I 

113TH CONGRESS 

1ST SESSION H. R. 3428 

To amend the Internal Revenue Code of 1986 to allow an increased credit 

for development and to extend and simplify the credit for increasing research. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 30, 2013 

Mr. MCKINLEY (for himself and Mr. ENYART) 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 allow an 

increased credit for development and to extend and simplify the credit for increasing research. 

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

3 SECTION 1. CREDIT FOR INCREASING DEVELOPMENT AC4 TIVITIES. 

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of 

7 1986 is amended by inserting after section 41 the fol8 lowing new section: 


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1 ‘‘SEC. 41A. CREDIT FOR INCREASING DEVELOPMENT AC2 TIVITIES. 

3 ‘‘(a) IN GENERAL.—For purposes of section 38, at 

4 the election of the taxpayer, the development credit deter5 mined under this section for the taxable year shall be an 

6 amount equal to 30 percent of so much of the qualified 

7 development expenses for the taxable year as exceeds 50 

8 percent of the average qualified development expenses for 

9 the 3 taxable years preceding the taxable year for which 

10 the credit is being determined. 

11 ‘‘(b) QUALIFIED DEVELOPMENT EXPENSES.—For 

12 purposes of this section— 

13 ‘‘(1) IN GENERAL.—The term ‘qualified devel14 opment expenses’ means the sum of the following 

15 amounts which are paid or incurred during the tax16 able year in carrying on any trade or business of the 

17 taxpayer: 

18 ‘‘(A) Any in-house development expenses. 

19 ‘‘(B) Any contract development expenses. 

20 ‘‘(2) IN-HOUSE DEVELOPMENT EXPENSES; CON21 TRACT DEVELOPMENT EXPENSES.—The terms ‘in22 house development expenses’ and ‘contract develop23 ment expenses’ shall have the respective meaning 

24 given such terms in paragraphs (2) and (3) of sec25 tion 41(b), except such paragraphs shall be applied 


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1 by substituting ‘qualified development’ for ‘qualified 

2 research’. 

3 ‘‘(c) QUALIFIED DEVELOPMENT.—The term ‘quali4 fied development’ means the systematic application of 

5 knowledge or understanding directed toward the produc6 tion of useful material, devices, and systems or methods, 

7 including design, development, and improvement of proto8 types and new processes to meet specific requirements. 

9 For purposes of the preceding sentence the rules of sub10 paragraphs (A), (B), and (C) of section 41(d)(1) shall 

11 apply with respect to any development taken into account 

12 under this section. 

13 ‘‘(d) SPECIAL RULE IN CASE OF NO QUALIFIED DE14 VELOPMENT EXPENSES IN ANY OF 3 PRECEDING

15 YEARS.— 

16 ‘‘(1) TAXPAYERS TO WHICH THIS SUBPARA17 GRAPH APPLIES.—The credit under this section shall 

18 be determined under this subsection if the taxpayer 

19 has no qualified development expenses in any one of 

20 the 3 taxable years preceding the taxable year for 

21 which the credit is being determined. 

22 ‘‘(2) CREDIT RATE.—The credit determined 

23 under this subparagraph shall be equal to 12 per24 cent of the qualified development expenses for the 

25 taxable year. 


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1 ‘‘(e) ELECTION.—An election under this section shall 

2 apply to the taxable year for which made and all suc3 ceeding taxable years unless revoked with the consent of 

4 the Secretary. 

5 ‘‘(f) OTHER SPECIAL RULES.—Rules similar to the 

6 rules of subsections (d)(4), (f), and (g) of section 41 shall 

7 apply for purposes of this section. 

8 ‘‘(g) TERMINATION.—This section shall not apply to 

9 taxable years beginning after December 31, 2018.’’. 

10 (b) COORDINATION WITH SECTION 41.—Subsection 

11 (b) of section 41 of such Code is amended by adding at 

12 the end the following new paragraph: 

13 ‘‘(5) COORDINATION WITH SECTION 41A.—In 

14 the case of any taxable year for which an election is 

15 in effect under section 41A, for purposes of deter16 mining the amount of qualified research expenses for 

17 such taxable year and the fixed-base percentage with 

18 respect to such taxable year, qualified research ex19 penses shall not include any qualified development 

20 expenses (as defined in subsection (b) of such sec21 tion).’’. 

22 (c) COORDINATION WITH DEDUCTIONS.—Section 

23 280C is amended by adding at the end the following new 

24 subsection: 


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1 ‘‘(j) CREDIT FOR INCREASING DEVELOPMENT AC2 TIVITIES.— 

3 ‘‘(1) IN GENERAL.—No deduction shall be al4 lowed for that portion of the qualified development 

5 expenses (as defined in section 41A(b)) otherwise al6 lowable as a deduction for the taxable year which is 

7 equal to the amount of the credit determined for 

8 such taxable year under section 41A(a). 

9 ‘‘(2) SIMILAR RULE WHERE TAXPAYER CAP10 ITALIZES RATHER THAN DEDUCTS EXPENSES.—If— 

11 ‘‘(A) the amount of the credit determined 

12 for the taxable year under section 41A(a), ex13 ceeds 

14 ‘‘(B) the amount allowable as a deduction 

15 for such taxable year for qualified development 

16 expenses (determined without regard to para17 graph (1)), 

18 the amount chargeable to capital account for the 

19 taxable year for such expenses shall be reduced by 

20 the amount of such excess. 

21 ‘‘(3) ELECTION OF REDUCED CREDIT.— 

22 ‘‘(A) IN GENERAL.—In the case of any 

23 taxable year for which an election is made 

24 under this paragraph— 


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1 ‘‘(i) paragraphs (1) and (2) shall not 

2 apply, and 

3 ‘‘(ii) the amount of the credit under 

4 section 41A(a) shall be the amount deter5 mined under subparagraph (B). 

6 ‘‘(B) AMOUNT OF REDUCED CREDIT.—The 

7 amount of credit determined under this sub8 paragraph for any taxable year shall be the 

9 amount equal to the excess of— 

10 ‘‘(i) the amount of credit determined 

11 under section 41A(a) without regard to 

12 this paragraph, over 

13 ‘‘(ii) the product of— 

14 ‘‘(I) the amount described in 

15 clause (i), and 

16 ‘‘(II) the maximum rate of tax 

17 under section 11(b)(1). 

18 ‘‘(C) ELECTION.—An election under this 

19 paragraph for any taxable year shall be made 

20 not later than the time for filing the return of 

21 tax for such year (including extensions), shall 

22 be made on such return, and shall be made in 

23 such manner as the Secretary may prescribe. 

24 Such an election, once made, shall be irrev25 ocable. 


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1 ‘‘(4) CONTROLLED GROUPS.—Paragraph (3) of 

2 subsection (b) shall apply for purposes of this sub3 section.’’. 

4 (d) PART OF GENERAL BUSINESS CREDIT.—Sub5 section (b) of section 38 of such Code is amended by strik6 ing ‘‘plus’’ at the end of paragraph (35), by striking the 

7 period at the end of paragraph (36) and inserting ‘‘, plus’’, 

8 and by adding at the end the following new paragraph: 

9 ‘‘(37) the development credit determined under 

10 section 41A.’’. 

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2013. 

14 SEC. 2. INCREASE IN ALTERNATIVE SIMPLIFIED CREDIT 

15 FOR RESEARCH. 

16 (a) IN GENERAL.—Subparagraph (A) of section 

17 41(c)(5) of the Internal Revenue Code of 1986 is amended 

18 by striking ‘‘14 percent (12 percent in the case of taxable 

19 years ending before January 1, 2009)’’ and inserting ‘‘20 

20 percent’’. 

21 (b) SPECIAL RULE IN CASE OF NO QUALIFIED RE22 SEARCH EXPENSES IN ANY OF 3 PRECEDING TAXABLE

23 YEARS.—Clause (ii) of section 41(c)(5)(B) of such Code 

24 is amended by striking ‘‘6 percent’’ and inserting ‘‘8 per25 cent’’. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2013. 

4 SEC. 3. EXTENSION OF CREDIT FOR INCREASING RE5 SEARCH ACTIVITIES. 

6 (a) IN GENERAL.—Subparagraph (B) of section 

7 41(h)(1) of the Internal Revenue Code of 1986 is amended 

8 by striking ‘‘December 31, 2013’’ and inserting ‘‘Decem9 ber 31, 2018’’. 

10 (b) EFFECTIVE DATE.—The amendment made by 

11 this section shall apply to amounts paid or incurred after 

12 December 31, 2013. 

Æ 


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