8820 Orphan Drug Credit OMB No. 1545-1505 Form

© Attach to your tax return. Attachment

Sequence No. 103 Department of the TreasuryInternal Revenue Service

Name(s) shown on return Identifying number

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2 2

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Cat. No. 11208S Form 8820 (Rev. 12-2006)

Qualified clinical testing expenses paid or incurred during the tax year

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

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

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)

General Instructions

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

● In sections 41(b)(2) and (3),

“clinical testing” is substituted for

“qualified research” and

Section references are to the

Internal Revenue Code unless

otherwise noted.

For Paperwork Reduction Act Notice, see back of form.

(Rev. December 2006)

5 Amount allocated to the beneficiaries of the estate or trust (see instructions)

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)

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6

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.

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

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.

● 100% (instead of 65% or 75%) of

contract research expenses are

treated as clinical testing expenses.

expenses under section 41, with two

modifications:
Form 8820 (Rev. 12-2006) Page 2

Line 2

Line 5 

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.

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.

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.

Learning about the

law or the form 1 hr.

Reduce the deduction for qualified

clinical testing expenses otherwise

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.

Specific Instructions

Figure any orphan drug credit from

your own trade or business on lines 1

and 2.

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

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.

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.

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. Preparing and sending

the form to the IRS 1 hr., 4 min.