Title 26 — Internal Revenue CodeRelease 119-73
§45C Clinical testing expenses for certain drugs for rare diseases or conditions
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter A— - Determination of Tax Liability › Part PART IV— - CREDITS AGAINST TAX › Subpart Subpart D— - Business Related Credits › § 45C
Summary
You can claim a tax credit equal to 25 percent of your qualified clinical testing expenses for the tax year. Qualified clinical testing expenses are the amounts you pay in the year for human clinical testing on a drug for a rare disease that meet special rules. The rules treat "clinical testing" like "qualified research" under section 41, but use 100 percent instead of 65 percent in one calculation. Costs paid by grants, contracts, or other people or governments do not count. Clinical testing counts only if it is done under an exemption for a drug for a rare disease under section 505(i), after the drug gets a designation under section 526, and before approval under section 505(b) or a license under section 351 for biologics. The testing must be done by or for the taxpayer who got the designation and must be related to that designated disease. A rare disease affects fewer than 200,000 people in the United States, or affects more but is not expected to have its development costs recovered from U.S. sales. Testing done outside the United States qualifies only if there are too few U.S. patients and the testing is done by a U.S. person or by someone not related to the taxpayer. You cannot also use those same expenses for the regular section 41 research credit in the same year if you choose this credit, though amounts that qualify under section 41 can be used to compute base period research for later years. Similar rules in section 41(f)(1) and (2) apply. You must elect to use this credit for a tax year, and the Secretary will set the time and manner for that election.
Full Legal Text
Title 26, §45C
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of section 38, the credit determined under this section for the taxable year is an amount equal to 25 percent of the qualified clinical testing expenses for the taxable year.
(b)For purposes of this section—
(1)(A)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)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)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)(A)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, and
(iii)which is conducted by or on behalf of the taxpayer to whom the designation under such section 526 applies.
(B)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)(1)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)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)(1)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.
(2)No credit shall be allowed under this section with respect to any clinical testing conducted outside the United States unless—
(A)such testing is conducted outside the United States because there is an insufficient testing population in the United States, and
(B)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.
(3)Rules similar to the rules of paragraphs (1) and (2) of section 41(f) shall apply for purposes of this section.
(4)This section shall apply to any taxpayer for any taxable year only if such taxpayer elects (at such time and in such manner as the Secretary may by regulations prescribe) to have this section apply for such taxable year.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
section 505(b), (i) and 526 of the Federal Food, Drug, and Cosmetic Act, referred to in subsecs. (b)(2)(A) and (d)(1), (2)(B), are classified to section 355(b), (i) and 360bb, respectively, of Title 21, Food and Drugs. section 351 of the Public Health Service Act, referred to in subsec. (b)(2)(A)(ii)(II), is classified to section 262 of Title 42, The Public Health and Welfare.
Amendments
2018—Subsec. (b)(2)(A)(ii)(II). Pub. L. 115–141, § 401(a)(17), substituted “, and” for “; and”. Subsec. (d)(2). Pub. L. 115–141, § 401(d)(1)(D)(iii), struck out subpar. (A) designation and heading, redesignated cls. (i) and (ii) of former subpar. (A) as subpars. (A) and (B), respectively, realigned margins, and struck out former subpar. (B) which related to special limitation for corporations to which former section 936 applied. 2017—Subsec. (a). Pub. L. 115–97 substituted “25 percent” for “50 percent”. 2015—Subsec. (b)(1)(D). Pub. L. 114–113 struck out subpar. (D). Text read as follows: “If section 41 is not in effect for any period, such section shall be deemed to remain in effect for such period for purposes of this paragraph.” 2014—Subsec. (b)(1)(D). Pub. L. 113–295 amended subpar. (D) generally. Prior to amendment, text read as follows: “For purposes of this paragraph, section 41 shall be deemed to remain in effect for periods after
June 30, 1995, and before
July 1, 1996, and periods after
December 31, 2013.” 2013—Subsec. (b)(1)(D). Pub. L. 112–240 substituted “
December 31, 2013” for “
December 31, 2011”. 2010—Subsec. (b)(1)(D). Pub. L. 111–312 substituted “
December 31, 2011” for “
December 31, 2009”. 2008—Subsec. (b)(1)(D). Pub. L. 110–343 substituted “
December 31, 2009” for “
December 31, 2007”. 2006—Subsec. (b)(1)(D). Pub. L. 109–432 substituted “2007” for “2005”. 2004—Subsec. (b)(1)(D). Pub. L. 108–311 substituted “
December 31, 2005” for “
June 30, 2004”. 1999—Subsec. (b)(1)(D). Pub. L. 106–170 substituted “
June 30, 2004” for “
June 30, 1999”. 1998—Subsec. (b)(1)(D). Pub. L. 105–277 substituted “
June 30, 1999” for “
June 30, 1998”. 1997—Subsec. (b)(1)(D). Pub. L. 105–34, § 601(b)(2), substituted “
June 30, 1998” for “
May 31, 1997”. Subsec. (b)(2)(A)(ii)(II). Pub. L. 105–115 struck out “or 507” after “505(b)”. Subsec. (e). Pub. L. 105–34, § 604(a), struck out subsec. (e) which read as follows: “(e) Termination.—This section shall not apply to any amount paid or incurred— “(1) after
December 31, 1994, and before
July 1, 1996, or “(2) after
May 31, 1997.” 1996—Pub. L. 104–188, § 1205(a)(1), renumbered section 28 of this title as this section. Subsec. (a). Pub. L. 104–188, § 1205(d)(1), substituted “For purposes of section 38, the credit determined under this section for the taxable year is” for “There shall be allowed as a credit against the tax imposed by this chapter for the taxable year”. Subsec. (b)(1)(D). Pub. L. 104–188, § 1204(e), inserted “, and before
July 1, 1996, and periods after
May 31, 1997” after “
June 30, 1995”. Subsec. (d)(2) to (5). Pub. L. 104–188, § 1205(d)(2), redesignated pars. (3) to (5) as (2) to (4), respectively, and struck out former par. (2) which read as follows: “Limitation based on amount of tax.—The credit allowed by this section for any taxable year shall not exceed the excess (if any) of— “(A) the regular tax (reduced by the sum of the credits allowable under subpart A and section 27), over “(B) the tentative minimum tax for the taxable year.” Subsec. (e). Pub. L. 104–188, § 1205(b), amended subsec. (e) generally. Prior to amendment, subsec. (e) read as follows: “Termination.—This section shall not apply to any amount paid or incurred after
December 31, 1994.” 1993—Subsec. (b)(1)(D). Pub. L. 103–66, § 13111(a)(2), substituted “
June 30, 1995” for “
June 30, 1992”. Subsec. (e). Pub. L. 103–66, § 13111(b), substituted “
December 31, 1994” for “
June 30, 1992”. 1991—Subsec. (b)(1)(D). Pub. L. 102–227, § 102(b), substituted “
June 30, 1992” for “
December 31, 1991”. Subsec. (e). Pub. L. 102–227, § 111(a), substituted “
June 30, 1992” for “
December 31, 1991”. 1990—Subsec. (b)(1)(D). Pub. L. 101–508, § 11402(b)(2), substituted “
December 31, 1991” for “
December 31, 1990”. Subsec. (e). Pub. L. 101–508, § 11411, substituted “
December 31, 1991” for “
December 31, 1990”. 1989—Subsec. (b)(1)(D). Pub. L. 101–239 substituted “1990” for “1989”. 1988—Subsec. (b)(1)(D). Pub. L. 100–647, § 4008(c)(1), substituted “1989” for “1988”. Subsec. (b)(2)(A)(ii)(II). Pub. L. 100–647, § 1018(q)(1), amended subcl. (II) generally. Prior to amendment, subcl. (II) read as follows: “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 Services Act, and”. 1986—Subsec. (b)(1). Pub. L. 99–514, § 231(d)(3)(A)(i), (iv), substituted “41” for “30” in subpars. (A), (B), and (D), and substituted “1988” for “1985” in subpar. (D). Subsec. (b)(2)(A)(ii)(I). Pub. L. 99–514, § 1879(b)(1)(A), substituted “the date such drug” for “the date of such drug”. Subsec. (b)(2)(A)(ii)(II). Pub. L. 99–514, § 1879(b)(1)(B), inserted “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 Services Act”. Subsec. (c). Pub. L. 99–514, § 231(d)(3)(A)(i), (ii), substituted “41” for “30” in pars. (1) and (2) and “41(b)” for “30(b)” in par. (2). Subsec. (d)(1). Pub. L. 99–514, § 1879(b)(2), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “For purposes of this section, the term ‘rare disease or condition’ means any disease or condition which occurs so infrequently in the United States that 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.” Subsec. (d)(2). Pub. L. 99–514, § 701(c)(2), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “The credit allowed by this section for any taxable year shall not exceed the taxpayer’s tax liability for the taxable year (as defined in section 26(b)), reduced by the sum of the credits allowable under subpart A and section 27.” Subsec. (d)(3)(B). Pub. L. 99–514, § 1275(c)(4), struck out “934(b) or” before “936” in heading and amended text generally. Prior to amendment, text read as follows: “No credit shall be allowed under this section with respect to any clinical testing conducted by a corporation to which section 934(b) applies or to which an election under section 936 applies.” Subsec. (d)(4). Pub. L. 99–514, § 231(d)(3)(A)(iii), substituted “section 41(f)” for “section 30(f)”. Subsec. (e). Pub. L. 99–514, § 232, substituted “1990” for “1987”. 1984—Pub. L. 98–369, § 471(c), renumbered section 44H of this title as this section. Subsec. (b)(1)(A), (B), (D). Pub. L. 98–369, § 474(g)(1)(A), substituted “section 30” for “section 44F”. Subsec. (c)(1). Pub. L. 98–369, § 474(g)(1)(A), substituted “section 30” for “section 44F”. Subsec. (c)(2). Pub. L. 98–369, § 474(g)(1)(A), (B), substituted “section 30” for “section 44F” and “section 30(b)” for “section 44F(b)”. Subsec. (d)(2). Pub. L. 98–369, § 612(e)(1), substituted “section 26(b)” for “section 25(b)”. Pub. L. 98–369, § 474(g)(2), amended par. (2) generally, substituting “shall not exceed the taxpayer’s tax liability for the taxable year (as defined in section 25(b), reduced by the sum of the credits allowable under subpart A and section 27” for “shall not exceed the amount of the tax imposed by this chapter for the taxable year reduced by the sum of the credits allowable under a section of this subpart having a lower number or letter designation than this section, other than the credits allowable by section 31, 39, and 43. For purposes of the preceding sentence, the term ‘tax imposed by this chapter’ shall not include any tax treated as not imposed by this chapter under the last sentence of section 53(a)”. Subsec. (d)(4). Pub. L. 98–369, § 474(g)(1)(C), substituted “section 30(f)” for “section 44F(f)”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 Amendment Pub. L. 115–97, title I, § 13401(c), Dec. 22, 2017, 131 Stat. 2134, provided that: “The
Amendments
made by this section [amending this section and section 280C of this title] shall apply to taxable years beginning after December 31, 2017.”
Effective Date
of 2015 AmendmentAmendment by Pub. L. 114–113 applicable to amounts paid or incurred after Dec. 31, 2014, see section 121(d)(1) of Pub. L. 114–113, set out as a note under section 38 of this title.
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 applicable to amounts paid or incurred after Dec. 31, 2013, see section 111(c) of Pub. L. 113–295, set out as a note under section 41 of this title.
Effective Date
of 2013 AmendmentAmendment by Pub. L. 112–240 applicable to amounts paid or incurred after Dec. 31, 2011, see section 301(d)(1) of Pub. L. 112–240, set out as a note under section 41 of this title.
Effective Date
of 2010 AmendmentAmendment by Pub. L. 111–312 applicable to amounts paid or incurred after Dec. 31, 2009, see section 731(c) of Pub. L. 111–312, set out as a note under section 41 of this title.
Effective Date
of 2008 AmendmentAmendment by Pub. L. 110–343 applicable to amounts paid or incurred after Dec. 31, 2007, see section 301(e)(2) of Pub. L. 110–343, set out as a note under section 41 of this title.
Effective Date
of 2006 AmendmentAmendment by Pub. L. 109–432 applicable to amounts paid or incurred after Dec. 31, 2005, see section 104(a)(3) of Pub. L. 109–432, set out as a note under section 41 of this title.
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–311 applicable to amounts paid or incurred after June 30, 2004, see section 301(b) of Pub. L. 108–311, set out as a note under section 41 of this title.
Effective Date
of 1999 AmendmentAmendment by Pub. L. 106–170 applicable to amounts paid or incurred after June 30, 1999, see section 502(a)(3) of Pub. L. 106–170, set out as a note under section 41 of this title.
Effective Date
of 1998 AmendmentAmendment by Pub. L. 105–277 applicable to amounts paid or incurred after June 30, 1998, see section 1001(c) of Pub. L. 105–277, set out as a note under section 41 of this title.
Effective Date
of 1997 AmendmentAmendment by section 601(b)(2) of Pub. L. 105–34 applicable to amounts paid or incurred after
May 31, 1997, see section 601(c) of Pub. L. 105–34, set out as a note under section 41 of this title. Pub. L. 105–34, title VI, § 604(b), Aug. 5, 1997, 111 Stat. 863, provided that: “The amendment made by subsection (a) [amending this section] shall apply to amounts paid or incurred after
May 31, 1997.”
Effective Date
of 1996 AmendmentAmendment by section 1204(e) of Pub. L. 104–188 applicable to taxable years ending after
June 30, 1996, and not to be taken into account under section 6654 or 6655 of this title in determining amount of any installment required to be paid for a taxable year beginning in 1997, see section 1204(f) of Pub. L. 104–188, set out as a note under section 41 of this title. Amendment by section 1205(a)(1), (b), (d)(1), (2) of Pub. L. 104–188 applicable to amounts paid or incurred in taxable years ending after
June 30, 1996, see section 1205(e) of Pub. L. 104–188, set out as a note under section 45K of this title.
Effective Date
of 1993 Amendment Pub. L. 103–66, title XIII, § 13111(c), Aug. 10, 1993, 107 Stat. 421, provided that: “The
Amendments
made by this section [amending this section and section 41 of this title] shall apply to taxable years ending after June 30, 1992.”
Effective Date
of 1991 Amendment Pub. L. 102–227, title I, § 102(c), Dec. 11, 1991, 105 Stat. 1686, provided that: “The
Amendments
made by this section [amending this section and section 41 of this title] shall apply to taxable years ending after
December 31, 1991.” Pub. L. 102–227, title I, § 111(b), Dec. 11, 1991, 105 Stat. 1689, provided that: “The amendment made by this section [amending this section] shall apply to taxable years ending after
December 31, 1991.”
Effective Date
of 1990 Amendment Pub. L. 101–508, title XI, § 11402(c), Nov. 5, 1990, 104 Stat. 1388–473, provided that: “The
Amendments
made by this section [amending this section and section 41 of this title and repealing provisions set out as a note under section 41 of this title] shall apply to taxable years beginning after December 31, 1989.”
Effective Date
of 1988 AmendmentAmendment by section 1018(q)(1) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. Amendment by section 4008(c)(1) of Pub. L. 100–647 applicable to taxable years beginning after Dec. 31, 1988, see section 4008(d) of Pub. L. 100–647, set out as a note under section 41 of this title.
Effective Date
of 1986 AmendmentAmendment by section 231(d)(3)(A) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1985, see section 231(g) of Pub. L. 99–514, set out as a note under section 41 of this title. Amendment by section 701(c)(2) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 701(f) of Pub. L. 99–514, set out as an
Effective Date
note under section 55 of this title. Amendment by section 1275(c)(4) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as a note under section 931 of this title. Pub. L. 99–514, title XVIII, § 1879(b)(3), Oct. 22, 1986, 100 Stat. 2906, provided that: “The
Amendments
made by this subsection [amending this section] shall apply to amounts paid or incurred after December 31, 1982, in taxable years ending after such date.”
Effective Date
of 1984 AmendmentAmendment by section 474(g) of Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98–369, set out as a note under section 21 of this title. Amendment by section 612(e)(1) of Pub. L. 98–369, applicable to interest paid or accrued after
December 31, 1984, on indebtedness incurred after
December 31, 1984, see section 612(g) of Pub. L. 98–369, set out as an
Effective Date
note under section 25 of this title.
Effective Date
Pub. L. 97–414, § 4(d), Jan. 4, 1983, 96 Stat. 2056, provided that: “The
Amendments
made by this section [enacting this section and amending section 280C and 6096 of this title] shall apply to amounts paid or incurred after December 31, 1982, in taxable years ending after such date.”
Savings Provision
For provisions that nothing in amendment by section 401(d)(1)(D)(iii) of Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. Applicability of Certain
Amendments
by Public Law 99–514 in Relation to Treaty Obligations of United StatesFor applicability of amendment by section 701(c)(2) of Pub. L. 99–514 notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title. Plan
Amendments
Not Required Until January 1, 1989For provisions directing that if any
Amendments
made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 45C
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73