Is it possible for a no-sales clinical/pre-clinical/prototype stage biotechnology company to have any activity carried on "for the production of income from....?"

IRS says:

"The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services. It is not limited to integrated aggregates of assets, activities, and goodwill that comprise businesses for purposes of certain other provisions of the Internal Revenue Code. Activities of producing or distributing goods or performing services from which gross income is derived do not lose their identity as trades or businesses merely because they are carried on within a larger framework of other activities that may, or may not, be related to the organization's exempt purposes."

  • 2
    Does the company bill anything to anyone?
    – Trish
    Commented Jul 26, 2022 at 14:06
  • @Trish It is very common for biotech companies to never sell anything. They have one drug, burn through VC money through the development, testing and licensing stages and then, if successful, get bought out by a big pharma who do the production, marketing and distribution.
    – User65535
    Commented Jul 26, 2022 at 16:27
  • @User65535 that's basically an outsourced R&D department.
    – Trish
    Commented Jul 26, 2022 at 16:44

1 Answer 1


Is it possible for a no-sales clinical or pre-clinical stage or prototype stage biotech. company to meet the IRS definition of "trade or business?"


Any economic activity carried on with the hope that it will eventually give rise to a profit is a trade or business, subject to a limitation associated with the "hobby loss rule" which ordinarily wouldn't be applicable to such a company. Economic activity includes getting investment resources and spending money in furtherance of the long term profit goal.

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