To permit biomedical research corporations to engage in certain financings and other transactions without incurring limitations on net operating loss carryforwards and certain built-in losses, and for other purposes.

Summary: Biotechnology Future Investment Expansion Act of 2005 - Amends the Internal Revenue Code to permit certain biomedical research corporations to engage in investments and other transactions involving shifts in ownership without incurring limitations on net operating loss carryforwards and certain built-in losses.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Biotechnology Future Investment 
Expansion Act of 2005''.

SEC. 2. RESTORING THE BENEFIT OF TAX INCENTIVES FOR BIOMEDICAL RESEARCH 
              AND CLINICAL TRIALS.

    (a) In General.--Subsection (l) of section 382 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(9) Certain financing transactions of biomedical research 
        corporations.--
                    ``(A) General rule.--In the case of a biomedical 
                research corporation, any owner shift involving a 5-
                percent shareholder which occurs as the result of a 
                qualified investment or qualified transaction during 
                the testing period shall be treated for purposes of 
                this section (other than this paragraph) as occurring 
                before the testing period.
                    ``(B) Biomedical research corporation.--For 
                purposes of this paragraph, the term `biomedical 
                research corporation' means, with respect to any 
                qualified investment, any domestic corporation subject 
                to tax under this subchapter which is not in bankruptcy 
                and which, as of the time of the closing on such 
                investment--
                            ``(i) holds the rights to a drug or 
                        biologic for which an investigational new drug 
                        application is in effect under section 505 of 
                        the Federal Food, Drug, and Cosmetic Act, and
                            ``(ii) certifies that, as of the time of 
                        such closing, the drug or biologic is, or in 
                        the 3 month period before and after such 
                        closing has been, under study pursuant to an 
                        investigational use exemption under section 
                        505(i) of the Federal Food, Drug, and Cosmetic 
                        Act.
                    ``(C) Qualified investment.--For purposes of this 
                paragraph, the term `qualified investment' means any 
                acquisition of stock by a shareholder (who after such 
                acquisition is a less than 50 percent shareholder) in a 
                biomedical research corporation if such stock is 
                acquired at its original issue (directly or through an 
                underwriter) solely in exchange for cash.
                    ``(D) Qualified transaction.--For purposes of this 
                paragraph, the term `qualified transaction' means any 
                acquisition of stock in a biomedical research 
                corporation if such stock is acquired as part of a 
                merger or acquisition by another biomedical research 
                corporation that is a loss corporation. If the 
                acquiring loss corporation is a member of a controlled 
                group of corporations under section 1563(a), the group 
                must be a loss group.
                    ``(E) Stock issued in exchange for convertible 
                debt.--For purposes of this paragraph, stock issued by 
                a biomedical research corporation in exchange for its 
                convertible debt (or stock deemed under this section to 
                be so issued) shall be treated as stock acquired by the 
                debt holder at its original issue and solely in 
                exchange for cash if the debt holder previously 
                acquired the convertible debt at its original issue and 
                solely in exchange for cash. In the case of an 
                acquisition of stock in exchange for convertible debt, 
                the requirements of this paragraph shall be applied 
                separately as of the time of closing on the investment 
                in convertible debt, and as of the time of actual 
                conversion (or deemed conversion under this section) of 
                the convertible debt for stock.
                    ``(F) Biomedical research corporation must meet 3-
                year expenditure and continuity of business tests with 
                respect to any qualified investment.--
                            ``(i) In general.--This paragraph shall not 
                        apply to a qualified investment or transaction 
                        in a biomedical research corporation unless 
                        such corporation meets the expenditure test for 
                        each year of the measuring period and the 
                        continuity of business test.
                            ``(ii) Measuring period.--For purposes of 
                        this subparagraph, the term `measuring period' 
                        means, with respect to any qualified investment 
                        or transaction, the taxable year of the 
                        biomedical research corporation in which the 
                        closing on the investment occurs, and the 2 
                        preceding taxable years.
                            ``(iii) Expenditure test.--A biomedical 
                        research corporation meets the expenditure test 
                        of this subparagraph for a taxable year if at 
                        least 35 percent of its expenditures for the 
                        taxable year (including, for purposes of this 
                        clause, payments in redemption of its stock) 
                        are expenditures described in section 41(b) or 
                        clinical and preclinical expenditures.
                            ``(iv) Continuity of business test.--A 
                        biomedical research corporation meets the 
                        continuity of business test if, at all times 
                        during the 2-year period following a qualified 
                        investment or transaction, such corporation 
                        continues the business enterprise of such 
                        corporation.
                    ``(G) Effect of corporate redemptions on qualified 
                investments.--Rules similar to the rules of section 
                1202(c)(3) shall apply to qualified investments under 
                this paragraph except that `stock acquired in a 
                qualified investment' shall be substituted for 
                `qualified small business stock' each place it appears 
                therein.
                    ``(H) Effect of other transactions between 
                biomedical research corporations and investors making 
                qualified investments.--
                            ``(i) In general.--If, during the 2-year 
                        period beginning 1 year before any qualified 
                        investment, the biomedical research corporation 
                        engages in another transaction with a member of 
                        its qualified investment group and such 
                        biomedical research corporation receives any 
                        consideration other than cash in such 
                        transaction, there shall be a presumption that 
                        stock received in the otherwise qualified 
                        investment transaction was not received solely 
                        in exchange for cash.
                            ``(ii) Qualified investment group.--For 
                        purposes of this subparagraph, the term 
                        `qualified investment group' means, with 
                        respect to any qualified investment, one or 
                        more persons who receive stock issued in 
                        exchange for the qualified investment, and any 
                        person related to such persons within the 
                        meaning of section 267(b) or section 707(b).
                            ``(iii) Regulations.--The Secretary shall 
                        promulgate regulations exempting from this 
                        subparagraph transactions which are customary 
                        in the bioscience research industry and are of 
                        minor value relative to the amount of the 
                        qualified investment.
                    ``(I) Regulations.--The Secretary may issue such 
                regulations as may be appropriate to achieve the 
                purposes of this paragraph, to prevent abuse, and to 
                provide for treatment of biomedical research 
                corporations under sections 383 and 384 that is 
                consistent with the purposes of this paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of enactment of this Act.