Recapture of cash grants under section 48D | KPMG | GLOBAL
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Recapture of cash grants under section 48D, therapeutic discovery project

Recapture of cash grants under section 48D

The U.S. Tax Court today issued a decision concerning a taxpayer that had applied to have its investments in a therapeutic discovery project certified under section 48D; that elected to receive cash grants (in lieu of a tax credit); and changed its tax year from a calendar year to a short tax year and then filed a second section 48D application for its fiscal year.


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The case is: Silver Medical, Inc. v. Commissioner, 147 T.C. No. 18 (December 19, 2016). Read the Tax Court’s opinion [PDF 71 KB]


The taxpayer, a calendar year taxpayer, was a medical device company that applied to have its investments in a therapeutic discovery project certified under Code section 48D. On its application, the taxpayer requested certification of investments made in its 2009 and 2010 tax years. 

While certification generally results in a tax credit, the taxpayer elected to receive cash grants in lieu of a credit. The taxpayer received certification. 

The taxpayer then changed its 2010 tax year from a calendar year to a short tax year ending November 30, 2010. It then filed a second application under section 48D requesting certification of investments made in its fiscal year ending November 30, 2011. The second application did not result in certification.

The Tax Court today held that the taxpayer was not entitled to a grant related to investments made after the 2010 calendar year because the taxpayer was not certified to make qualified investments after that year. 

The Tax Court further held that:

  • Grant funds attributable to estimated qualified investments that exceeded actual investments made during the 2010 calendar year must be recaptured as tax. 
  • The taxpayer must recapture the excess grant funds for its fiscal year ending November 30, 2011, because that year includes the period in which the relevant grant was made.

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