[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2720 Introduced in Senate (IS)]
109th CONGRESS
2d Session
S. 2720
To amend the Internal Revenue Code of 1986 to provide incentives to
improve America's research competitiveness, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 4, 2006
Mr. Baucus introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide incentives to
improve America's research competitiveness, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Research Competitiveness Act of
2006''.
SEC. 2. SIMPLIFICATION OF RESEARCH AND DEVELOPMENT CREDIT.
(a) Simplified Credit for Qualified Research Expenses.--
(1) In general.--Subsection (a) of section 41 of the
Internal Revenue Code of 1986 (relating to credit for
increasing research activities) is amended to read as follows:
``(a) Determination of Credit.--
``(1) In general.--For purposes of section 38, the research
credit determined under this section for the taxable year shall
be equal to 20 percent of so much of the qualified research
expenses for such taxable year as exceeds 50 percent of the
average qualified research expenses for the 3 taxable years
preceding the taxable year for which the credit is being
determined.
``(2) Special rule in case of no qualified research
expenses in any of 3 preceding taxable years.--
``(A) Taxpayers to which paragraph applies.--The
credit under this section shall be determined under
this paragraph if the taxpayer has no qualified
research expenses in at least 1 of the 3 taxable years
preceding the taxable year for which the credit is
being determined.
``(B) Credit rate.--The credit determined under
this paragraph shall be equal to 10 percent of the
qualified research expenses for the taxable year.''.
(2) Conforming amendment.--Section 41 of such Code is
amended by striking subsection (c).
(b) Uniform Reimbursement Rates for All Contract Research Expenses
Other Than Amounts Paid for Basic Research.--
(1) In general.--Section 41(b)(3) of the Internal Revenue
Code of 1986 (relating to contract research expenses) is
amended--
(A) by striking ``65 percent'' and inserting ``80
percent'', and
(B) by striking subparagraphs (C) and (D).
(2) Basic research payments.--Section 41(b) of such Code is
amended by redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new paragraph:
``(4) Basic research payments.--
``(A) In general.--In the case of basic research
payments by the taxpayer, paragraph (3)(A) shall be
applied by substituting `100 percent' for `80 percent'.
``(B) Basic research payments defined.--For
purposes of this paragraph--
``(i) In general.--The term `basic research
payment' means, with respect to any taxable
year, any amount paid in cash during such
taxable year by a corporation to any qualified
organization for basic research but only if--
``(I) such payment is pursuant to a
written agreement between such
corporation and such qualified
organization, and
``(II) such basic research is to be
performed by such qualified
organization.
``(ii) Exception to requirement that
research be performed by the organization.--In
the case of a qualified organization described
in clause (iii) or (iv) of subparagraph (C),
subclause (II) of clause (i) shall not apply.
``(C) Qualified organization.--For purposes of this
paragraph, the term `qualified organization' means any
of the following organizations:
``(i) Educational institutions.--Any
educational organization which--
``(I) is an institution of higher
education (within the meaning of
section 3304(f)), and
``(II) is described in section
170(b)(1)(A)(ii).
``(ii) Certain scientific research
organizations.--Any organization not described
in clause (i) which--
``(I) is described in section
501(c)(3) and is exempt from tax under
section 501(a),
``(II) is organized and operated
primarily to conduct scientific
research, and
``(III) is not a private
foundation.
``(iii) Scientific tax-exempt
organizations.--Any organization which--
``(I) is described in section
501(c)(3) (other than a private
foundation) or section 501(c)(6),
``(II) is exempt from tax under
section 501(a),
``(III) is organized and operated
primarily to promote scientific
research by qualified organizations
described in clause (i) pursuant to
written research agreements, and
``(IV) currently expends
substantially all of its funds or
substantially all of the basic research
payments received by it for grants to,
or contracts for basic research with,
an organization described in clause
(i).
``(iv) Certain grant organizations.--Any
organization not described in clause (ii) or
(iii) which--
``(I) is described in section
501(c)(3) and is exempt from tax under
section 501(a) (other than a private
foundation),
``(II) is established and
maintained by an organization
established before July 10, 1981, which
meets the requirements of subclause
(I),
``(III) is organized and operated
exclusively for the purpose of making
grants to organizations described in
clause (i) pursuant to written research
agreements for purposes of basic
research, and
``(IV) makes an election, revocable
only with the consent of the Secretary,
to be treated as a private foundation
for purposes of this title (other than
section 4940, relating to excise tax
based on investment income).
``(D) Definitions and special rules.--For purposes
of this paragraph--
``(i) Basic research.--The term `basic
research' means any original investigation for
the advancement of scientific knowledge not
having a specific commercial objective, except
that such term shall not include--
``(I) basic research conducted
outside of the United States, and
``(II) basic research in the social
sciences, arts, or humanities.
``(ii) Trade or business qualification.--
For purposes of applying paragraph (1) to this
paragraph, any basic research payments shall be
treated as an amount paid in carrying on a
trade or business of the taxpayer in the
taxable year in which it is paid (without
regard to the provisions of paragraph (3)(B)).
``(iii) Certain corporations not
eligible.--The term `corporation' shall not
include--
``(I) an S corporation,
``(II) a personal holding company
(as defined in section 542), or
``(III) a service organization (as
defined in section 414(m)(3)).''.
(3) Conforming amendments.--
(A) Section 41 of such Code is amended by striking
subsection (e).
(B) Section 41(f) of such Code is amended by
striking paragraph (6).
(c) Permanent Extension of Credit.--
(1) In general.--Section 41 of the Internal Revenue Code of
1986 is amended by striking subsection (h).
(2) Conforming amendment.--Paragraph (1) of section 45C(b)
of such Code is amended by striking subparagraph (D).
(d) Conforming Amendments.--
(1) Section 41 of the Internal Revenue Code of 1986 is
amended by redesignating subsections (d), (f), and (g) as
subsections (c), (d), and (e), respectively.
(2) Paragraphs (2)(A) and (5) (as redesignated by
subsection (b)(2)) of section 41(b) of such Code are each
amended by striking ``subsection (f)(1)'' and inserting
``subsection (d)(1)''.
(3) Sections 45C(d)(3), 45G(e)(2), and
936(h)(5)(C)(i)(IV)(c) of such Code are each amended by
striking ``section 41(f)'' and inserting ``section 41(d)''.
(4) Section 54(l)(3)(A) of such Code is amended by striking
``section 41(g)'' and inserting ``section 41(e)''.
(5) Section 170(e)(4)(B)(i) of such Code is amended by
striking ``subparagraph (A) or subparagraph (B) of section
41(e)(6)'' and inserting ``clause (i) or (ii) of section
41(b)(4)(C)''.
(6) Sections 197(f)(1)(C), 197(f)(9)(C)(i)(II), and
280C(b)(3) of such Code are each amended by striking ``section
41(f)(1)'' and inserting ``section 41(d)(1)''.
(7) Section 280C(b)(3) of such Code is amended by striking
``section 41(f)(5)'' and inserting ``section 41(d)(5)''.
(8) Section 280C(b)(3) of such Code is amended by striking
``section 41(f)(1)(B)'' and inserting ``section 41(d)(1)(B)''.
(9) Section 280C(c)(1) of such Code is amended by striking
``section 41(e)(2)'' and inserting ``section 41(b)(4)(B)''.
(10) Section 280C(c)(2)(A) of such Code is amended by
striking ``section 41(a)(1)'' and inserting ``section 41(a)''.
(11) Sections 936(j)(5)(D) and 965(c)(2)(C)(i) of such Code
are each amended by striking ``section 41(f)(3)'' and inserting
``section 41(d)(3)''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2007.
SEC. 3. TAX CREDIT FOR INVESTMENTS IN SMALL TECHNOLOGY INNOVATION
COMPANIES.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 is amended by adding at the end
the following new section:
``SEC. 45N. RESEARCH INVESTMENT TAX CREDIT.
``(a) Allowance of Credit.--
``(1) In general.--For purposes of section 38, in the case
of a taxpayer who holds a qualified equity investment on a
credit allowance date of such investment which occurs during
the taxable year, the research investment tax credit determined
under this section for such taxable year is an amount equal to
the 5 percent of the amount paid to the qualified research
entity for such investment at its original issue.
``(2) Credit allowance date.--For purposes of paragraph
(1), the term `credit allowance date' means, with respect to
any qualified equity investment--
``(A) the date on which such investment is
initially made, and
``(B) each of the 4 anniversary dates of such date
thereafter.
``(b) Qualified Equity Investment.--For purposes of this section--
``(1) In general.--The term `qualified equity investment'
means any equity investment in a qualified research entity if--
``(A) such investment is acquired by the taxpayer
at its original issue (directly or through an
underwriter) solely in exchange for cash,
``(B) substantially all of such cash is used by the
qualified research entity to make qualified research
investments, and
``(C) such investment is designated for purposes of
this section by the qualified research entity.
Such term shall not include any equity investment issued by a
qualified research entity more than 5 years after the date that
such entity receives an allocation under subsection (e). Any
allocation not used within such 5-year period may be
reallocated by the Secretary under subsection (e).
``(2) Limitation.--The maximum amount of equity investments
issued by a qualified research entity which may be designated
under paragraph (1)(C) by such entity shall not exceed the
portion of the limitation amount allocated under subsection (f)
to such entity.
``(3) Safe harbor for determining use of cash.--The
requirement of paragraph (1)(B) shall be treated as met if at
least 85 percent of the aggregate gross assets of the qualified
research entity are invested in qualified research investments.
``(4) Treatment of subsequent purchasers.--The term
`qualified research investment' includes any equity investment
which would (but for paragraph (1)(A)) be a qualified equity
investment in the hands of the taxpayer if such investment was
a qualified equity investment in the hands of a prior holder.
``(5) Redemptions.--A rule similar to the rule of section
1202(c)(3) shall apply for purposes of this subsection.
``(6) Equity investment.--The term `equity investment'
means--
``(A) any stock (other than nonqualified preferred
stock as defined in section 351(g)(2)) in an entity
which is a corporation, and
``(B) any capital interest in an entity which is a
partnership.
``(c) Qualified Research Entity.--For purposes of this section, the
term `qualified research entity' means any domestic corporation or
partnership if--
``(1) the primary mission of the entity is serving, or
providing investment capital for, qualifying small business
innovation companies,
``(2) the entity maintains accountability to engineers,
scientists, and other research-related professionals through
their representation on any governing board of the entity or on
any advisory board to the entity, and
``(3) the entity is certified by the Secretary for purposes
of this section as being a qualified research entity.
``(d) Qualified Research Investments.--For purposes of this
section--
``(1) In general.--The term `qualified research investment'
means--
``(A) any capital or equity investment in, or loan
to, any qualifying small business innovation company,
which when added to any other such investment in or
loan to such company taken into account for purposes of
this section for any taxable year does not exceed
$10,000,000, and
``(B) the purchase from another qualified research
entity of any loan made by such entity which is a
qualified research investment.
``(2) Qualifying small business innovation company.--
``(A) In general.--For purposes of paragraph (1),
the term `qualifying small business innovation company'
means, with respect to any taxable year, any
corporation (including a nonprofit corporation) or
partnership if for such year--
``(i) the gross receipts of such entity do
not exceed $10,000,000,
``(ii) the aggregate gross assets of such
entity do not exceed $25,000,000, and
``(iii) at least 50 percent of the gross
expenditures of such entity would qualify as
research or experimental expenditures under
section 174.
All persons treated as a single employer under
subsection (a) or (b) of section 52 or subsection (m)
or (o) of section 414 shall be treated as one person
for purposes of this subparagraph.
``(B) Aggregate gross assets.--For purposes of
subparagraph (A)(ii), the term `aggregate gross assets'
shall have meaning given such term by section
1202(d)(2), except such term shall not include
intangibles and goodwill.
``(e) National Limitation on Amount of Investments Designated.--
``(1) In general.--There is a research investment tax
credit limitation for each calendar year. Such limitation is--
``(A) $500,000,000 for 2007,
``(B) $750,000,000 for 2008 and 2009, and
``(C) $1,000,000,000 for 2010 and 2011.
``(2) Allocation of limitation.--The limitation under
paragraph (1) shall be allocated by the Secretary among
qualified research entities selected by the Secretary, with not
more than $25,000,000 allocated to any 1 qualified research
entity in any calendar year. In making allocations under the
preceding sentence, the Secretary shall give priority to any
entity--
``(A) with a record of having successfully provided
capital or technical assistance to qualifying small
business innovation companies, or
``(B) which intends to satisfy the requirement
under subsection (b)(1)(B) by making qualified research
investments in 1 or more companies in which persons
unrelated to such entity (within the meaning of section
267(b) or 707(b)(1)) hold the majority equity interest,
and
if more than 1 qualified research entity meets subparagraph (A)
or (B), the Secretary shall give priority to the entity with
the earliest investment. If insufficient allocations are
available for all qualified applicants in any calendar year,
the priorities established for such applicants without
allocations shall be carried over to the succeeding calendar
year.
``(3) Carryover of unused limitation.--If the research
investment tax credit limitation for any calendar year exceeds
the aggregate amount allocated under paragraph (2) for such
year, such limitation for the succeeding calendar year shall be
increased by the amount of such excess. No amount may be
carried under the preceding sentence to any calendar year after
2018.
``(f) Recapture of Credit in Certain Cases.--
``(1) In general.--If, at any time during the 7-year period
beginning on the date of the original issue of a qualified
equity investment in a qualified research entity, there is a
recapture event with respect to such investment, then the tax
imposed by this chapter for the taxable year in which such
event occurs shall be increased by the credit recapture amount.
``(2) Credit recapture amount.--For purposes of paragraph
(1), the credit recapture amount is an amount equal to the sum
of--
``(A) the aggregate decrease in the credits allowed
to the taxpayer under section 38 for all prior taxable
years which would have resulted if no credit had been
determined under this section with respect to such
investment, plus
``(B) interest at the underpayment rate established
under section 6621 on the amount determined under
subparagraph (A) for each prior taxable year for the
period beginning on the due date for filing the return
for the prior taxable year involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
``(3) Recapture event.--For purposes of paragraph (1),
there is a recapture event with respect to an equity investment
in a qualified research entity if--
``(A) such entity ceases to be a qualified research
entity,
``(B) the proceeds of the investment cease to be
used as required of subsection (b)(1)(B), or
``(C) such investment is redeemed by such entity.
``(4) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable
year shall be increased under paragraph (1) only with
respect to credits allowed by reason of this section
which were used to reduce tax liability. In the case of
credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
``(B) No credits against tax.--Any increase in tax
under this subsection shall not be treated as a tax
imposed by this chapter for purposes of determining the
amount of any credit under this chapter or for purposes
of section 55.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to carry out this section, including
regulations--
``(1) which prevent the abuse of the purposes of this
section,
``(2) which provide rules for determining whether the
requirement of subsection (b)(1)(B) is treated as met,
``(3) which impose appropriate reporting requirements, and
``(4) which apply the provisions of this section to newly
formed entities.''.
(b) Credit Treated as Business Credit.--Section 38(b) of the
Internal Revenue Code of 1986 (relating to current year business
credit) is amended by striking ``and'' at the end of paragraph (29), by
striking the period at the end of paragraph (30) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(31) the credit determined under section 45N(a).''.
(c) Conforming Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 of the Internal Revenue Code of
1986 is amended by adding at the end the following new item:
``Sec. 45N. Research investment tax credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to investments made after December 31, 2006.
SEC. 4. TAX-EXEMPT FINANCING OF RESEARCH PARK FACILITIES.
(a) In General.--Subsection (a) of section 142 is amended--
(1) by striking ``or'' at the end of paragraph (14),
(2) by striking the period at the end of paragraph (15) and
inserting ``, or'', and
(3) by inserting at the end the following new paragraph:
``(16) research park facility.''.
(b) Definition.--Section 142 is amended by inserting at the end the
following new subsection:
``(n) Research Park Facility.--For purposes of subsection (a)(15),
the term `research park facility' means a facility (including
buildings, land, or other structures) which is used in connection with
research and experimentation (as defined in section 168(i)(11)). For
purposes of the preceding sentence, such term includes facilities which
are directly related and ancillary to a research park facility
(determined without regard to this sentence) if--
``(1) such facilities are located on the same site as the
research park facility, and
``(2) not more than 25 percent of the net proceeds of the
issue are used to provide such facilities.''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to bonds issued on or after the date of the
enactment of this Act.
SEC. 5. CLARIFICATION OF APPLICATION OF PRIVATE ACTIVITY BOND RULES
WITH RESPECT TO FUNDING OF FEDERAL RESEARCH AGREEMENTS.
Not later than June 30, 2007, the Secretary of the Treasury shall
prescribe guidance identifying the circumstances, if any, in which the
rights of the Federal Government granted under chapter 18 of title 35,
United States Code (commonly known as the Bayh-Dole Act (Pub. Law No.
96-517)) constitute private business use under the private activity
bond rules in section 141 of the Internal Revenue Code of 1986.
<all>