                           147 T.C. No. 18



                  UNITED STATES TAX COURT



          SILVER MEDICAL, INC., Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 2267-14.                          Filed December 19, 2016.



       P, a calendar year taxpayer, applied to have its investments in a
therapeutic discovery project certified under I.R.C. sec. 48D. On its
application P requested certification of investments made in its 2009
and 2010 tax years. While certification generally results in a tax
credit, P elected to receive cash grants in lieu of a credit. P received
certification. P then changed its 2010 tax year from a calendar year to
a short tax year ending November 30, 2010. P filed a second
application under I.R.C. sec. 48D requesting certification of
investments made in its fiscal year ending (FYE) November 30, 2011.
P’s second application did not result in certification.

       Held: P is not entitled to a grant related to investments made
after the 2010 calendar year because P was not certified to make
qualified investments after that year.

      Held, further, grant funds attributable to estimated qualified
investments that exceeded actual investments made during the 2010
calendar year must be recaptured as tax.
                                          -2-

           Held, further, P must recapture the excess grant funds for its
      FYE November 30, 2011, because that year includes the period in
      which the relevant grant was made.



      James H. Silver (an officer), for petitioner.

      Audra M. Dineen, for respondent.



      VASQUEZ, Judge: Respondent determined a deficiency in petitioner’s

Federal income tax of $41,032 for the fiscal year ending (FYE) November 30,

2011, and an accuracy-related penalty under section 6662(a) of $8,206.1 After a

concession,2 the issues for decision are: (1) whether petitioner must recapture as

tax $41,032 previously received as a grant and, if so, (2) whether recapture should

occur for petitioner’s FYE November 30, 2011.

                                 FINDINGS OF FACT

      Some of the facts have been stipulated and are so found. The stipulation of

facts and the attached exhibits are incorporated by this reference. Petitioner is a



      1
         All section references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure.
      2
           Respondent concedes that petitioner is not liable for the accuracy-related
penalty.
                                         -3-

corporation organized under Delaware law. At the time the petition was timely

filed, petitioner’s principal place of business was Palo Alto, California.

      Petitioner is a medical device company focused on developing a system for

more efficiently detecting cerebral ischemia (i.e., stroke) in patients undergoing

surgery. During all relevant times James H. Silver served as petitioner’s president.

Mr. Silver holds a doctorate in chemical engineering and has over 17 years of

experience in the medical device industry.

      Shortly after petitioner timely filed its 2009 return, the Patient Protection

and Affordable Care Act (ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010), was

enacted. ACA sec. 9023(a), 124 Stat. at 877, established a new section 48D in the

Internal Revenue Code allowing a taxpayer to claim a tax credit (or alternatively

apply for a cash grant in lieu of a credit) if the taxpayer made investments in a

“qualifying therapeutic discovery project” (QTDP). The credit or grant was

limited to 50% of qualified investments made in taxable years beginning in 2009

or 2010. Sec. 48D(a), (b)(5).
                                         -4-

         Pursuant to section 48D(d)(1)(A), the Secretary3 and the Internal Revenue

Service (IRS) jointly published Notice 2010-45, 2010-23 I.R.B. 734, establishing

the QTDP program and describing the process by which taxpayers could apply to

have a therapeutic discovery project certified as eligible for a credit or grant. The

IRS also released Form 8942, Application for Certification of Qualified

Investments Eligible for Credits and Grants Under the Qualifying Therapeutic

Discovery Project Program, which allowed taxpayers to apply for the credit or

grant.

         On the Form 8942, a taxpayer had to describe its therapeutic discovery

project and list its investment in the project for each year for which it was claiming

the credit or requesting a grant. The IRS (in consultation with the Department of

Health and Human Services) would review the application and decide whether to

certify the project and the claimed investments. Notice 2010-45, sec. 5, 2010-23

I.R.B. at 735-737. If the QTDP was certified, the taxpayer would be allowed a

credit or grant of 50% of its qualified investments. Sec. 48D(a) and (b). Because


         3
         The term “Secretary” means “the Secretary of the Treasury or his
delegate”, sec. 7701(a)(11)(B), and the term “or his delegate” means “any officer,
employee, or agency of the Treasury Department duly authorized by the Secretary
of the Treasury directly, or indirectly by one or more redelegations of authority, to
perform the function mentioned or described in the context”, sec.
7701(a)(12)(A)(i).
                                         -5-

section 48D was added to the Code in 2010 and applied only to tax years

beginning in 2009 and 2010, the taxpayer would have generally known the

amounts of its investments made in 2009 but would have had to estimate the

amounts of investments for 2010. If the taxpayer’s estimate exceeded the actual

investments made, the grant attributable to that excess amount had to be

recaptured as tax. Notice 2010-45, sec. 8.03(5), 2010-23 I.R.B. at 739 (citing

ACA sec. 9023(e)(5)(B)(i), 124 Stat. at 882).

      Petitioner timely submitted a Form 8942 requesting certification of qualified

investments for its two tax years beginning in 2009 and 2010. On its Form 8942,

where taxpayers are required to indicate the ending dates for the tax years for

which they are seeking certification, petitioner listed the dates for its calendar

years ending December 31, 2009 and 2010. Petitioner also listed what

investments were made in connection with the project during 2009 and estimated

what investments would be made in connection with the project for 2010.

      Respondent sent petitioner a Letter 4615 on October 29, 2010, approving

petitioner’s project, certifying $292,737 of qualified investments, and approving a

grant of $146,368.50. Petitioner’s certification letter states: “For calendar year

2009, a grant payment of $ 10,868.50 has been authorized to your Payment

Management System account on October 29, 2010. The remaining allocated
                                        -6-

amount of $ 135,500.00 will be authorized for payment no later than 30 days after

the end of your 2010 calendar year ending December 31, 2010.” The certification

letter also notified petitioner that the amount of the grant might be reduced

because the QTDP program was oversubscribed.

      On the same day the certification letter was issued, $10,868.50 in grant

money attributable to calendar year 2009 was deposited in petitioner’s account.4

Several months later, on January 28, 2011, the remaining $135,500 in grant money

attributable to calendar year 2010 was deposited in the same account.5

      Shortly after receiving the certification letter but before receiving the grant

money for 2010, petitioner submitted a Form 1128, Application To Adopt,

Change, or Retain a Tax Year, requesting a change for its 2010 tax year from a

calendar year to a short tax year ending November 30, 2010.6 Petitioner’s request




      4
        This represents 50% of the qualified investments petitioner made in the
2009 calendar year.
      5
       This represents 50% of the qualified investments that petitioner estimated
would be made in the 2010 calendar year.
      6
        At trial Mr. Silver argued that petitioner had changed its taxable year for
business reasons because no clinical trials occurred in December. However, no
documentary evidence was admitted that supports Mr. Silver’s testimony.
                                          -7-

was approved several months later.7 Because of the change in tax year, petitioner

now had three tax years beginning in either 2009 or 2010.8

      Presumably in an effort to conform its certification application with the

recently approved change in tax years, petitioner submitted another Form 8942

dated December 14, 2011, requesting certification for its FYE November 30, 2011.

The record shows that the IRS received the second Form 8942. However, the

record does not show that the estimated investments were certified or that the

Form 8942 was otherwise accepted or processed.

      Petitioner filed returns claiming it had incurred qualified investments during

the 2009 calendar year, the short tax year ending November 30, 2010, and its FYE

ending November 30, 2011. Because petitioner claimed it had qualified

investments exceeding actual investments made during these three periods,

petitioner recaptured $73,960 of the grant.9 However, the amount recaptured did


      7
        All of the funds attributable to the 2010 calendar year had already been
deposited in petitioner’s bank account by the time petitioner’s application to
change its tax year was approved.
      8
         Petitioner’s tax years beginning in 2009 or 2010 included: (1) the full
calendar year beginning January 1, 2009, and ending December 31, 2009; (2) the
short tax year beginning January 1, 2010, and ending November 30, 2010; and
(3) the fiscal year beginning December 1, 2010, and ending November 30, 2011.
      9
          Petitioner reported the recapture on its return for its FYE November 30,
                                                                         (continued...)
                                         -8-

not include any grant funds related to investments made during petitioner’s FYE

November 30, 2011.

        Respondent issued the notice of deficiency which disallowed the QTDP

grant related to investments made after December 31, 2010 (i.e., respondent

disallowed petitioner’s claimed grant for the period between January 1 and

November 30, 2011), and recaptured that amount of the grant as tax. This resulted

in a deficiency of $41,032.

                                      OPINION

I.      Qualified Investments

        As discussed earlier, section 48D allows taxpayers to claim a credit (or

receive a grant in lieu of a credit) equal to 50% of qualified investments the

taxpayer makes with respect to a QTDP of an eligible taxpayer. The parties agree

that at all relevant times petitioner was an eligible taxpayer and that petitioner’s

project was a QTDP. Where the parties disagree is whether all of petitioner’s

claimed investments made after the 2010 calendar year were “qualified

investments” within the meaning of section 48D(b). This is an issue of first

impression.


        9
            (...continued)
2011.
                                         -9-

      We begin by recognizing that statutes should be interpreted as a whole to

give effect to every clause, sentence, and word therein, see Market Co. v.

Hoffman, 101 U.S. 112, 115 (1879), and the duty of a court is to render that type

of interpretation whenever possible, United States v. Menasche, 348 U.S. 528,

538-539 (1955). Such an approach is a “cardinal principle of statutory

construction”. Williams v. Taylor, 529 U.S. 362, 404 (2000). Accordingly, we

apply the plain meaning of the words set forth in section 48D and ACA sec. 9023,

United States v. Am. Trucking Ass’ns, Inc., 310 U.S. 534, 543 (1940), and we do

so mindful of the statutes as a whole.

      The relevant paragraphs of section 48D(b) provide:

             (1) In general.--For purposes of subsection (a), the qualified
      investment for any taxable year is the aggregate amount of the costs
      paid or incurred in such taxable year for expenses necessary for and
      directly related to the conduct of a qualifying therapeutic discovery
      project.

      *           *          *           *          *          *             *

            (5) Application of subsection.--An investment shall be
      considered a qualified investment under this subsection only if such
      investment is made in a taxable year beginning in 2009 or 2010.

ACA sec. 9023(e)(4), 124 Stat. at 882, adds that “the term ‘qualified investment’

means a qualified investment that is certified under section 48D(d)”.
                                           - 10 -

      The parties disagree over whether petitioner’s investments made in 2011

were qualified investments. Petitioner’s argument focuses heavily on

paragraph (5), see supra p. 9, which provides that an investment is qualified so

long as it is made “in a taxable year beginning in 2009 or 2010.” Petitioner, taking

a plain meaning approach, believes that by changing its tax years so that three tax

years begin in 2009 and 2010, it should be allowed to make qualified investments

over the three years. Respondent counters that when section 48D is read as a

whole, it should be clear that Congress intended for taxpayers to be able to make

qualified investments only over a maximum of two years (i.e., 24 months).

Respondent further argues that petitioner can make qualified investments only in

the two calendar years ending in 2009 and 2010 because those were the tax years

for which petitioner’s project had received certification.

       We need not and will not address petitioner’s argument in resolving the

instant case. We focus on respondent’s alternative argument and recognize that

even if Congress did intend to allow taxpayers like petitioner to make qualified

investments over three tax years (an issue we decline to decide), petitioner did not

actually receive certification to do so.
                                        - 11 -

      Section 48D(d)(2)(A) gives the Secretary the authority to require taxpayers

to provide specific information in an application for certification.10 The Secretary

exercised this authority when he and the IRS jointly issued Notice 2010-45. See

Notice 2010-45, sec. 3, 2010-23 I.R.B. at 735. Notice 2010-45, sec. 6.02, 2010-23

I.R.B. at 737, states that applications for certification must be made on Form 8942.

On that form, taxpayers are required to specify the taxable years beginning in 2009

and/or 2010 for which they are seeking project certification and are requesting the

credit or grant. Only the 2009 and 2010 calendar years were specified on

petitioner’s Form 8942. Furthermore, the certification letter resulting from

petitioner’s application authorized grants only for the two calendar years.

Consequently, those were the only periods for which petitioner was certified to

incur qualified investments for QTDP grant purposes.

      While petitioner later filed an amended Form 8942, likely in an effort to

certify investments made in the fiscal year extending into 2011, petitioner was not

issued a second certification letter. Therefore, petitioner cannot report that it made

qualified investments after December 31, 2010, because certification to do so was


      10
        Sec. 48D(d)(2)(A) provides: “Each applicant for certification under this
paragraph shall submit an application containing such information as the Secretary
may require during the period beginning on the date the Secretary establishes the
program”.
                                        - 12 -

not received. See ACA sec. 9023(e)(4). Petitioner was entitled to make qualified

investments only in the 2009 and 2010 calendar years. To the extent petitioner’s

qualified investments attributable to those two years exceed actual investments

made, the grant funds petitioner received attributable to those excess qualified

investments must be recaptured as tax. See Notice 2010-45, sec. 8.03(5) (citing

ACA sec. 9023(e)(5)(B)(i)).

II.   Recapture

      Next, we must determine the year for which petitioner must recapture the

excess grant. Petitioner argues that recapture should occur for its short tax year

ending November 30, 2010.11 We disagree. For the reasons stated below, we find

that petitioner must recapture the excess grant for its FYE November 30, 2011.

      ACA sec. 9023(e)(5)(B)(i) provides:

      Recapture of excessive grant amounts.--If the amount of a grant made
      under this subsection exceeds the amount allowable as a grant under
      this subsection, such excess shall be recaptured under subparagraph
      (A) as if the investment to which such excess portion of the grant
      relates had ceased to be a qualified investment immediately after such
      grant was made. [Emphasis added.]

We read this provision as requiring recapture of a disallowed portion of a grant

immediately after the relevant grant was “made”. Petitioner argues that a single


      11
           Assessment in that year would be barred by the period of limitations.
                                         - 13 -

grant for all tax years was “made” on October 29, 2010, when petitioner received

the certification letter and that recapture should have therefore occurred

immediately after that date. We disagree. We believe that grants were “made” on

separate dates: October 29, 2010, for the tax year beginning in 2009 and January

28, 2011, for the tax year beginning in 2010.

      In determining that the grants were made on separate dates, we focus

primarily on the fact that the grant funds attributable to each year were paid on

separate dates. The terms of the QTDP program provide that grants for tax years

beginning in 2009 will generally be paid no later than October 29, 2010, and that

grants for tax years beginning in 2010 will generally be paid within 30 days of the

last day of the 2010 taxable year. See Notice 2010-45, sec. 8.02(6) and (7), 2010-

23 I.R.B. at 738. We believe that the payments for each tax year are sufficiently

distinct to warrant a finding that the underlying grants are separately “made” in

each year when paid.

      In arriving at this conclusion, we observe that the certification letter

approving the grant did not result in an unrestricted right to a fixed grant amount.

In fact, the certification letter notified petitioner that the amount of the grant award

was subject to change. It states: “Since this program was oversubscribed, your

grant may be less than 50% of the amount of qualified investment shown on your
                                       - 14 -

Form 8942.” Under these circumstances, we believe that a single grant for all

relevant years was not “made” with the issuance of the certification letter as

petitioner argues. Rather, the grant for each year was made when paid because it

was not until the grant was finally paid that the Secretary relinquished dominion

and control of a fixed amount of grant funds to petitioner.

      We find further support for our holding by looking at the authority guiding

the grantmaking process. Notice 2010-45, sec. 8.02(1), allowed taxpayers to

submit a single grant application that would cover tax years beginning in 2009 and

2010. See also id. sec. 5.02(3), 2010-23 I.R.B. at 736. The application was

required to be submitted by July 21, 2010; consequently, applications were

generally submitted before the end of most taxpayers’ 2010 tax years. See id. sec.

5.02(2). After an application was submitted, the Secretary was required to

approve or deny the application by October 31, 2010. See sec. 48D(d)(2)(B);

Notice 2010-45 sec. 5.02(3).12

      While most taxpayers’ applications were generally submitted before the

taxpayers’ 2010 yearend, Notice 2010-45, supra, stated that the grant applications

      12
          The application process was understandably crafted to give the Secretary
the ability to review most applications simultaneously because there was a
$1 billion limit of funds for the entire program that needed to be efficiently
allocated among all applicants. See sec. 48D(d)(1)(B); Notice 2010-45 sec.
5.02(1), 2010-23 I.R.B. 734, 736.
                                       - 15 -

as they related to 2010 did not become effective until after the 2010 yearend. See

Notice 2010-45, sec. 8.02(2) (stating that an election to apply for a grant on Form

8942 submitted before the 2010 tax yearend was not considered effective until

“the day after the last day of the taxpayer’s 2010 taxable year”).13 Thus,

petitioner’s grant application for its 2010 calendar year, although approved on

October 29, 2010, did not become effective until January 1, 2011 (the day after the

last day of petitioner’s 2010 taxable year). Under those circumstances, we

conclude that the grant application for that year was effective on January 1, 2011,

and that the grant for the 2010 calendar year was actually “made” when paid on

January 28, 2011.

      Now that we have determined that the grant attributable to the 2010

calendar year was made in January 2011, we must return to the recapture provision

in ACA sec. 9023(e)(5)(B)(i) and determine what amount must be recaptured. A

taxpayer is allowed a grant in an amount equal to 50% of the qualified investments

made during each tax year. Sec. 48D(a). To the extent petitioner received grant

funds related to qualified investments petitioner did not make, petitioner must


      13
         This conforms with the Patient Protection and Affordable Care Act, Pub.
L. No. 111-148, sec. 9023(e)(2)(B), 124 Stat. at 881, which provides that a
taxpayer applying for a grant for 2010 must do so after the last day for the 2010
tax year but not later than the due date for filing a return for that year.
                                       - 16 -

recapture those grant funds as tax. See ACA sec. 9023(e)(5)(A) and (B)(i), 124

Stat. at 882; Notice 2010-45, sec. 8.03(4) and (5), 2010-23 I.R.B. at 739.

      Petitioner received certification to make $271,000 in qualified investments

during the 2010 calendar year and received $135,500 in grant funds. Because

petitioner actually made only $41,016 in qualified investments during the 2010

calendar year, it was entitled to a grant of only $20,508. The excess grant which

must be recaptured is $114,992 ($135,500 grant received for 2010 less $20,508

allowable as a grant). Petitioner has already recaptured $73,960 of the grant.

Therefore, petitioner must recapture the remaining $41,032.

      The proper year for recapture is FYE November 30, 2011, because it

includes the date when the grant for the 2010 calendar year was made. See ACA

sec. 9023(e)(5)(B)(i) (requiring recapture of disallowed portion of grant

immediately after relevant grant was made).

      In reaching our holding, we have considered all arguments made, and to the

extent not mentioned, we consider them irrelevant, moot, or without merit.

      To reflect the foregoing,


                                                     Decision will be entered

                                                under Rule 155.
