II 

109TH CONGRESS 

2D SESSION S. 2199 

To amend the Internal Revenue Code of 1986 to provide tax incentives 

to promote research and development, innovation, and continuing education. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 26, 2006 

Mr. DOMENICI (for himself, Mr. BINGAMAN, Mr. ALEXANDER, Ms. MIKULSKI, 

Mr. LUGAR, Mr. DODD, Mr. WARNER, Mr. OBAMA, Mr. BOND, Mr. 

LIEBERMAN, Mr. BURNS, Mrs. MURRAY, Mr. CRAIG, Mr. BAYH, Mrs. 

HUTCHISON, Ms. CANTWELL, Mr. DEWINE, Mr. MENENDEZ, Mr. THOMAS, Mr. KOHL, Mr. SMITH, Mr. KERRY, Mr. VOINOVICH, Mr. NELSON

of Florida, Mr. ALLEN, Mr. LEAHY, Mr. TALENT, Mr. AKAKA, Mr. 

CHAMBLISS, Mrs. CLINTON, Mr. CORNYN, Ms. STABENOW, Mr. COLEMAN, Mr. DAYTON, Mr. MARTINEZ, Mr. SALAZAR, Mr. INOUYE, Mr. STEVENS, Mr. BIDEN, Mr. COCHRAN, Mr. HAGEL, Ms. MURKOWSKI, Mr. 

PRYOR, Ms. COLLINS, Mr. VITTER, and Ms. LANDRIEU) 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 

tax incentives to promote research and development, innovation, and continuing education. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 
2 

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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Protecting America’s 

3 Competitive Edge Through Tax Incentives Act of 2006’’ 

4 or the ‘‘PACE–Finance Act’’. 

5 SEC. 2. EXPANSION OF CREDIT FOR RESEARCH AND DE6 VELOPMENT. 

7 (a) CREDIT MADE PERMANENT.— 

8 (1) IN GENERAL.—Section 41 of the Internal 

9 Revenue Code of 1986 (relating to credit for increas10 ing research activities) is amended by striking sub11 section (h). 

12 (2) CONFORMING AMENDMENT.—Paragraph (1) 

13 of section 45C(b) of such Code is amended by strik14 ing subparagraph (D). 

15 (3) EFFECTIVE DATE.—The amendments made 

16 by this subsection shall apply to amounts paid or in17 curred after the date of the enactment of this Act, 

18 in taxable years ending after such date. 

19 (b) CREDIT RATE DOUBLED.—Paragraphs (1) and 

20 (2) of section 41(a) of the Internal Revenue Code of 1986 

21 are each amended by striking ‘‘20 percent’’ and inserting 

22 ‘‘40 percent’’. 

23 (c) NEW REGULATIONS AND GUIDELINES AUTHOR24 IZED.—The Secretary of the Treasury shall issue such 

25 regulations or guidelines as are necessary— 
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1 (1) to provide uniform conduct of tax audits re2 lating to the credit under section 41 of the Internal 

3 Revenue Code of 1986, and 

4 (2) to reflect the changing impact of technology 

5 on the character of research and development, such 

6 as use of databases provided by external parties and 

7 the conduct of research and development through 

8 joint ventures. 

9 (d) EXPANSION OF CREDIT TO EXPENSES OF GEN10 ERAL COLLABORATIVE RESEARCH CONSORTIA.—Section 

11 41 of the Internal Revenue Code of 1986 is amended— 

12 (1) by striking ‘‘an energy research consor13 tium’’ in subsections (a)(3) and (b)(3)(C)(i) and in14 serting ‘‘a research consortium’’, 

15 (2) by striking ‘‘energy’’ each place it appears 

16 in subsection (f)(6)(A), 

17 (3) by inserting ‘‘or 501(c)(6)’’ after ‘‘section 

18 501(c)(3)’’ in subsection (f)(6)(A)(i)(I), and 

19 (4) by striking ‘‘ENERGY RESEARCH’’ in the 

20 heading for subsection (f)(6)(A) and inserting ‘‘RE21 SEARCH’’. 

22 (e) STUDY OF FURTHER EXPANSION OF CREDIT.— 

23 Not later than 180 days after the date of the enactment 

24 of this Act, the Secretary of the Treasury shall study and 

25 make recommendations in a report to the President, the 
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1 Committee on Finance of the Senate, and the Committee 

2 on Ways and Means of the House of Representatives on 

3 the following possible methods of expanding the scope of 

4 the credit under section 41 of the Internal Revenue Code 

5 of 1986: 

6 (1) Modification of the credit to remove the in7 cremental approach of measuring creditable research 

8 and development expenditures for taxpayers with 

9 significant and consistent annual research and devel10 opment expenditures. 

11 (2) Expansion of qualifying research and devel12 opment expenditures to include— 

13 (A) certain employee benefit costs related 

14 to qualifying wages, 

15 (B) 100 percent of contract research costs, 

16 (C) all expenditures which would qualify 

17 for treatment under section 174 of such Code, 

18 (D) any other costs determined appro19 priate by the Secretary. 

20 (3) Reduction or elimination of limitation of 

21 credit under section 280C(c) of such Code. 

22 (f) EFFECTIVE DATE.—Except as otherwise pro23 vided, the amendments made by this section shall apply 

24 to taxable years beginning after December 31, 2005. 
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1 SEC. 3. UNITED STATES-BASED INNOVATION INCENTIVES 

2 STUDY. 

3 (a) STUDY.—The Secretary of the Treasury, in con4 sultation with the Director of the Office of Management 

5 and Budget, shall conduct an analysis of the United States 

6 tax system and its effect on this country as a location for 

7 innovation investment and related activities. The analysis 

8 shall include a comparison of the tax policies of other na9 tions relating to long-term innovation investment and an 

10 examination of various features of the United States tax 

11 system, including— 

12 (1) the treatment of capital gains, including the 

13 appropriate rate for very long-term investments or 

14 the appropriate allowance for loss write-offs, 

15 (2) the overall corporate tax rate, and 

16 (3) incentives for high-tech manufacturing and 

17 research equipment through tax credits and acceler18 ated depreciation. 

19 (b) REPORT.—Not later than 180 days after the date 

20 of the enactment of this Act, the Secretary of the Treasury 

21 shall report on the study and analysis described in sub22 section (a) to the President, the Committee on Finance 

23 of the Senate, and the Committee on Ways and Means 

24 of the House of Representatives. 
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1 SEC. 4. EMPLOYEE CONTINUING EDUCATION TAX CREDIT. 

2 (a) IN GENERAL.—Subpart D of part IV of sub3 chapter A of chapter 1 of the Internal Revenue Code of 

4 1986 (relating to business related credits) is amended by 

5 adding at the end the following new section: 

6 ‘‘SEC. 45N. EMPLOYEE CONTINUING EDUCATION CREDIT. 

7 ‘‘(a) AMOUNT OF CREDIT.— 

8 ‘‘(1) IN GENERAL.—For purposes of section 38, 

9 the employee continuing education credit determined 

10 under this section with respect to any employer for 

11 any taxable year is the applicable percentage of 

12 qualified continuing education costs paid or incurred 

13 by the employer during the calendar year ending 

14 with or within such taxable year. 

15 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

16 of this section, the applicable percentage is the per17 centage determined by the Secretary such that the 

18 amount of the credit allowable under this section for 

19 any calendar year does not exceed $500,000,000. 

20 ‘‘(b) QUALIFIED CONTINUING EDUCATION COSTS.— 

21 For purposes of this section, the term ‘qualified con22 tinuing education costs’ means costs paid or incurred by 

23 an employer for education to maintain or improve knowl24 edge or skills in science or engineering of an employee 

25 whose employment requires knowledge or skills in science 

26 or engineering. 
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1 ‘‘(c) REGULATIONS.—The Secretary may prescribe 

2 such regulations as may be necessary or appropriate to 

3 carry out the purposes of this section, including regula4 tions establishing standards for educational courses and 

5 programs to which this section applies.’’. 

6 (b) CREDIT MADE PART OF GENERAL BUSINESS

7 CREDIT.—Section 38(b) of the Internal Revenue Code of 

8 1986 is amended by striking ‘‘and’’ at the end of para9 graph (25), by striking the period at the end of paragraph 

10 (26) and inserting ‘‘, and’’, and by adding at the end the 

11 following new paragraph: 

12 ‘‘(27) the employee continuing education credit 

13 determined under section 45N(a).’’. 

14 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C of 

15 the Internal Revenue Code of 1986 is amended by adding 

16 at the end the following new subsection: 

17 ‘‘(e) EMPLOYEE CONTINUING EDUCATION CREDIT.— 

18 No deduction shall be allowed for that portion of the ex19 penses otherwise allowable as a deduction for the taxable 

20 year which is equal to the amount of the credit determined 

21 under section 45N(a).’’. 

22 (d) CLERICAL AMENDMENT.—The table of sections 

23 for subpart D of part IV of subchapter A of chapter 1 

24 of the Internal Revenue Code of 1986 is amended by add25 ing at the end the following new item: 

‘‘Sec. 45N. Employee continuing education credit.’’. 
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1 (e) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to costs paid or incurred in taxable 

3 years beginning after December 31, 2005. 

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