Form 8820

(Rev. December 2010)

Department of the Treasury 

Internal Revenue Service 

Orphan Drug Credit

▶ Attach to your tax return.

OMB No. 1545-1505

Attachment 

Sequence No. 103

Name(s) shown on return Identifying number

1 Qualified clinical testing expenses paid or incurred during the tax year (see instructions for the

statement to attach) . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

2a Current year credit. Multiply line 1 by 50% (.50) (see instructions) . . . . . . . . . . . 2a 

b Enter the portion of the credit from Form 8932, line 2, that is attributable to wages that were also 

used to figure the credit on line 2a above . . . . . . . . . . . . . . . . . . . 2b

c Subtract line 2b from 2a. If zero or less, enter -0- . . . . . . . . . . . . . . . . . 2c 

3 Orphan drug credit from partnerships, S corporations, estates, or trusts . . . . . . . . . 3 

4 Add lines 2c 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 1h of the 2010 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 1h of the 2010 Form 3800) . . . . . . . . . . . . . . . . . . . 6 

General Instructions

Section references are to the Internal 

Revenue Code unless otherwise noted.

What’s New

The qualified clinical testing expenses 

paid or incurred during the tax year may 

have to be reduced by the amount (if 

any) of expenses taken into account in 

figuring the amount of the allowable 

qualifying therapeutic discovery project 

grant or credit. See Definitions, below, 

for details.

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.

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” 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. In addition, qualified 

clinical testing expenses do not include 

any expenses taken into account in 

figuring the amount of the allowable 

qualifying therapeutic discovery project 

grant or credit. For more details, see 

section 48D(e)(2)(C) and Notice 2010-45, 

2010-23 I.R.B. 734.

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.

For Paperwork Reduction Act Notice, see back of form. Cat. No. 11208S Form 8820 (Rev. 12-2010)
Form 8820 (Rev. 12-2010) Page 2

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, 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 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.

Specific Instructions

Figure any orphan drug credit from your 

own trade or business on lines 1 and 2a.

Line 1

For each orphan drug for which qualified 

clinical testing expenses are paid or 

incurred during the tax year and included 

in line 1, attach a statement showing the 

generic name, designation number, and 

the date the drug was designated under 

section 526 of the Federal Food, Drug, 

and Cosmetic Act.

Line 2a

Reduce the deduction for qualified 

clinical testing expenses otherwise 

allowable on your income tax return by 

the amount of the credit shown on line 

2a. 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 2b

If the credit on line 2a includes wages 

paid to employees, and you are also 

claiming a credit for employer differential 

wage payments based on wages paid to 

the same employees, enter on line 2b 

the portion of the credit from the 

employer differential wage credit line 

(e.g., line 2 of Form 8932) that is 

attributable to wages that were also 

used to figure the credit on line 2a.

See Form 8932, Credit for Employer 

Differential Wage Payments, for 

information on the credit.

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 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.