I 

114TH CONGRESS 

1ST SESSION H. R. 2179 

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

the passive loss rules for investments in high technology research small 

business pass-thru entities. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 30, 2015 

Mr. MEEHAN (for himself, Mr. NEAL, Mr. KELLY of Pennsylvania, Mr. KIND, 

and Mr. LARSON of Connecticut) 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 high technology 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 ‘‘Partnerships to Ad5 vance Revolutionary Technology and Novel Entrepre6 neurial Research Act’’ or the ‘‘PARTNER Act’’. 


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1 SEC. 2. EXCEPTION FROM PASSIVE LOSS RULES FOR IN2 VESTMENTS IN HIGH TECHNOLOGY 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) HIGH TECHNOLOGY RESEARCH ACTIVI11 TIES.— 

12 ‘‘(A) IN GENERAL.—The term ‘passive ac13 tivity’ shall not include any qualified research 

14 activity of the taxpayer carried on by a high 

15 technology research small business pass-thru 

16 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 research activities carried on by a 

22 high technology research small business 

23 pass-thru entity shall not be treated as 

24 losses or deductions, respectively, from a 

25 passive activity except as provided in 

26 clause (ii) and subparagraph (C). 


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

2 apply to losses and deductions of a tax3 payer in connection with a high technology 

4 small business pass-thru entity for a tax5 able year only to the extent that the aggre6 gate losses and deductions of the taxpayer 

7 in connection with qualified research activi8 ties of such entity for such taxable year do 

9 not exceed the portion of the taxpayer’s 

10 adjusted basis in the taxpayer’s ownership 

11 interest in such entity that is attributable 

12 to money or other property contributed— 

13 ‘‘(I) in exchange for such owner14 ship interest, and 

15 ‘‘(II) specifically for use in con16 nection with qualified research activi17 ties. 

18 For purposes of the preceding sentence, 

19 the taxpayer’s basis shall not include any 

20 portion of such basis which is attributable 

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

22 liabilities of a partnership that is consid23 ered under section 752(a) as a contribution 

24 of money. 


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1 ‘‘(C) TREATMENT OF CARRYOVERS.—Sub2 paragraph (B)(i) shall not apply to the portion 

3 of any loss or deduction that is carried over 

4 under subsection (b) into a taxable year other 

5 than the taxable year in which such loss or de6 duction arose. 

7 ‘‘(D) QUALIFIED RESEARCH ACTIVITY.— 

8 For purposes of this paragraph, the term 

9 ‘qualified research activity’ means any activity 

10 constituting qualified research (within the 

11 meaning of section 41(d)(1)(B) and taking into 

12 account paragraphs (3) and (4) of section 

13 41(d)) which involves a process of experimen14 tation. 

15 ‘‘(E) HIGH TECHNOLOGY RESEARCH

16 SMALL BUSINESS PASS-THRU ENTITY.—For 

17 purposes of this paragraph, the term ‘high tech18 nology research small business pass-thru entity’ 

19 means any domestic pass-thru entity for any 

20 taxable year if— 

21 ‘‘(i) either— 

22 ‘‘(I) more than 75 percent of the 

23 entity’s expenditures (including sala24 ries, rent and overhead) for such tax25 able year are paid or incurred in conVerDate Sep 11 2014 00:03 May 12, 2015 Jkt 049200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H2179.IH H2179

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1 nection with qualified research (within 

2 the meaning of section 41(d)(1)(B), 

3 taking into account paragraphs (3) 

4 and (4) of section 41(d)) that involves 

5 a process of experimentation con6 ducted by the entity, or 

7 ‘‘(II) more than 50 percent of 

8 the entity’s expenditures for such tax9 able year constitute qualified research 

10 expenses (as defined in section 41(b), 

11 but determined without regard to the 

12 phrase ‘65 percent of’ in paragraph 

13 (3)(A) thereof), 

14 ‘‘(ii) such entity is a small business 

15 (within the meaning of section 

16 41(b)(3)(D)(iii), applied by substituting 

17 ‘250’ for ‘500’ in subclause (I) thereof), 

18 and 

19 ‘‘(iii) at no time during the taxable 

20 year does the entity have aggregate gross 

21 assets in excess of $150,000,000. 

22 ‘‘(F) PROVISIONS RELATED TO AGGRE23 GATE GROSS ASSETS LIMITATION.—For pur24 poses of this paragraph— 


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1 ‘‘(i) IN GENERAL.—Except as other2 wise provided in this subparagraph, the 

3 term ‘aggregate gross assets’ has the 

4 meaning given such term in section 

5 1202(d)(2). 

6 ‘‘(ii) EXCEPTION FOR CERTAIN IN7 TANGIBLES.—Any section 197 intangible 

8 (as defined in section 197(d) and deter9 mined without regard to section 197(e)) 

10 which is used directly in connection with 

11 the research referred to in subparagraph 

12 (E)(i) shall not be taken into account in 

13 determining aggregate gross assets. 

14 ‘‘(iii) EXCEPTION FOR CERTAIN FOL15 LOW-ON INVESTMENTS.—Cash from a sale 

16 of equity interests shall not be taken into 

17 account in determining aggregate gross as18 sets if— 

19 ‘‘(I) the aggregate gross assets of 

20 such entity (determined immediately 

21 after such sale and without regard to 

22 this clause) do not exceed the sum of 

23 $150,000,000, plus 25 percent of the 

24 aggregate gross assets of such entity 

25 (determined immediately before such 


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1 sale and without regard to this 

2 clause), and 

3 ‘‘(II) the aggregate gross assets 

4 of such entity (determined imme5 diately before such sale and without 

6 regard to this clause) do not exceed 

7 $150,000,000. 

8 Sales of equity interests which are part of 

9 the same plan or arrangement, or which 

10 are carried out with the principal purpose 

11 of increasing the amount of cash to which 

12 this clause applies (determined without re13 gard to this sentence), shall be treated as 

14 a single sale for purposes of this clause. 

15 ‘‘(iv) INFLATION ADJUSTMENT.—In 

16 the case of any taxable year beginning 

17 after 2015, the $150,000,000 amount in 

18 subparagraph (E)(iii) and subclauses (I) 

19 and (II) of clause (iii) shall each be in20 creased by an amount equal to— 

21 ‘‘(I) such dollar amount, multi22 plied by 

23 ‘‘(II) the cost of living adjust24 ment determined under section 1(f)(3) 

25 for the calendar year in which the taxVerDate Sep 11 2014 00:03 May 12, 2015 Jkt 049200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H2179.IH H2179

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1 able year begins determined by sub2 stituting ‘calendar year 2014’ for ‘cal3 endar year 1992’ in subparagraph (B) 

4 thereof. 

5 Any increase determined under the pre6 ceding sentence shall be rounded to the 

7 nearest $100,000. 

8 ‘‘(G) 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 ‘‘(H) 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 ‘‘(I) 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 high technology research small 

4 business pass-thru entity unless such enti5 ty qualifies as such both with and without 

6 the application of clause (i). 

7 ‘‘(J) ACTIVITIES NOT ENGAGED IN FOR

8 PROFIT AND ECONOMIC SUBSTANCE RULES.— 

9 Section 183 and the economic substance rules 

10 of section 7701(o) shall not apply to disallow 

11 the losses, deductions, and credits of a high 

12 technology research small business pass-thru 

13 entity solely as a result of losses incurred by 

14 such entity.’’. 

15 (b) MATERIAL PARTICIPATION NOT REQUIRED.— 

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

17 Code of 1986, as redesignated by subsection (a), is amend18 ed by striking ‘‘and (3)’’ in the heading and text and in19 serting ‘‘, (3), and (4)’’. 

20 (c) CERTAIN RESEARCH-RELATED DEDUCTIONS AND

21 CREDITS OF HIGH TECHNOLOGY RESEARCH SMALL

22 BUSINESS PASS-THRU ENTITIES ALLOWED FOR PUR23 POSES OF DETERMINING ALTERNATIVE MINIMUM TAX.— 

24 (1) DEDUCTION FOR RESEARCH AND EXPERI25 MENTAL EXPENDITURES.—Paragraph (2) of section 


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1 56(b) of the Internal Revenue Code of 1986 is 

2 amended by adding at the end the following new 

3 subparagraph: 

4 ‘‘(E) EXCEPTION FOR HIGH TECHNOLOGY

5 RESEARCH SMALL BUSINESS PASS-THRU ENTI6 TIES.—In the case of a high technology re7 search small business pass-thru entity (as de8 fined in section 469(c)(4)), this paragraph shall 

9 not apply to any amount allowable as a deduc10 tion under section 174(a).’’. 

11 (2) ALLOWANCE OF CERTAIN RESEARCH-RE12 LATED CREDITS.—Subparagraph (B) of section 

13 38(c)(4) of such Code is amended by redesignating 

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

15 respectively, and by inserting after clause (i) the fol16 lowing new clause: 

17 ‘‘(ii) the credit of an individual tax18 payer determined under section 41 to the 

19 extent attributable to a high technology re20 search small business pass-thru entity (as 

21 defined in section 469(c)(4)),’’. 

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

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

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

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


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1 any high technology research small business pass-thru en2 tity (as defined in section 469(c)(4)).’’. 

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

4 this section shall apply to losses and credits arising in tax5 able years beginning after December 31, 2014. 

Æ 


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