II 

115TH CONGRESS 

1ST SESSION S. 2197 

To amend the Internal Revenue Code of 1986 to reform the credit for 

increasing research activities, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 6, 2017 

Ms. BALDWIN 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 reform 

the credit for increasing research activities, and for other 

purposes. 

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

3 SECTION 1. INCREASE OF ALTERNATIVE SIMPLIFIED CRED4 IT. 

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

6 41(c)(5) of the Internal Revenue Code of 1986 is amended 

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

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

9 percent’’. 


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1 (b) CONFORMING AMENDMENT.—Clause (ii) of sec2 tion 41(c)(5)(B) of the Internal Revenue Code of 1986 

3 is amended by striking ‘‘6 percent’’ and inserting ‘‘10 per4 cent’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2017. 

8 SEC. 2. ALLOCATION OF RESEARCH EXPENSES AMONG 

9 BUSINESS COMPONENTS. 

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

11 41(d)(2) of the Internal Revenue Code of 1986 is amended 

12 by inserting ‘‘, and may be applied using a method that 

13 relies on reasonable estimation techniques in lieu of con14 temporaneous accounting to measure employee hours per 

15 business component’’ before the period. 

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

17 this section shall apply to taxable years beginning after 

18 December 31, 2017. 

19 SEC. 3. INCLUSION OF QUALIFIED UPPER-LEVEL EMPLOY20 EES IN RESEARCH EXPENSE CALCULATION. 

21 (a) IN GENERAL.—Clause (ii) of section 41(b)(2)(B) 

22 of the Internal Revenue Code of 1986 is amended by in23 serting ‘‘, without regard to the employee’s position or 

24 management level’’ before the period. 


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

2 this section shall apply to taxable years beginning after 

3 December 31, 2017. 

4 SEC. 4. REPEAL OF EXCLUSION OF ADAPTIVE RESEARCH. 

5 (a) IN GENERAL.—Paragraph (4) of section 41(d) of 

6 the Internal Revenue Code of 1986 is amended by striking 

7 subparagraph (B) and by redesignating subparagraphs 

8 (C), (D), (E), (F), (G), and (H) as subparagraphs (B), 

9 (C), (D), (E), (F), and (G), respectively. 

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

11 this section shall apply to taxable years beginning after 

12 December 31, 2017. 

13 SEC. 5. INCLUSION OF COST REDUCTION RESEARCH. 

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

15 41(d)(3) of the Internal Revenue Code of 1986 is amend16 ed— 

17 (1) by striking ‘‘or’’ at the end of clause (ii); 

18 (2) by striking the period at the end of clause 

19 (iii) and inserting ‘‘, or’’; and 

20 (3) by adding at the end the following new 

21 clause: 

22 ‘‘(iv) reduction of costs associated 

23 with— 

24 ‘‘(I) a business component of the 

25 taxpayer, or 


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1 ‘‘(II) research relating to a pur2 pose described in clause (i), (ii), or 

3 (iii).’’. 

4 (b) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2017. 

7 SEC. 6. INCLUSION OF OBSOLESCENCE MITIGATION. 

8 (a) IN GENERAL.—Clause (iv) of section 41(d)(3)(A) 

9 of the Internal Revenue Code of 1986, as added by section 

10 5, is amended by inserting ‘‘or obsolescence mitigation’’ 

11 after ‘‘reduction of costs’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2017. 

15 SEC. 7. ELECTION OF REDUCED CREDIT MAY BE MADE ON 

16 AMENDED RETURN. 

17 (a) IN GENERAL.—Subparagraph (C) of section 

18 280C(c)(3) of the Internal Revenue Code of 1986 is 

19 amended to read as follows: 

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

21 paragraph shall made in such manner as the 

22 Secretary may prescribe and, once made with 

23 respect to a taxable year, shall be irrevocable. 

24 Such election may be made on the return of tax 


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1 for the taxable year to which it applies or on an 

2 amended return.’’. 

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

4 this section shall apply to amended returns which are per5 mitted to be filed under the applicable provisions of the 

6 Internal Revenue Code of 1986 after the date of the enact7 ment of this Act. 

8 SEC. 8. INVESTMENT IN CONNECTED MANUFACTURING 

9 EQUIPMENT. 

10 (a) IN GENERAL.—Subpart D of part IV of sub11 chapter A of chapter 1 of the Internal Revenue Code of 

12 1986 is amended by adding at the end the following new 

13 section: 

14 ‘‘SEC. 45S. CONNECTED MANUFACTURING EQUIPMENT. 

15 ‘‘(a) AMOUNT OF CREDIT.—For purposes of section 

16 38, the connected manufacturing equipment credit for any 

17 taxable year is an amount equal to 10 percent of the quali18 fied connected manufacturing equipment expenditures 

19 made by the taxpayer during such year. 

20 ‘‘(b) QUALIFIED CONNECTED MANUFACTURING

21 EQUIPMENT EXPENDITURES.— 

22 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

23 for purposes of this section, the term ‘qualified con24 nected manufacturing equipment expenditures’ 


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1 means an expenditure relating to the purchase or in2 stallation of— 

3 ‘‘(A) industrial equipment components 

4 which contain a microprocessor and can be con5 nected to an electronic communication network, 

6 and 

7 ‘‘(B) any software, routing, or local area 

8 network components necessary to connect com9 ponents described in subparagraph (A) to an 

10 electronic communication network. 

11 ‘‘(2) ELIGIBILITY.—The Secretary, in consulta12 tion with the Secretary of Commerce, shall identify 

13 the types of components described in paragraph (1) 

14 which are eligible for the credit under this section. 

15 ‘‘(c) BASIS ADJUSTMENT.—For purposes of this sub16 title, if a credit is allowed under this section for any ex17 penditure with respect to any property, the increase in the 

18 basis of such property which would (but for this sub19 section) result from such expenditure shall be reduced by 

20 the amount of the credit so allowed.’’. 

21 (b) CONFORMING AMENDMENTS.— 

22 (1) Section 38(b) of the Internal Revenue Code 

23 of 1986 is amended— 

24 (A) by striking ‘‘plus’’ at the end of para25 graph (35); 


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1 (B) by striking the period at the end of 

2 paragraph (36) and inserting ‘‘, plus’’; and 

3 (C) by adding at the end the following new 

4 paragraph: 

5 ‘‘(37) the connected manufacturing equipment 

6 credit determined under section 45S(a).’’. 

7 (2) The table of sections for subpart D of part 

8 IV of subchapter A of chapter 1 of such Code is 

9 amended by adding at the end the following new 

10 item: 

‘‘Sec. 45S. Connected manufacturing equipment credit.’’. 

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2018. 

Æ 


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