This post was written by Ruth N. Holzman, Arnie Grant, Paul J. Jaskot, Michael Sanders, Donald C. Reinke, Nanette W. Mantell and Richard Scudellari.

Small biotech companies will need to move quickly in order to take advantage of a new tax credit, known as the “qualifying therapeutic discovery project credit,” enacted as part of the Patient Protection and Affordable Care Act of 2010. The new credit, contained in section 48D of the Internal Revenue Code, is equal to 50 percent of eligible costs incurred by small biotech companies in developing new therapies to prevent, diagnose and treat acute and chronic diseases. Some taxpayers may be eligible to elect to receive a cash grant in lieu of the Credit (Cash Grant). The Credit/Cash Grant program is limited to $1 billion and is only available for taxable years beginning in 2009 and 2010.

The Secretary of the Treasury has until May 22, 2010 to establish a program to consider and award certifications to qualifying therapeutic discovery project sponsors. Because it will be a competitive application process, eligible biotech companies will need to move quickly and submit their applications promptly once the Treasury Department issues guidance on the program. Since the Credit/Cash Grant program includes eligible costs incurred in 2009, biotech companies should review their 2009 costs now so that they have the data to complete their applications as soon as program details are released.

To learn more about the qualifying therapeutic discovery project credit, read our full alert.