Form 8820 (Rev. 9-2018)
Page 3
General Instructions
Section references are to the Internal
Revenue Code unless otherwise
noted.
Future developments. For the latest
information about developments
related to Form 8820 and its
instructions, such as legislation
enacted after this form and
instructions were published, go to
www.irs.gov/Form8820.
What’s New. For tax years
beginning after 2017, the credit rate
for the orphan drug credit has been
reduced to 25% and there is an
election for a reduced credit.
Purpose of Form
Use Form 8820 to figure and claim
the orphan drug credit and to elect
the reduced credit under section
280C. The credit is 25% of qualified
clinical testing expenses paid or
incurred during the tax year. See
section 45C and Regulations section
1.28-1 for details.
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 Form 3800.
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
expenses under section 41, with two
modifications.
• In sections 41(b)(2) and (3), “clinical
testing” is substituted for “qualified
research.”
• 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.
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
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, your
credit is determined on a
proportionate basis to your share of
the aggregate clinical testing
expenses taken into account by the
group for the orphan drug credit.
Enter your share of the credit on line
2a. Attach a statement showing how
your share of the credit was figured,
and write “See Attached” next to the
entry space for line 2a.
For purposes of the reduced credit
election, a member of a controlled
group or a trade or business which is
treated as being under common
control with other trades or
businesses may make the election
under section 280C(b)(3). However,
only the common parent (within the
meaning of Regulations section
1.1502-77(a)(1)) of a consolidated
group may make the election on
behalf of the members of a
consolidated group.
Specific Instructions
Figure any orphan drug credit from
your own trade or business on lines
1 and 2a.
Line 1
Complete Part II for each orphan
drug for which qualified clinical
testing expenses are paid or
incurred during the tax year and
included in line 1.
Line 2a
If you are electing the reduced
orphan drug credit, you must
complete Form 8820 (even if no
orphan drug credits are claimed on
the original return) and clearly
indicate your intent to make the
election. In order for the election to
apply, the Form 8820 must be filed
with your original timely filed
(including extensions) return for the
tax year. Once made, the election is
