II 

112TH CONGRESS 

2D SESSION S. 3460 

To amend the Internal Revenue Code of 1986 to provide for startup businesses to use a portion of the research and development credit to offset 

payroll taxes. 

IN THE SENATE OF THE UNITED STATES 

JULY 31, 2012 

Mr. COONS (for himself, Mr. ENZI, Mr. SCHUMER, and Mr. RUBIO) 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 

for startup businesses to use a portion of the research 

and development credit to offset payroll taxes. 

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 ‘‘Startup Innovation 

5 Credit Act of 2012’’. 

6 SEC. 2. TREATMENT OF RESEARCH CREDIT FOR CERTAIN 

7 STARTUP COMPANIES. 

8 (a) IN GENERAL.— 


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

2 Revenue Code of 1986 is amended by adding at the 

3 end the following new subsection: 

4 ‘‘(i) TREATMENT OF CREDIT TO QUALIFIED SMALL

5 BUSINESSES.— 

6 ‘‘(1) IN GENERAL.—At the election of a quali7 fied small business, the payroll tax credit portion of 

8 the credit determined under subsection (a) shall be 

9 treated as a credit allowed under section 3111(f) 

10 (and not under this section). 

11 ‘‘(2) PAYROLL TAX CREDIT PORTION.—For 

12 purposes of this subsection, the payroll tax credit 

13 portion of the credit determined under subsection 

14 (a) for any taxable year is so much of such credit 

15 as does not exceed $250,000. 

16 ‘‘(3) QUALIFIED SMALL BUSINESS.—For pur17 poses of this subsection— 

18 ‘‘(A) IN GENERAL.—The term ‘qualified 

19 small business’ means, with respect to any tax20 able year— 

21 ‘‘(i) a corporation, partnership, or S 

22 corporation if— 

23 ‘‘(I) the gross receipts (as deter24 mined under subsection (c)(7)) of 


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1 such entity for the taxable year is less 

2 than $5,000,000, and 

3 ‘‘(II) such entity did not have 

4 gross receipts (as so determined) for 

5 any period preceding the 5-taxable6 year period ending with such taxable 

7 year, and 

8 ‘‘(ii) any person not described in sub9 paragraph (A) if clauses (i) and (ii) of sub10 paragraph (A) applied to such person, de11 termined— 

12 ‘‘(I) by substituting ‘person’ for 

13 ‘entity’ each place it appears), and 

14 ‘‘(II) in the case of an individual, 

15 by only taking into account the aggre16 gate gross receipts received by such 

17 individual in carrying on trades or 

18 businesses of such individual. 

19 ‘‘(B) LIMITATION.—Such term shall not 

20 include an organization which is exempt from 

21 taxation under section 501. 

22 ‘‘(4) ELECTION.— 

23 ‘‘(A) IN GENERAL.—In the case of a part24 nership or S corporation, an election under this 

25 subsection shall be made at the entity level. 


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1 ‘‘(B) REVOCATION.—An election under 

2 this subsection may not be revoked without the 

3 consent of the Secretary. 

4 ‘‘(C) LIMITATION.—A taxpayer may not 

5 make an election under this subsection if such 

6 taxpayer has made an election under this sub7 section for 5 or more preceding taxable years. 

8 ‘‘(5) AGGREGATION RULES.—For purposes of 

9 determining the $250,000 limitation under para10 graph (2) and determining gross receipts under 

11 paragraph (3), all members of the same controlled 

12 group of corporations (within the meaning of section 

13 267(f)) and all persons under common control (with14 in the meaning of section 52(b) but determined by 

15 treating an interest of more than 50 percent as a 

16 controlling interest) shall be treated as 1 person. 

17 ‘‘(6) REGULATIONS.—The Secretary shall pre18 scribe such regulations as may be necessary to carry 

19 out the purposes of this subsection, including— 

20 ‘‘(A) regulations to prevent the avoidance 

21 of the purposes of paragraph (3) through the 

22 use of successor companies or other means, 

23 ‘‘(B) regulations to minimize compliance 

24 and recordkeeping burdens under this sub25 section for start-up companies, and 


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1 ‘‘(C) regulations for recapturing the ben2 efit of credits determined under section 3111(f) 

3 in cases where there is a subsequent adjustment 

4 to the payroll tax credit portion of the credit 

5 determined under subsection (a), including re6 quiring amended returns in the cases where 

7 there is such an adjustment.’’. 

8 (2) CONFORMING AMENDMENT.—Section 

9 280C(c) of the Internal Revenue Code of 1986 is 

10 amended by adding at the end the following new 

11 paragraph: 

12 ‘‘(5) TREATMENT OF QUALIFIED SMALL BUSI13 NESS CREDIT.—For purposes of determining the 

14 amount of any credit under section 41(a) under this 

15 subsection, any election under section 41(i) shall be 

16 disregarded.’’. 

17 (b) CREDIT ALLOWED AGAINST FICA TAXES.— 

18 (1) IN GENERAL.—Section 3111 of the Internal 

19 Revenue Code of 1986 is amended by adding at the 

20 end the following new subsection: 

21 ‘‘(f) CREDIT FOR RESEARCH EXPENDITURES OF

22 QUALIFIED SMALL BUSINESSES.— 

23 ‘‘(1) IN GENERAL.—In the case of a qualified 

24 small business which has made an election under 

25 section 41(i), there shall be allowed as a credit 


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1 against the tax imposed by subsection (a) on wages 

2 paid with respect to the employment of all employees 

3 of the qualified small business for days in an appli4 cable calendar quarter an amount equal to the pay5 roll tax credit portion of the research credit deter6 mined under section 41(a). 

7 ‘‘(2) CARRYOVER OF UNUSED CREDIT.—In any 

8 case in which the payroll tax credit portion of the re9 search credit determined under section 41(a) exceeds 

10 the tax imposed under subsection (a) for an applica11 ble calendar quarter— 

12 ‘‘(A) the succeeding calendar quarter shall 

13 be treated as an applicable calendar quarter, 

14 and 

15 ‘‘(B) the amount of credit allowed under 

16 paragraph (1) shall be reduced by the amount 

17 of credit allowed under such paragraph for all 

18 preceding applicable calendar quarters. 

19 ‘‘(3) ALLOCATION OF CREDIT FOR CON20 TROLLED GROUPS, ETC.—In determining the 

21 amount of the credit under this subsection— 

22 ‘‘(A) all persons treated as a single tax23 payer under section 41 shall be treated as a 

24 single taxpayer under this section, and 


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1 ‘‘(B) the credit (if any) allowable by this 

2 section to each such member shall be its pro3 portionate share of the qualified research ex4 penses, basic research payments, and amounts 

5 paid or incurred to energy research consor6 tiums, giving rise to the credit allowable under 

7 section 41. 

8 ‘‘(4) DEFINITIONS.—For purposes of this sub9 section— 

10 ‘‘(A) APPLICABLE CALENDAR QUARTER.— 

11 The term ‘applicable calendar quarter’ means— 

12 ‘‘(i) the first calendar quarter fol13 lowing the date on which the qualified 

14 small business files a return under section 

15 6012 for the taxable year for which the 

16 payroll tax credit portion of the research 

17 credit under section 41(a) is determined, 

18 and 

19 ‘‘(ii) any succeeding calendar quarter 

20 treated as an applicable calendar quarter 

21 under paragraph (2)(A). 

22 ‘‘For purposes of determining the date on 

23 which a return is filed, rules similar to the rules 

24 of section 6513 shall apply. 


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1 ‘‘(B) OTHER TERMS.—Any term used in 

2 this subsection which is also used in section 41 

3 shall have the meaning given such term under 

4 section 41.’’. 

5 (2) TRANSFERS TO FEDERAL OLD-AGE AND

6 SURVIVORS INSURANCE TRUST FUND.—There are 

7 hereby appropriated to the Federal Old-Age and 

8 Survivors Trust Fund and the Federal Disability In9 surance Trust Fund established under section 201 

10 of the Social Security Act (42 U.S.C. 401) amounts 

11 equal to the reduction in revenues to the Treasury 

12 by reason of the amendments made by paragraph 

13 (1). Amounts appropriated by the preceding sen14 tence shall be transferred from the general fund at 

15 such times and in such manner as to replicate to the 

16 extent possible the transfers which would have oc17 curred to such Trust Fund had such amendments 

18 not been enacted. 

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

20 this section shall apply to taxable years beginning after 

21 December 31, 2011. 

Æ 


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