THE IMPACT OF THE CHANGE OF TAX YEAR ON THE CORPORATION’S APPLICATION FOR A CASH GRANT ON THE INVESTMENT MADE IN QUALIFYING THERAPEUTIC DISCOVERY
In the Silver Medical, Inc. V. Commissioner of Internal Revenue (2016), the respondent, the commissioner of internal revenue, determined a deficiency in the Silver Medical, Inc.’s Federal income tax amounting to 41,032 US dollars for the fiscal year ending on 30th November, 2011 along with an accuracy related fine amounting to 8,206 US dollars (Leagle, Inc., 2016). The case was filed on 19th December 2016. The United States Tax Court held that Silver Medical, Inc. was not entitled to a cash grant related to the investments that it made in qualifying therapeutic discovery project after the year 2010 as the Internal Revenue Service had not certified it to make qualified investments during the period following that year. Facts: Silver Medical, Inc. had applied for a cash grant instead of a tax credit. Under I.R.C Section 48D, the companies that pay taxes are authorized to apply for a cash grant or as an alternative claim a tax credit from the Internal Revenue Service. In particular, the company requested the Internal Revenue Service to certify the investments it made during both 2009 and 2010 tax years. It opted to obtain cash grants by requesting for the certification instead of a tax credit. After receiving the certification, the company altered its 2010 tax year to a short tax year from a calendar year (Silver Medical, Inc. V. Commissioner of Internal Revenue, 2016). As a result, its short tax year came to an end on 30th November 2010. However, the Internal Revenue Service failed to certify the company following its request for certification of the investments it made in qualifying therapeutic discovery project during its fiscal year ending on 30th November 2011. Silver Medical, Inc. then filed tax returns, maintaining that its investments for the year 2009, its short tax year, which came to an end on 30th November 2010, and its fiscal year that came to an end on 30th November 2011 had qualified for the certification (Leagle, Inc., 2016). The company was found to have claimed qualified investments, which surpassed the real investments that it had made in the above mentioned three reporting phases. As a result, the commissioner of internal revenue gave out a notice of deficiency that precluded the qualifying therapeutic discovery project (QTDP) grant, which was related to the investments that Silver Medical, Inc. had made after 31st December 2010 (Leagle, Inc., 2016). Issues: The respondent, commissioner of internal revenue, had rejected the grant that Silver Medical, Inc. claimed for the second short tax year that started from 1st January 2011 to 30th November 2011. The Internal Revenue Service, thus, captured that grant amount as tax, leading to the mentioned deficiency amounting to 41,032 US dollars. For this reason, as reported by Leagle, Inc. (2016), the initial issue for decision was whether Silver Medical, Inc. must have recaptured as tax the above 41,032 US dollars. The other issue was whether the recapture ought to have happened for Silver Medical, Inc.’s fiscal year that ended on 30th November 2011. In particular, Silver Medical, Inc. had filed tax returns claiming that its fiscal year that came to an end on 30th November 2011 had qualified for the certification. As a result, the court was to rule whether the company, the petitioner, ought to have recaptured the excess grant for this fiscal year. Holding: The court held that Silver Medical, Inc. was not eligible for a grant involving the investments, which it made in qualifying therapeutic discovery project after the year 2010. According to Koenig (2017), the judge presiding over the case, Juan F. Vasquez, asserted that the Internal Revenue Service only certified the petitioner to obtain a cash grant for the 2010 and 2009 tax years. Specifically, this was because the IRS did not certify it to make qualified investments after 2010. In other words, the judge supported IRS’s action of upholding tax liability against Silver Medical, Inc. in attempting to hold on to a cash grant for investing in therapeutic discovery project. It was also held that Silver Medical, Inc. should recapture as tax the surplus grant funds for its fiscal year that ended on 30th November 2011. Ideally, this was because that year comprised the period wherein the pertinent grant was made.
Reference List
Koenig, B. (2017) Med Device Co. Can't Claim Extra Investment Grant. Available from: https://www.law360.com/articles/874564/med-device-co-can-t-claim-extra-investment-grant Online [13 January 2017]
Leagle, Inc. (2016) Silver Medical, Inc. V. Commissioner of Internal Revenue, Available from: <http://www.leagle.com/decision/In%20TCO%2020161219C72/SILVER%20MEDICAL,%20INC.%20v.%20COMMISSIONER%20OF%20INTERNAL%20REVENUE#> Online [13 January 2017]
Silver Medical, Inc., Petitioner, V. Commissioner of Internal Revenue, Respondent, 2016. Print.
