I 

116TH CONGRESS 

2D SESSION H. R. 7537 

To amend the Internal Revenue Code of 1986 to provide an exception from 

the passive loss rules for investments in specified medical research small 

business pass-thru entities. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 9, 2020 

Mr. KELLY of Pennsylvania introduced the following bill; which was referred 

to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

an exception from the passive loss rules for investments 

in specified medical research small business pass-thru 

entities. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Infectious Disease 

5 Therapies Research and Innovation Act of 2020’’. 


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1 SEC. 2. EXCEPTION FROM PASSIVE LOSS RULES FOR IN2 VESTMENTS IN SPECIFIED MEDICAL RE3 SEARCH SMALL BUSINESS PASS-THRU ENTI4 TIES. 

5 (a) IN GENERAL.—Subsection (c) of section 469 of 

6 the Internal Revenue Code of 1986 is amended by redesig7 nating paragraphs (4) through (7) as paragraphs (5) 

8 through (8), respectively, and by inserting after paragraph 

9 (3) the following new paragraph: 

10 ‘‘(4) SPECIFIED MEDICAL RESEARCH ACTIVI11 TIES.— 

12 ‘‘(A) IN GENERAL.—The term ‘passive ac13 tivity’ shall not include any qualified medical re14 search activity of the taxpayer carried on by a 

15 specified medical research small business pass16 thru entity. 

17 ‘‘(B) TREATMENT OF LOSSES AND DEDUC18 TIONS.— 

19 ‘‘(i) IN GENERAL.—Losses or deduc20 tions of a taxpayer in connection with 

21 qualified medical research activities carried 

22 on by a specified medical research small 

23 business pass-thru entity shall not be 

24 treated as losses or deductions, respec25 tively, from a passive activity except as 


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1 provided in clause (ii) and subparagraph 

2 (C). 

3 ‘‘(ii) LIMITATION.—Clause (i) shall 

4 apply to losses and deductions of a tax5 payer in connection with a specified med6 ical small business pass-thru entity for a 

7 taxable year only to the extent that the ag8 gregate losses and deductions of the tax9 payer in connection with qualified medical 

10 research activities of such entity for such 

11 taxable year do not exceed the portion of 

12 the taxpayer’s adjusted basis in the tax13 payer’s ownership interest in such entity 

14 that is attributable to money or other 

15 property contributed— 

16 ‘‘(I) in exchange for such owner17 ship interest, and 

18 ‘‘(II) specifically for use in con19 nection with qualified medical re20 search activities. 

21 For purposes of the preceding sentence, 

22 the taxpayer’s basis shall not include any 

23 portion of such basis which is attributable 

24 to an increase in a partner’s share of the 

25 liabilities of a partnership that is considVerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537

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1 ered under section 752(a) as a contribution 

2 of money. 

3 ‘‘(C) TREATMENT OF CARRYOVERS.—Sub4 paragraph (B)(i) shall not apply to the portion 

5 of any loss or deduction that is carried over 

6 under subsection (b) into a taxable year other 

7 than the taxable year in which such loss or de8 duction arose. 

9 ‘‘(D) QUALIFIED MEDICAL RESEARCH AC10 TIVITY.—For purposes of this paragraph, the 

11 term ‘qualified medical research activity’ means 

12 any qualified research (within the meaning of 

13 section 41(d)) with respect to qualified counter14 measures (as defined in section 319F–1(a)(2) 

15 of the Public Health Service Act (42 U.S.C. 

16 247d–6a(a)(2))). 

17 ‘‘(E) SPECIFIED MEDICAL RESEARCH

18 SMALL BUSINESS PASS-THRU ENTITY.—For 

19 purposes of this paragraph, the term ‘specified 

20 medical research small business pass-thru enti21 ty’ means any domestic pass-thru entity for any 

22 taxable year if— 

23 ‘‘(i) more than 80 percent of such en24 tity’s expenditures on qualified research for 

25 such taxable year are paid or incurred in 


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1 connection with qualified medical research 

2 activities, and 

3 ‘‘(ii) the gross receipts (as determined 

4 under the rules of section 41(h)(3)) of 

5 such entity for the taxable year (and each 

6 preceding taxable year) is less than 

7 $1,000,000. 

8 ‘‘(F) CAPITAL EXPENDITURES TAKEN INTO

9 ACCOUNT FOR EXPENDITURES TEST.—An ex10 penditure shall not fail to be taken into account 

11 under subparagraph (E)(i) merely because such 

12 expenditure is chargeable to capital account. 

13 ‘‘(G) PASS-THRU ENTITY.—For purposes 

14 of this paragraph, the term ‘pass-thru entity’ 

15 means any partnership, S corporation, or other 

16 entity identified by the Secretary as a pass-thru 

17 entity for purposes of this paragraph. 

18 ‘‘(H) AGGREGATION RULES.— 

19 ‘‘(i) IN GENERAL.—All persons treat20 ed as a single employer under subsection 

21 (a) or (b) of section 52, or subsection (m) 

22 or (o) of section 414, shall be treated as a 

23 single entity for purposes of subparagraphs 

24 (E) and (F)(iii). 


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1 ‘‘(ii) LIMITATION WHERE ENTITY

2 WOULD NOT QUALIFY.—No entity shall be 

3 treated as a specified medical research 

4 small business pass-thru entity unless such 

5 entity qualifies as such both with and with6 out the application of clause (i).’’. 

7 (b) MATERIAL PARTICIPATION NOT REQUIRED.— 

8 Paragraph (5) of section 469(c) of the Internal Revenue 

9 Code of 1986, as redesignated by subsection (a), is amend10 ed by striking ‘‘and (3)’’ in the heading and text and in11 serting ‘‘, (3), and (4)’’. 

12 (c) CERTAIN RESEARCH-RELATED DEDUCTIONS AND

13 CREDITS OF SPECIFIED MEDICAL RESEARCH SMALL

14 BUSINESS PASS-THRU ENTITIES ALLOWED FOR PUR15 POSES OF DETERMINING ALTERNATIVE MINIMUM TAX.— 

16 (1) DEDUCTION FOR RESEARCH AND EXPERI17 MENTAL EXPENDITURES.—Paragraph (2) of section 

18 56(b) of the Internal Revenue Code of 1986 is 

19 amended by adding at the end the following new 

20 subparagraph: 

21 ‘‘(E) EXCEPTION FOR SPECIFIED MEDICAL

22 RESEARCH SMALL BUSINESS PASS-THRU ENTI23 TIES.—In the case of a specified medical re24 search small business pass-thru entity (as de25 fined in section 469(c)(4)), this paragraph shall 


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1 not apply to any amount allowable as a deduc2 tion under section 174(a).’’. 

3 (2) ALLOWANCE OF CERTAIN RESEARCH-RE4 LATED CREDITS.—Subparagraph (B) of section 

5 38(c)(4) of such Code is amended by redesignating 

6 clauses (ii) through (ix) as clauses (iii) through (x), 

7 respectively, and by inserting after clause (i) the fol8 lowing new clause: 

9 ‘‘(ii) the credit of an individual tax10 payer determined under section 41 to the 

11 extent attributable to a specified medical 

12 research small business pass-thru entity 

13 (as defined in section 469(c)(4)),’’. 

14 (d) EXCEPTION TO LIMITATION ON PASS-THRU OF

15 RESEARCH CREDIT.—Subsection (g) of section 41 of such 

16 Code is amended by adding at the end the following: 

17 ‘‘Paragraphs (2) and (4) shall not apply with respect to 

18 any specified medical research small business pass-thru 

19 entity (as defined in section 469(c)(4)).’’. 

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to losses and credits arising in tax22 able years beginning after December 31, 2020. 

Æ 


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