I 

113TH CONGRESS 

2D SESSION H. R. 4696 

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 HOUSE OF REPRESENTATIVES 

MAY 21, 2014 

Mr. GERLACH (for himself, Mr. KIND, Mr. KELLY of Pennsylvania, and Mr. 

PETERS of Michigan) 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 

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 2014’’. 


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1 SEC. 2. TREATMENT OF RESEARCH CREDIT FOR CERTAIN 

2 STARTUP COMPANIES. 

3 (a) IN GENERAL.—Section 41 of the Internal Rev4 enue Code of 1986 is amended by adding at the end the 

5 following new subsection: 

6 ‘‘(i) TREATMENT OF CREDIT FOR QUALIFIED SMALL

7 BUSINESSES.— 

8 ‘‘(1) IN GENERAL.—At the election of a quali9 fied small business for any taxable year, section 

10 3111(f) shall apply to the payroll tax credit portion 

11 of the credit otherwise determined under subsection 

12 (a) for the taxable year and such portion shall not 

13 be treated (other than for purposes of section 280C) 

14 as a credit determined under subsection (a). 

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

16 purposes of this subsection, the payroll tax credit 

17 portion of the credit determined under subsection 

18 (a) with respect to any qualified small business for 

19 any taxable year is the least of— 

20 ‘‘(A) the amount specified in the election 

21 made under this subsection, 

22 ‘‘(B) the credit determined under sub23 section (a) for the taxable year (determined be24 fore the application of this subsection), or 

25 ‘‘(C) in the case of a qualified small busi26 ness other than a partnership or S corporation, 


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1 the amount of the business credit carryforward 

2 under section 39 carried from the taxable year 

3 (determined before the application of this sub4 section to the taxable year). 

5 ‘‘(3) QUALIFIED SMALL BUSINESS.—For pur6 poses of this subsection— 

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

8 small business’ means, with respect to any tax9 able year— 

10 ‘‘(i) a corporation or partnership, if— 

11 ‘‘(I) the gross receipts (as deter12 mined under the rules of section 

13 448(c)(3), without regard to subpara14 graph (A) thereof) of such entity for 

15 the taxable year is less than 

16 $5,000,000, and 

17 ‘‘(II) such entity did not have 

18 gross receipts (as so determined) for 

19 any taxable year preceding the 5-tax20 able-year period ending with such tax21 able year, and 

22 ‘‘(ii) any person (other than a cor23 poration or partnership) who meets the re24 quirements of subclauses (I) and (II) of 

25 clause (i), determined— 


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1 ‘‘(I) by substituting ‘person’ for 

2 ‘entity’ each place it appears, and 

3 ‘‘(II) by only taking into account 

4 the aggregate gross receipts received 

5 by such person in carrying on all 

6 trades or businesses of such person. 

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

8 include an organization which is exempt from 

9 taxation under section 501. 

10 ‘‘(4) ELECTION.— 

11 ‘‘(A) IN GENERAL.—Any election under 

12 this subsection for any taxable year— 

13 ‘‘(i) shall specify the amount of the 

14 credit to which such election applies, 

15 ‘‘(ii) shall be made on or before the 

16 due date (including extensions) of— 

17 ‘‘(I) in the case of a qualified 

18 small business which is a partnership, 

19 the return required to be filed under 

20 section 6031, 

21 ‘‘(II) in the case of a qualified 

22 small business which is an S corpora23 tion, the return required to be filed 

24 under section 6037, and 


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1 ‘‘(III) in the case of any other 

2 qualified small business, the return of 

3 tax for the taxable year, and 

4 ‘‘(iii) may be revoked only with the 

5 consent of the Secretary. 

6 ‘‘(B) LIMITATIONS.— 

7 ‘‘(i) AMOUNT.—The amount specified 

8 in any election made under this subsection 

9 shall not exceed $250,000. 

10 ‘‘(ii) NUMBER OF TAXABLE YEARS.— 

11 A person may not make an election under 

12 this subsection if such person (or any other 

13 person treated as a single taxpayer with 

14 such person under paragraph (5)(A)) has 

15 made an election under this subsection for 

16 5 or more preceding taxable years. 

17 ‘‘(C) SPECIAL RULE FOR PARTNERSHIPS

18 AND S CORPORATIONS.—In the case of a quali19 fied small business which is a partnership or S 

20 corporation, the election made under this sub21 section shall be made at the entity level. 

22 ‘‘(5) AGGREGATION RULES.— 

23 ‘‘(A) IN GENERAL.—Except as provided in 

24 subparagraph (B), all persons or entities treat25 ed as a single taxpayer under subsection (f)(1) 


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1 shall be treated as a single taxpayer for pur2 poses of this subsection. 

3 ‘‘(B) SPECIAL RULES.—For purposes of 

4 this subsection and section 3111(f)— 

5 ‘‘(i) each of the persons treated as a 

6 single taxpayer under subparagraph (A) 

7 may separately make the election under 

8 paragraph (1) for any taxable year, and 

9 ‘‘(ii) the $250,000 amount under 

10 paragraph (4)(B)(i) shall be allocated 

11 among all persons treated as a single tax12 payer under subparagraph (A) in the same 

13 manner as under subparagraph (A)(ii) or 

14 (B)(ii) of subsection (f)(1), whichever is 

15 applicable. 

16 ‘‘(6) REGULATIONS.—The Secretary shall pre17 scribe such regulations as may be necessary to carry 

18 out the purposes of this subsection, including— 

19 ‘‘(A) regulations to prevent the avoidance 

20 of the purposes of the limitations and aggrega21 tion rules under this subsection through the use 

22 of successor companies or other means, 

23 ‘‘(B) regulations to minimize compliance 

24 and recordkeeping burdens under this sub25 section, 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 income tax returns in the 

7 cases where there is such an adjustment.’’. 

8 (b) CREDIT ALLOWED AGAINST FICA TAXES.—Sec9 tion 3111 of such Code is amended by adding at the end 

10 the following new subsection: 

11 ‘‘(f) CREDIT FOR RESEARCH EXPENDITURES OF

12 QUALIFIED SMALL BUSINESSES.— 

13 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

14 who has made an election under section 41(i) for a 

15 taxable year, there shall be allowed as a credit 

16 against the tax imposed by subsection (a) for the 

17 first calendar quarter which begins after the date on 

18 which the taxpayer files the return specified in sec19 tion 41(i)(4)(A)(ii) an amount equal to the payroll 

20 tax credit portion determined under section 41(i)(2). 

21 ‘‘(2) LIMITATION.—The credit allowed by para22 graph (1) shall not exceed the tax imposed by sub23 section (a) for any calendar quarter on the wages 

24 paid with respect to the employment of all individ25 uals in the employ of the employer. 


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1 ‘‘(3) CARRYOVER OF UNUSED CREDIT.—If the 

2 amount of the credit under paragraph (1) exceeds 

3 the limitation of paragraph (2) for any calendar 

4 quarter, such excess shall be carried to the suc5 ceeding calendar quarter and allowed as a credit 

6 under paragraph (1) for such quarter. 

7 ‘‘(4) DEDUCTION ALLOWED FOR CREDITED

8 AMOUNTS.—The credit allowed under paragraph (1) 

9 shall not be taken into account for purposes of de10 termining the amount of any deduction allowed 

11 under chapter 1 for taxes imposed under subsection 

12 (a).’’. 

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

14 this section shall apply to credits determined for taxable 

15 years beginning after December 31, 2013. 

Æ 


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