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Form 8820 (Rev. 9-2018) Page 3
General Instructions 1. The testing is carried out under in base period research expenses
anexemption for a drug being tested when figuring the credit for
Section references are to the Internal
for arare disease or condition under increasing research activities in a
Revenue Code unless otherwise
section505(i) of the Federal Food, later tax year.
noted.
Drug, andCosmetic Act (Act).
Future developments. For the latest Member of Controlled Group
2. The testing occurs after the
information about developments or Business Under Common
datethe drug is designated under
related to Form 8820 and its Control
Act section526 and before the date
instructions, such as legislation For purposes of figuring the credit,
on which anapplication for the drug
enacted after this form and all members of a controlled group of
is approvedunder Act section 505(b)
instructions were published, go to corporations (as defined in section
(or, if the drugis a biological
www.irs.gov/Form8820. 41(f)(1)(A) and (f)(5)) and all members
product, before the datethe drug is
What’s New. For tax years licensed under section 351 ofthe of a group of businesses under
beginning after 2017, the credit rate Public Health Service Act). common control (as defined in
for the orphan drug credit has been section 41(f)(1)(B)) are treated as a
3. The testing is conducted by or
reduced to 25% and there is an single taxpayer. As a member, your
forthe taxpayer to whom the
election for a reduced credit. credit is determined on a
designationunder Act section 526
Purpose of Form applies. proportionate basis to your share of
Use Form 8820 to figure and claim 4. The testing relates to the use of the aggregate clinical testing
the orphan drug credit and to elect thedrug for the rare disease or expenses taken into account by the
the reduced credit under section condition forwhich it was group for the orphan drug credit.
280C. The credit is 25% of qualified designated under Actsection 526. Enter your share of the credit on line
2a. Attach a statement showing how
clinical testing expenses paid or Rare disease or condition. A rare your share of the credit was figured,
incurred during the tax year. See disease or condition is one which and write “See Attached” next to the
section 45C and Regulations section afflicts: entry space for line 2a.
1.28-1 for details. • 200,000 or fewer persons in the For purposes of the reduced credit
Taxpayers that are not United States; or election, a member of a controlled
partnerships, S corporations, • More than 200,000 persons in the group or a trade or business which is
estates, or trusts, and whose only United States, but for which there is treated as being under common
source of this credit is from those no reasonable expectation of control with other trades or
pass-through entities, are not recovering the cost of developing businesses may make the election
required to complete or file this form. and making available a drug in the under section 280C(b)(3). However,
Instead, they can report this credit United States for the disease from only the common parent (within the
directly on Form 3800. sales of the drug in the United meaning of Regulations section
Definitions States. 1.1502-77(a)(1)) of a consolidated
Qualified clinical testing expenses. The above determinations are group may make the election on
Generally, qualified clinical testing made as of the date the drug is behalf of the members of a
expenses are amounts paid or designated under Act section 526. consolidated group.
incurredby the taxpayer that would Testing Not Eligible for the Specific Instructions
be describedas qualified research
Credit
expenses undersection 41, with two Figure any orphan drug credit from
modifications. The credit is not allowed for clinical your own trade or business on lines
testing conducted outside the
• In sections 41(b)(2) and (3), “clinical 1 and 2a.
United States unless there is an
testing” is substituted for “qualified Line 1
insufficient U.S. testing population
research.” Complete Part II for each orphan
and the testing is conducted by a
• 100% (instead of 65% or 75%) of U.S. person or by another person drug for which qualified clinical
contract research expenses are not related to the taxpayer. Testing testing expenses are paid or
treated as clinical testing expenses. conducted either inside or outside incurred during the tax year and
Qualified clinical testing expenses the United States by a corporation to included in line 1.
do not include expenses to the which section 936 applies is not Line 2a
extent they are funded by a grant, eligible for the orphan drug credit. If you are electing the reduced
contract, or otherwise by a orphan drug credit, you must
governmental entity or another Coordination With the
complete Form 8820 (even if no
person. Research Credit orphan drug credits are claimed on
Clinical testing. Generally, clinical Qualified clinical testing expenses the original return) and clearly
testing means any human clinical used to figure the orphan drug credit indicate your intent to make the
testingthat meets all four of the cannot also be used to figure the election. In order for the election to
followingconditions. credit for increasing research apply, the Form 8820 must be filed
activities. However, any of these with your original timely filed
expenses that are also qualified (including extensions) return for the
research expenses must be included tax year. Once made, the election is
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