To amend the Internal Revenue Code of 1986 to allow tax credits to holders of stem cell research bonds.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Stem Cell Research Investment Act of 
2005''.

SEC. 2. INCENTIVES FOR STEM CELL RESEARCH.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subchapter:

                ``Subchapter Z--Stem Cell Research Bonds

``Sec. 1400N. Credit to holders of qualified stem cell research bonds.

``SEC. 1400N. CREDIT TO HOLDERS OF QUALIFIED STEM CELL RESEARCH BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified stem cell research bond on a credit allowance date of such 
bond which occurs during the taxable year, there shall be allowed as a 
credit against the tax imposed by this chapter for such taxable year an 
amount equal to the sum of the credits determined under subsection (b) 
with respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a qualified stem cell research bond is 25 percent of the 
        annual credit determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified stem cell research bond is the product 
        of--
                    ``(A) the applicable credit rate, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Applicable credit rate.--For purposes of paragraph 
        (1), the applicable credit rate with respect to an issue is the 
        rate equal to an average market yield (as of the day before the 
        date of issuance of the issue) on outstanding long-term 
        corporate debt obligations (determined under regulations 
        prescribed by the Secretary).
            ``(4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowed under part IV 
                of subchapter A (other than subpart C thereof, relating 
                to refundable credits).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Qualified Stem Cell Research Bond; Credit Allowance Date.--
For purposes of this section--
            ``(1) Qualified stem cell research bond.--The term 
        `qualified stem cell research bond' means any bond issued as 
        part of an issue if--
                    ``(A) 95 percent or more of the proceeds of such 
                issue are to be used for interdisciplinary scientific 
                and medical research relating to stem cells, therapy 
                development relating to stem cells, and development of 
                pharmacologies and treatments through clinical trials 
                relating to stem cells,
                    ``(B) the bond is issued by a State or local 
                government,
                    ``(C) the issuer designates such bond for purposes 
                of this section, and
                    ``(D) the term of each bond which is part of such 
                issue does not exceed 30 years.
            ``(2) Stem cell.--
                    ``(A) In general.--The term `stem cell' means a 
                cell with the ability to divide for indefinite periods 
                in culture and give rise to specialized cells.
                    ``(B) Limitation.--Human embryonic stem cells shall 
                be eligible for use in any research supported by a bond 
                issued under this section if the cells meet each of the 
                following:
                            ``(i) The stem cells were derived from 
                        human embryos that were donated from in vitro 
                        fertilization clinics, were created solely for 
                        the purposes of fertility treatment, and were 
                        in excess of the clinical need of the 
                        individuals seeking such treatment.
                            ``(ii) Prior to the consideration of embryo 
                        donation and through consultation with the 
                        individuals seeking fertility treatment, it was 
                        determined that the embryos would never be 
                        implanted in a woman and would otherwise be 
                        discarded.
                            ``(iii) The individuals seeking fertility 
                        treatment donated the embryos with written 
                        informed consent that the embryos would be used 
                        for research purposes.
                            ``(iv) Neither the individuals for whom the 
                        embryo was created nor any other person or 
                        entity which participated in the fertility 
                        treatment through which the embryo was created 
                        received, directly or indirectly, any monetary 
                        incentive or other compensation with respect to 
                        the donation of the embryo.
            ``(3) Report on researcher activities.--A bond shall not be 
        treated as a qualified stem cell research bond unless the issue 
        of which such bond is a part carries a requirement under which 
        any person who receives proceeds from such issue for a purpose 
        described in paragraph (1)(A) is obligated to submit to the 
        issuer an annual report--
                    ``(A) describing the activities carried out (in 
                whole or in part) with such proceeds during the 
                preceding calendar year, and
                    ``(B) including a description of whether and to 
                what extent research for a purpose described in 
                paragraph (1)(A) has been conducted in accordance with 
                the requirements imposed by the issuer of such bond.
            ``(4) Credit allowance date.--The term `credit allowance 
        date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(5) Bond.--The term `bond' includes any obligation.
            ``(6) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
    ``(e) Limitation on Amount of Bonds Designated.--
            ``(1) In general.--The maximum aggregate face amount of 
        bonds issued during any calendar year which may be designated 
        under subsection (a) by any issuer shall not exceed the 
        limitation amount allocated under paragraph (2) for such 
        calendar year to such issuer.
            ``(2) Limitation on amount allocated to an issuer.--Not 
        more than 20 percent of the national qualified stem cell 
        research bond limitation for a calendar year may be allocated 
        to an issuer for the calendar year. For the purposes of the 
        preceding sentence, a local government within a State shall be 
        treated as the State.
            ``(3) National limitation on amount of bonds designated.--
        There is a national qualified stem cell research bond 
        limitation for each calendar year. Such limitation is--
                    ``(A) $10,000,000,000 for each of the calendar 
                years 2006, 2007, and 2008, and
                    ``(B) except as provided in subsection (f), zero 
                after 2008.
            ``(4) Carryover of unused limitation.--If for any calendar 
        year--
                    ``(A) the aggregate amount allocated under 
                paragraph (2), exceeds
                    ``(B) the amount of bonds issued during such year 
                which are designated under subsection (a) pursuant to 
                such allocation,
        the limitation amount under paragraph (3) for the following 
        calendar year shall be increased by the amount of such excess.
    ``(f) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(g) Recapture of Portion of Credit Where Cessation of 
Compliance.--
            ``(1) In general.--If any bond which when issued purported 
        to be a qualified stem cell research bond ceases to be a 
        qualified stem cell research bond, the issuer shall pay to the 
        United States (at the time required by the Secretary) an amount 
        equal to the sum of--
                    ``(A) the aggregate of the credits allowable under 
                this section with respect to such bond (determined 
                without regard to subsection (c)) for taxable years 
                ending during the calendar year in which such cessation 
                occurs and the 2 preceding calendar years, and
                    ``(B) interest at the underpayment rate under 
                section 6621 on the amount determined under 
                subparagraph (A) for each calendar year for the period 
                beginning on the first day of such calendar year.
            ``(2) Failure to pay.--If the issuer fails to timely pay 
        the amount required by paragraph (1) with respect to such bond, 
        the tax imposed by this chapter on each holder of any such bond 
        which is part of such issue shall be increased (for the taxable 
        year of the holder in which such cessation occurs) by the 
        aggregate decrease in the credits allowed under this section to 
        such holder for taxable years beginning in such 3 calendar 
        years which would have resulted solely from denying any credit 
        under this section with respect to such issue for such taxable 
        years.
            ``(3) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (2) 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 paragraph (2) shall not be treated as a tax 
                imposed by this chapter for purposes of determining--
                            ``(i) the amount of any credit allowable 
                        under this part, or
                            ``(ii) the amount of the tax imposed by 
                        section 55.
    ``(h) Bonds Held by Regulated Investment Companies.--If any 
qualified stem cell research bond is held by a regulated investment 
company, the credit determined under subsection (a) shall be allowed to 
shareholders of such company under procedures prescribed by the 
Secretary.
    ``(i) Credits May Be Stripped.--Under regulations prescribed by the 
Secretary--
            ``(1) In general.--There may be a separation (including at 
        issuance) of the ownership of a qualified stem cell research 
        bond and the entitlement to the credit under this section with 
        respect to such bond. In case of any such separation, the 
        credit under this section shall be allowed to the person who on 
        the credit allowance date holds the instrument evidencing the 
        entitlement to the credit and not to the holder of the bond.
            ``(2) Certain rules to apply.--In the case of a separation 
        described in paragraph (1), the rules of section 1286 shall 
        apply to the qualified stem cell research bond as if it were a 
        stripped bond and to the credit under this section as if it 
        were a stripped coupon.
    ``(j) Treatment for Estimated Tax Purposes.--Solely for purposes of 
sections 6654 and 6655, the credit allowed by this section to a 
taxpayer by reason of holding a qualified stem cell research bond on a 
credit allowance date shall be treated as if it were a payment of 
estimated tax made by the taxpayer on such date.
    ``(k) Credit May Be Transferred.--Nothing in any law or rule of law 
shall be construed to limit the transferability of the credit allowed 
by this section through sale and repurchase agreements.
    ``(l) Reporting.--
            ``(1) Initial report.--Issuers of qualified stem cell 
        research bonds shall submit reports similar to the reports 
        required under section 149(e).
            ``(2) Annual reports.--In addition to the report required 
        by paragraph (1), issuers of qualified stem cell research bonds 
        shall submit a report not later than March 31 of each year to 
        the Secretary. Each such report shall include a description 
        of--
                    ``(A) the activities carried out (in whole or in 
                part) with the proceeds of such bonds during the 
                preceding calendar year, and
                    ``(B) whether and to what extent research for a 
                purpose described in subsection (d)(1)(A) has been 
                conducted in accordance with the requirements imposed 
                by the issuer of such bond.
    ``(m) Termination.--This section shall not apply to any bond issued 
after September 30, 2008.''.
    (b) Reporting.--Subsection (d) of section 6049 of such Code 
(relating to returns regarding payments of interest) is amended by 
adding at the end the following new paragraph:
            ``(8) Reporting of credit on qualified stem cell research 
        bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 1400N(f) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 1400N(d)(3)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
    (c) Conforming Amendment.--The table of subchapters for chapter 1 
of such Code is amended by adding at the end the following new item:

              ``subchapter z. stem cell research bonds''.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2005.

Summary: Stem Cell Research Investment Act of 2005 - Amends the Internal Revenue Code to allow a tax credit for investment in qualified stem cell research bonds. Defines qualified stem cell research bond as any bond issued by a State or local government, 95 percent of the proceeds of which are to be used for interdisciplinary scientific and medical research relating to stem cells, therapy development relating to stem cells, and development of pharmacologies and treatments through clinical trials relating to stem cells. Imposes certain limitations on the use of stem cells that are supported by a bond issuance under this Act. Sets a national limitation in 2006 through 2008 of $10 billion on the issuance of stem cell research bonds. Terminates the authority to issue such bonds after FY 2008.