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Official form guide
Form 8820: Orphan Drug Credit
IRS Form 8820 is used to figure and claim the Orphan Drug Credit for taxpayers. This form allows an election for a reduced credit, which is 25% of qualified clinical testing expenses.
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IRS Form 8820 - Orphan Drug Credit
IRS Form 8820 is used to figure and claim the Orphan Drug Credit for taxpayers. This form allows an election for a reduced credit, which is 25% of qualified clinical testing expenses.
Risk Radar
Scan points- 1If electing the reduced credit, you must file Form 8820 even if no credits are claimed on your return.
- 2Filing without attaching the required statement showing how Line 2a was figured.
- 3Not completing Form 8820 at all when electing the reduced credit under section 280C.
- 4Forgetting to complete Part II for any drug included in the total on Line 1.
- 5Calculating Line 2c incorrectly (entering zero or less instead of -0-).
Plain English
This form helps taxpayers calculate and claim a special tax break called the Orphan Drug Credit. It accounts for money spent on research and testing for drugs that treat rare diseases. Taxpayers use this to reduce their overall tax liability by claiming a percentage of these drug development costs.
Submission Date
- Filing date: 2018-09-27 23:00:08
- Preparation window: collect IDs, supporting records, and signatures in advance.
- Final review: verify names, dates, and required fields before submission.
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What this form is for
- Use this form when claiming the orphan drug credit because qualified clinical testing expenses were paid or incurred during the tax year.
- Do not use this form when your only source of the Orphan Drug Credit comes from pass-through entities (partnerships, S corporations, estates, or trusts) and you are not one of those entities.
- Check Form 3800 instead when reporting the credit directly because you are a taxpayer that is not a partnership, S corporation, estate, or trust, and your only source of the credit is from pass-through entities.
Form selector
Use this form or another form?
For an entity that elects the reduced credit
The election under section 280C must be made on this form.
✓ Check if you multiply line 1 by 19.75% instead of 25%.
When reporting a consolidated group's share of the credit
Only the common parent may make the election on behalf of all members in a consolidated group.
✓ Verify that the electing entity is the common parent.
If your credit includes employer differential wages
You must enter the portion attributable to those specific wages on line 2b of Form 8820.
✓ Confirm the calculation matches the figures from Form 8932.
Deadline or filing window
The Form 8820 must be filed with the original timely filed tax return for the specific tax year. If the election is made, this filing ensures the benefit applies to that year's liability. The source does not specify a different deadline period beyond filing with the original return.
Checklist
What you need before filling it out
Qualified clinical testing expenses
Amounts paid or incurred by the taxpayer that meet specific definitions (modifications to section 41) · Generally found in Line 1, Part II
Reduced Credit Election
A choice made on line 2a: Yes or No · Found on Form 8820, Part I
Non-Partnership/S Corp Filing
Taxpayers whose sole credit source is from pass-through entities · Not stated in the official source (but implied by context)
Definition of Rare Disease
Afflicts $le$ 200,000 persons OR $> 200,000$ with no reasonable expectation of recovery · Found in definitions section (Form p.3)
Foreign Testing Eligibility
Clinical testing outside the US is ineligible unless specific conditions are met (insufficient U.S. pop., U.S. person/non-related party conducts it) · Found on Form 8820, Page 3
Before you submit
- 1Ensure all Name(s) shown on return and Identifying number are correctly entered.
- 2Verify Line 1 accurately reflects qualified clinical testing expenses paid or incurred during the tax year.
- 3Determine if you elect the reduced credit under section 280C and mark 'Yes' or 'No' on line 2a.
- 4If electing reduced, confirm that your calculation for line 2a uses 19.75% of Line 1.
- 5If not electing reduced, confirm that your calculation for line 2a uses 25% of Line 1 (and you have the required statement attached).
- 6If applicable, ensure Line 2b correctly allocates wages paid to employees if employer differential credit is claimed.
- 7Verify that a statement showing how your share of the credit was figured is attached and marked 'See Attached' next to line 2a.
How to file this form
- 1Figure any orphan drug credit from your own trade or business on lines 1 and 2a, completing Part II for each relevant drug.
- 2Determine if you are electing the reduced credit under section 280C and calculate line 2a accordingly (using 19.75% or 25%).
- 3If required, allocate the credit on line 4 between the estate/trust and beneficiaries on line 5 in proportion to income allocation.
- 4Attach a statement showing how your share of the credit was figured, ensuring it is referenced next to line 2a.
- 5If not electing reduced, reduce your otherwise allowable deduction for qualified clinical testing expenses by the amount shown on line 4 and attach a supporting statement detailing those reductions.
Known limitations
- 1Taxpayers that are not partnerships, S corporations, estates, or trusts, and whose sole source of the credit is from those pass-through entities, do not have to complete Form 8820; they can report the credit directly on Form 3800.
- 2If a taxpayer does not elect the reduced credit, they must reduce their otherwise allowable deduction for qualified clinical testing expenses by the amount of the credit shown on line 1 of Form 8820.
- 3In cases where qualified clinical testing expenses are capitalized and the credit exceeds the allowed deduction for the tax year, the taxpayer must reduce the amount chargeable to capital account for that year by the excess amount.
Field map
Compact field-by-field guide
Entity Info
1 items
Name and taxpayer ID of the entity claiming the credit.
Credit Info
1 items
Type of credit or incentive being claimed.
Calculation
2 items
The base amount used to calculate the credit.
Calculated credit amount after applying formulas and limitations.
Certification
1 items
Detailed breakdown supporting the credit calculation.
Signatures
1 items
Sign and date the form.
Almost done reviewing the fields?
Fillable formOpen in Editor->The current edition is Revision September 2018 (Rev. 9-2018). The form directs users to www.irs.gov/Form8820 for the latest information, noting that for tax years beginning after 2017, the credit rate has been reduced to 25% and an election for a reduced credit is available.
What changed or needs a fresh check
- Edition date — confirm the revision reads September 2018 (Rev. 9-2018).
- Tax Year applicability — confirm this form is for the current tax year.
- Attachment requirement — confirm you will attach Form 8820 to your tax return.
- Credit rate check — confirm the baseline credit percentage is 25% (unless electing reduced).
- Election confirmation — confirm if you are electing the reduced credit under section 280C.
- Line 1 calculation — confirm line 1 totals qualified clinical testing expenses paid or incurred during the tax year.
Quick Facts
Downloads
After you file
- 1Keep a copy of Form 8820 (Rev. September 2018) for recordkeeping.
- 2If you do not elect the reduced credit, attach a statement to your tax return that lists the deduction amounts or capitalized expenses that were reduced.
- 3When reducing a capitalized expense due to the orphan drug credit, identify the lines of your return (schedule or forms for capitalized items) on which the reductions were made.
- 4For estates and trusts filing Form 8820, report the final amount allocated to beneficiaries on Form 3800, Part III, line 1h.
Sources
- SRCForm 8820 is used to figure and claim the orphan drug credit and to elect the reduced credit under section 280C (Instructions p.3).
- SRCThe standard credit rate is 25% of qualified clinical testing expenses paid or incurred during the tax year (Instructions p.3).
- SRCIf electing the reduced credit, multiply Line 1 by 19.75% (0.1975) (Form p.1).
- SRCQualified clinical testing expenses generally include amounts described as qualified research expenses under section 41, with two modifications (Definitions on Form p.3).
- SRCIf the taxpayer is not a partnership, S corporation, estate, or trust, and their credit comes only from those entities, they report it directly on Form 3800 (Instructions p.3).
- SRCFor estates and trusts filing Form 8820, the final amount allocated to beneficiaries must be reported on Form 3800, Part III, line 1h (Form p.1/p.4).
- SRCThe estimated burden for individual taxpayers filing this form is approved under OMB control number 1545-0074 and 1545-0123 (Form p.4).
- SRCFor details on the reduced credit election, see section 280C (Instructions p.3).
Common confusion points
What is the standard credit rate for the orphan drug credit?
The general credit rate is 25% of qualified clinical testing expenses.
→ Check Line 1 of Form 8820.
When should I use the reduced credit election?
A taxpayer can elect the reduced credit under section 280C, which results in a lower credit percentage.
→ See Part I, line 1a of Form 8820.
How do I calculate the reduced credit amount?
If electing the reduced credit (Yes on line 1a), multiply Line 1 by 19.75% (0.1975).
→ Refer to the calculation instructions for Part I, line 1 of Form 8820.
What is 'qualified clinical testing expenses'?
Generally, these are amounts described as qualified research expenses under section 41, with two modifications: substituting 'clinical testing' for 'qualified research' in sections 41(b)(2) and (3), and treating 100% of contract research expenses as clinical testing expenses.
→ Review the Definitions section on Form 8820.
What happens if my credit comes from a pass-through entity?
If you are not an estate, trust, partnership, or S corporation but your only source is one of those entities, you report the credit directly on Form 3800 instead of filing Form 8820.
→ See General Instructions on Page 3.
What if my credit amount is zero or negative?
If the result of subtracting line 2b from line 2a is zero or less, enter -0- on Line 2c of Form 8820.
→ Check Part I instructions for Line 2c.
Workflow map
Related forms and next steps
Before
Current
After
Often used with
⚠ If something goes wrong
- Form 8582-CR (This form must be completed to determine the allowed credit that needs allocation between the estate or trust and beneficiaries.)
Questions about IRS Form 8820
What is IRS Form 8820 used for?
This form helps taxpayers calculate and claim a special tax break called the Orphan Drug Credit. It accounts for money spent on research and testing for drugs that treat rare diseases. Taxpayers use this to reduce their overall tax liability by claiming a percentage of these drug development costs.
Who must file IRS Form 8820?
Taxpayers who are not partnerships, S corporations, estates, or trusts, and whose only source of the credit is from those pass-through entities, can report the credit directly on Form 3800 instead of filing Form 8820.
What information does IRS Form 8820 require?
Part I identifies the current year's credit amount (Line 1) and details how that figure was calculated. Part II collects specific Orphan Drug Information for each drug, including its name and designation date.
When is IRS Form 8820 due?
The Form 8820 must be filed with the original timely filed return for the tax year to ensure the reduced credit election applies.
Where do I file IRS Form 8820?
The form is attached to your main tax return. For the latest information, taxpayers can visit www.irs.gov/Form8820.
How do I complete IRS Form 8820?
First, complete Part II for every drug incurring qualified clinical testing expenses and include that total on Line 1 of Part I. Next, calculate your share of the credit on Line 2a, making sure to attach a statement showing the calculation. Finally, ensure all necessary lines (like 2b and 2c) are filled before signing and submitting.
What happens if IRS Form 8820 is filed incorrectly?
Failing to file Form 8820 when electing the reduced credit means the election may not apply to the taxpayer's original timely filed return.
What is the standard credit rate for the orphan drug credit?
The general credit rate is 25% of qualified clinical testing expenses. Check Line 1 of Form 8820.
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