8820 Orphan Drug Credit

Form

8820

Orphan Drug Credit

OMB No. 1545-1505

(Rev. December 2006)

Department of the Treasury
Internal Revenue Service

©

Attachment
Sequence No.

Attach to your tax return.

Name(s) shown on return

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

What’s New
● The tax liability limit is no longer
figured on this form; instead, it must
be figured on Form 3800, General
Business Credit.
● 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 line 1k of Form
3800.
● The IRS will revise this December
2006 version of the form only when
necessary. Continue to use this
version for tax years beginning after
2005 until a new revision is issued.

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.

Definitions
Qualified clinical testing expenses.
Generally, qualified clinical testing
expenses are amounts paid or
incurred by the taxpayer that would
be described as qualified research

103

Identifying number

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.
Clinical testing. Generally, clinical
testing means any human clinical
testing that meets all four of the
following conditions.
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.

For Paperwork Reduction Act Notice, see back of form.

Cat. No. 11208S

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.
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
Form

8820

(Rev. 12-2006)

Form 8820 (Rev. 12-2006)

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
2. Attach a statement showing how
your share of the credit was figured,
and write “See Attached” next to the
entry space for line 2.

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

Line 2
Reduce the deduction for qualified
clinical testing expenses otherwise

Page

allowable on your income tax return
by the amount of the credit shown on
line 2. 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 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

2

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.