OMB No. 1545-1505 Orphan Drug Credit Form 8820

© Attach to your return. Attachment

Sequence No. 103 Department of the Treasury

Internal Revenue Service

Name(s) shown on return Identifying number

Current Year Credit

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2 2

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4

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Form 8820 (1998)

Part I

Tax Liability Limit (See Who Must File Form 3800 to find out if you complete Part II or file Form 3800.)

● Individuals. Enter amount from Form 1040, line 40

● Corporations. Enter amount from Form 1120, Schedule J, line 3 (or Form 1120-A, Part I, line 1) 5

● Other filers. Enter regular tax before credits from your return

6a Credit for child and dependent care expenses (Form 2441, line 9) 6a

b Credit for the elderly or the disabled (Schedule R (Form 1040), line 20) 6b

6d

Foreign tax credit

d

e 6e

Possessions tax credit (Form 5735, line 17 or 27)

6f f

g 6g

Credit for fuel from a nonconventional source

h

Qualified electric vehicle credit (Form 8834, line 19)

Add lines 6a through 6k 6l

7 Net regular tax. Subtract line 6l from line 5 7

8 Alternative minimum tax:

● Individuals. Enter amount from Form 6251, line 28

● Corporations. Enter amount from Form 4626, line 15 8

● Estates and trusts. Enter amount from Form 1041, Schedule I, line 39

10 Tentative minimum tax (see instructions):

● Individuals. Enter amount from Form 6251, line 26

10

● Corporations. Enter amount from Form 4626, line 13

● Estates and trusts. Enter amount from Form 1041,

Schedule I, line 37

11 If line 7 is more than $25,000, enter 25% (.25) of the excess (see

instructions)

13 Subtract line 12 from line 9. If zero or less, enter -0- 13

14 Orphan drug credit allowed for current year. Enter the smaller of line 4 or line 13 here and on Form

1040, line 47; Form 1120, Schedule J, line 4d; Form 1120-A, Part I, line 2a; Form 1041, Schedule G,

line 2c; or the applicable line of your return 14

Part II

%

%

Mortgage interest credit (Form 8396, line 11)

c 6c

5 Regular tax before credits:

9 Net income tax. Add lines 7 and 8 9

12 Enter the greater of line 10 or line 11 12

%

11

Cat. No. 11208S

Qualified clinical testing expenses paid or incurred during the tax year

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

Flow-through orphan drug credit(s) from an S corporation, partnership, estate, or trust

Total current year orphan drug credit. Add lines 2 and 3

i

Adoption credit (Form 8830, line 14)

6h

General Instructions

Purpose of Form

Who Must File

An individual, estate, trust, organization, or

corporation claiming an orphan drug credit,

or any S corporation, partnership, estate,

or trust that allocates the credit to its

shareholders, partners, or beneficiaries

must complete this form and attach it to its

income tax return.

File Form 8820 if you elect to claim the

orphan drug credit. The credit equals 50%

of qualified clinical testing expenses paid

or incurred during the tax year. See section

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 the following modifications:

1. 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.

6i

District of Columbia first-time homebuyer credit (Form 8859, line 11)

j

For Paperwork Reduction Act Notice, see back of form.

1998

k

l

Child tax credit (Form 1040, line 43)

Education credits (Form 8863, line 18)

6j

6k

45C and Regulations section 1.28-1 for

more details.
Form 8820 (1998) Page 2

Specific Instructions

Figure any orphan drug credit from your

own trade or business on lines 1 and 2.

Skip lines 1 and 2 if you are claiming only

a credit that was allocated to you from an

S corporation, a partnership, an estate, or

trust.

Who Must File Form 3800

If for this year you have more than one of

the credits included in the general

business credit, a carryback or

carryforward of any of these credits, an

orphan drug credit from a passive activity,

or general credits from an electing large

partnership (Schedule K-1 (Form 1065-B)),

you must complete Form 3800, General

Business Credit, instead of completing Part

II of Form 8820, to figure the tax liability

limit.

The general business credit consists of

the following credits:

Line 2. You must reduce the deduction for

qualified clinical testing expenses

otherwise 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 3. Enter the amount of credit that was

allocated to you as a shareholder, partner,

or beneficiary.

Line 4. Estates and trusts. Allocate the

orphan drug credit on line 4 between the

estate or trust and the beneficiaries in the

same proportion as income was allocated.

On the dotted line to the left of line 4, the

estate or trust should enter its share of the

credit. Label it “1041 PORTION” and use

this amount in Part II (or on Form 3800, if

required) to figure the credit to take on

Form 1041. On Schedule K-1, show each

beneficiary’s share of the portion allocated

to beneficiaries.

S corporations and partnerships. Allocate

the orphan drug credit on line 4 among the

shareholders or partners. Attach Form

8820 to Form 1120S or 1065 and on

Schedule K-1 show the credit for each

shareholder or partner. Electing large

partnerships, include this credit in “general

credits.”

● Investment (Form 3468),

● Work opportunity (Form 5884), 

● Research (Form 6765), 

● Low-income housing (Form 8586), 

● Enhanced oil recovery (Form 8830), 

● Disabled access (Form 8826), 

● Renewable electricity production (Form

8835),

● Indian employment (Form 8845), 

● Employer social security and Medicare

taxes paid on certain employee tips (Form

8846),

● Contributions to selected community

development corporations (Form 8847),

and 

● Alcohol used as fuel (Form 6478), 

● Trans-Alaska pipeline liability fund.

● Orphan drug (Form 8820),

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 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 507 (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:

1. 200,000 or fewer persons in the

United States, OR

2. 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.

Line 1. Members of a controlled group of

corporations or group of businesses under

common control. The group is treated as a

single taxpayer and the credit allowed

each member is based on its proportionate

share of the qualified clinical testing

expenses of the group. Enter on line 1 this

member’s share of the group’s qualified

clinical testing expenses.

The empowerment zone employment

credit (Form 8844), while a component of

the general business credit, is figured

separately on Form 8844 and is never

carried to Form 3800.

Line 14. If you cannot use part of the

credit because of the tax liability limit (line

13 is smaller than line 4), carry it back 1

year and then forward 20 years. See the

separate Instructions for Form 3800 for

details.

Line 11. See section 38(c)(3) for special

rules that apply to married couples filing

separate returns, controlled corporate

groups, regulated investment companies,

real estate investment trusts, and estates

and trusts.

The time needed to complete and file

this form will vary depending on individual

circumstances. The estimated average time

is:

Recordkeeping 6 hr., 42 min.

Preparing and sending

the form to the IRS 1 hr., 34 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.

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.

Learning about the

law or the form 1 hr., 23 min.

2. 100% (instead of 65% or 75%) of

contract research expenses are treated as

clinical testing expenses.

● Welfare-to-work (Form 8861),

Line 10. Although you may not owe

alternative minimum tax (AMT), you

generally must still compute the tentative

minimum tax (TMT) to figure your credit.

For a small corporation exempt from the

AMT under section 55(e), enter zero.

Otherwise, enter the TMT that was figured

on the appropriate AMT form or schedule.