3) of such subsection, and

(ii)

by substituting “100 percent” for “65 percent” in paragraph (3)(A) of such subsection.

(C) Exclusion for amounts funded by grants, etc.

The term “qualified clinical testing expenses” shall not include any amount to the extent such amount is funded by any grant, contract, or otherwise by another person (or any governmental entity).

(2) Clinical testing
(A) In general

The term “clinical testing” means any human clinical testing—

(i)

which 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 (or regulations issued under such section),

(ii)

which occurs—

(I)

after the date such drug is designated under section 526 of such Act, and

(II)

before the date on which an application with respect to such drug is approved under section 505(b) of such Act or, if the drug is a biological product, before the date on which a license for such drug is issued under section 351 of the Public Health Service Act, and

(iii)

which is conducted by or on behalf of the taxpayer to whom the designation under such section 526 applies.

(B) Testing must be related to use for rare disease or condition

Human clinical testing shall be taken into account under subparagraph (A) only to the extent such testing is related to the use of a drug for the rare disease or condition for which it was designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

(c) Coordination with credit for increasing research expenditures
(1) In general

Except as provided in paragraph (2), any qualified clinical testing expenses for a taxable year to which an election under this section applies shall not be taken into account for purposes of determining the credit allowable under section 41 for such taxable year.

(2) Expenses included in determining base period research expenses

Any qualified clinical testing expenses for any taxable year which are qualified research expenses (within the meaning of section 41(b)) shall be taken into account in determining base period research expenses for purposes of applying section 41 to subsequent taxable years.

(d) Definition and special rules
(1) Rare disease or condition

For purposes of this section, the term “rare disease or condition” means any disease or condition which—

(A)

affects less than 200,000 persons in the United States, or

(B)

affects more than 200,000 persons in the United States but for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.

Determinations under the preceding sentence with respect to any drug shall be made on the basis of the facts and circumstances as of the date such drug is designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

(2) Special limitations on foreign testing

No credit shall be allowed under this section with respect to any clinical testing conducted outside the United States unless—

(A)

such testing is conducted outside the United States because there is an insufficient testing population in the United States, and

(B)

such testing is conducted by a United States person or by any other person who is not related to the taxpayer to whom the designation under section 526 of the Federal Food, Drug, and Cosmetic Act applies.

(3) Certain rules made applicable

Rules similar to the rules of paragraphs (1) and (2) of section 41(f) shall apply for purposes of this section.

(4) Election

This section shall apply to any taxpayer for any taxable year only if such taxpayer elects (at such time and in such manner as the Secretary may by regulations prescribe) to have this section apply for such taxable year.

Source credit: (Added Pub. L. 97–414, § 4(a), Jan. 4, 1983, 96 Stat. 2053, § 44H; renumbered § 28 and amended Pub. L. 98–369, div. A, title IV, §§ 471(c), 474(g), title VI, § 612(e)(1), July 18, 1984, 98 Stat. 826, 831, 912; Pub. L. 99–514, title II, §§ 231(d)(3)(A), 232, title VII, § 701(c)(2), title XII, § 1275(c)(4), title XVIII, § 1879(b)(1), (2), Oct. 22, 1986, 100 Stat. 2178, 2180, 2340, 2599, 2905; Pub. L. 100–647, title I, § 1018(q)(1), title IV, § 4008(c)(1), Nov. 10, 1988, 102 Stat. 3585, 3653; Pub. L. 101–239, title VII, § 7110(a)(3), Dec. 19, 1989, 103 Stat. 2323; Pub. L. 101–508, title XI, §§ 11402(b)(2), 11411, Nov. 5, 1990, 104 Stat. 1388–473, 1388–479; Pub. L. 102–227, title I, §§ 102(b), 111(a), Dec. 11, 1991, 105 Stat. 1686, 1688; Pub. L. 103–66, title XIII, § 13111(a)(2), (b), Aug. 10, 1993, 107 Stat. 420; renumbered § 45C and amended Pub. L. 104–188, title I, §§ 1204(e), 1205(a)(1), (b), (d)(1), (2), Aug. 20, 1996, 110 Stat. 1775, 1776; Pub. L. 105–34, title VI, §§ 601(b)(2), 604(a), Aug. 5, 1997, 111 Stat. 862, 863; Pub. L. 105–115, title I, § 125(b)(2)(O), Nov. 21, 1997, 111 Stat. 2326; Pub. L. 105–277, div. J, title I, § 1001(b), Oct. 21, 1998, 112 Stat. 2681–888; Pub. L. 106–170, title V, § 502(a)(2), Dec. 17, 1999, 113 Stat. 1919; Pub. L. 108–311, title III, § 301(a)(2), Oct. 4, 2004, 118 Stat. 1178; Pub. L. 109–432, div. A, title I, § 104(a)(2), Dec. 20, 2006, 120 Stat. 2934; Pub. L. 110–343, div. C, title III, § 301(a)(2), Oct. 3, 2008, 122 Stat. 3865; Pub. L. 111–312, title VII, § 731(b), Dec. 17, 2010, 124 Stat. 3317; Pub. L. 112–240, title III, § 301(a)(2), Jan. 2, 2013, 126 Stat. 2326; Pub. L. 113–295, div. A, title I, § 111(b), Dec. 19, 2014, 128 Stat. 4014; Pub. L. 114–113, div. Q, title I, § 121(a)(2), Dec. 18, 2015, 129 Stat. 3049; Pub. L. 115–97, title I, § 13401(a), Dec. 22, 2017, 131 Stat. 2133; Pub. L. 115–141, div. U, title IV, § 401(a)(17), (d)(1)(D)(iii), Mar. 23, 2018, 132 Stat. 1185, 1206.)

history & why it existsrecord from the source credit
  • 1983Enacted · Pub. L. 97-414 · 96 Stat. 2053
  • 1984Amended · Pub. L. 98-369 · 98 Stat. 826, 831, 912
  • 1986Amended · Pub. L. 99-514 · 100 Stat. 2178, 2180, 2340, 2599, 2905
  • 1988Amended · Pub. L. 100-647 · 102 Stat. 3585, 3653
  • 1989Amended · Pub. L. 101-239 · 103 Stat. 2323
  • 1990Amended · Pub. L. 101-508 · 104 Stat. 1388
  • 1991Amended · Pub. L. 102-227 · 105 Stat. 1686, 1688
  • 1993Amended · Pub. L. 103-66 · 107 Stat. 420
  • 1996Amended · Pub. L. 104-188 · 110 Stat. 1775, 1776
  • 1997Amended · Pub. L. 105-34 · 111 Stat. 862, 863
  • 1997Amended · Pub. L. 105-115 · 111 Stat. 2326
  • 1998Amended · Pub. L. 105-277 · 112 Stat. 2681
  • 1999Amended · Pub. L. 106-170 · 113 Stat. 1919
  • 2004Amended · Pub. L. 108-311 · 118 Stat. 1178
  • 2006Amended · Pub. L. 109-432 · 120 Stat. 2934
  • 2008Amended · Pub. L. 110-343 · 122 Stat. 3865
  • 2010Amended · Pub. L. 111-312 · 124 Stat. 3317
  • 2013Amended · Pub. L. 112-240 · 126 Stat. 2326
  • 2014Amended · Pub. L. 113-295 · 128 Stat. 4014
  • 2015Amended · Pub. L. 114-113 · 129 Stat. 3049
  • 2017Amended · Pub. L. 115-97 · 131 Stat. 2133
  • 2018Amended · Pub. L. 115-141 · 132 Stat. 1185, 1206

A history note hasn’t been published yet. The record shows enactment by Pub. L. 97-414 on 1983-01-04.

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