Question

1. Use an online tax service (e.g., Checkpoint, LexisNexis, CCH AnswerConnect) to answer the following questions:
   1. What is the general content of IRC § 45C?
   2. What is the general content of IRC § 141?
   3. What is the general content of IRC § 166?

Answer 1

Hi There,

Here's my answer to the question asked.

After referring to various sites mentioned in the question., I would present my solution on various sections asked for.

1.IRC 45C :Clinical testing expenses for certain drugs for rare diseases or conditions :

(a) General rule. --For purposes of section 38 , the credit determined under this section for the taxable year is an amount equal to 50 percent of the qualified clinical testing expenses for the taxable year.

(b) Qualified clinical testing expenses. --For purposes of this section--

(1) Qualified clinical testing expenses.--

(A) In general. --Except as otherwise provided in this paragraph, the term “qualified clinical testing expenses” means the amounts which are paid or incurred by the taxpayer during the taxable year which would be described in subsection (b) of section 41 if such subsection were applied with the modifications set forth in subparagraph (B).

(B) Modifications. --For purposes of subparagraph (A) , subsection (b) of section 41 shall be applied--

(i)  by substituting “clinical testing” for “qualified research” each place it appears in paragraphs (2) and (3) of such subsection, and

(ii)  by substituting “100 percent” for “65 percent” in paragraph (3)(A) of such subsection.

(C) Exclusion for amounts funded by grants, etc. --The term “qualified clinical testing expenses” shall not include any amount to the extent such amount is funded by any grant, contract, or otherwise by another person (or any governmental entity).

(2) Clinical testing ;

(A) In general. --The term “clinical testing” means any human clinical testing--

(i)  which 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 (or regulations issued under such section),

(ii)  which occurs--

(I)  after the date such drug is designated under section 526 of such Act, and

(II)  before the date on which an application with respect to such drug is approved under section 505(b) of such Act or, if the drug is a biological product, before the date on which a license for such drug is issued under section 351 of the Public Health Service Act;   1  and

(iii)  which is conducted by or on behalf of the taxpayer to whom the designation under such section 526 applies.

(B) Testing must be related to use for rare disease or condition. --Human clinical testing shall be taken into account under subparagraph (A) only to the extent such testing is related to the use of a drug for the rare disease or condition for which it was designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

  

(c) Coordination with credit for increasing research expenditures.--

(1) In general. --Except as provided in paragraph (2), any qualified clinical testing expenses for a taxable year to which an election under this section applies shall not be taken into account for purposes of determining the credit allowable under section 41 for such taxable year.

(2) Expenses included in determining base period research expenses. --Any qualified clinical testing expenses for any taxable year which are qualified research expenses (within the meaning of section 41(b) ) shall be taken into account in determining base period research expenses for purposes of applying section 41 to subsequent taxable years.

(d) Definition and special rules.--

(1) Rare disease or condition. --For purposes of this section, the term “rare disease or condition” means any disease or condition which--

(A)  affects less than 200,000 persons in the United States, or

(B)  affects more than 200,000 persons in the United States but for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.

Determinations under the preceding sentence with respect to any drug shall be made on the basis of the facts and circumstances as of the date such drug is designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

(2) Special limitations on foreign testing.--

(A) In general. --No credit shall be allowed under this section with respect to any clinical testing conducted outside the United States unless--

(i)  such testing is conducted outside the United States because there is an insufficient testing population in the United States, and

(ii)  such testing is conducted by a United States person or by any other person who is not related to the taxpayer to whom the designation under section 526 of the Federal Food, Drug, and Cosmetic Act applies.

2. IRC 141 :

Interest on bonds issued by state and local governments (and on-behalf-of issuers) is exempt from federal income tax if the bonds are not “private activity bonds,” although certain exceptions for qualified private activity bonds are permitted under the federal tax laws. See I.R.C. § 141(e). A bond is a private activity bond if either the private business test or the private loan test is met.

The private business test is met if both of the following are true:

1. More than 10% of the proceeds of the bonds is to be used for private business use; and
2. More than 10% of the debt service on the bonds is to be derived directly or indirectly from payments for private business property or secured by private business property.

The private loan test is met if either the lesser of $5,000,000 or 5% of the proceeds is to be used to make or finance loans to persons other than governmental units. (The threshold from 5% to $5 million is $100 million.)

If neither the private business test nor the private loan test is met, the bonds will not be private activity bonds and will be considered “governmental bonds.”

Recent history of regulations and guidance relating to the private business use test, the private security or payment test and the private loan test

3.IRC 166 - Bad Debts :

(a) General rule.

(1) Wholly worthless debts. --There shall be allowed as a deduction any debt which becomes worthless within the taxable year.

(2) Partially worthless debts. --When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.

(b) Amount of deduction. --For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.

[(c) Repealed.   Pub.L. 99-514, Title VIII, § 805(a) , Oct. 22, 1986, 100 Stat. 2361]

(d) Nonbusiness debts. --

(1) General rule. --In the case of a taxpayer other than a corporation--

(A)  subsection (a) shall not apply to any nonbusiness debt;  and

(B)  where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.

(2) Nonbusiness debt defined. --For purposes of paragraph (1), the term “nonbusiness debt” means a debt other than--

(A)  a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer;  or

(B)  a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.

(e) Worthless securities. --This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C) .

(f) Cross references. --

(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271 .

(2) For special rule for banks with respect to worthless securities, see section 582 .