II 

113TH CONGRESS 

2D SESSION S. 2715 

To amend the Internal Revenue Code of 1986 to increase and make 

permanent the alternative simplified research credit, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JULY 31, 2014 

Mr. CARPER 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 increase 

and make permanent the alternative simplified research 

credit, 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. SHORT TITLE; AMENDMENT OF 1986 CODE. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Competitiveness and Opportunity by Modernizing and 

6 Permanently Extending the Tax Credit for Experimen7 tation Act of 2014’’ or the ‘‘COMPETE Act of 2014’’. 

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend10 ment or repeal is expressed in terms of an amendment 


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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 SEC. 2. PERMANENT EXTENSION AND MODIFICATION OF 

5 RESEARCH CREDIT. 

6 (a) SIMPLIFIED CREDIT FOR QUALIFIED RESEARCH

7 EXPENSES.—Subsection (a) of section 41 is amended to 

8 read as follows: 

9 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

10 the research credit determined under this section for the 

11 taxable year shall be an amount equal to 25 percent of 

12 so much of the qualified research expenses for the taxable 

13 year as exceeds 50 percent of the average qualified re14 search expenses for the 3 taxable years preceding the tax15 able year for which the credit is being determined.’’. 

16 (b) SPECIAL RULES AND TERMINATION OF BASE

17 AMOUNT CALCULATION.— 

18 (1) IN GENERAL.—Subsection (c) of section 41 

19 is amended to read as follows: 

20 ‘‘(c) SPECIAL RULE IN CASE OF NO QUALIFIED RE21 SEARCH EXPENSES IN ANY OF 3 PRECEDING TAXABLE

22 YEARS.— 

23 ‘‘(1) TAXPAYERS TO WHICH SUBSECTION AP24 PLIES.—The credit under this section shall be deter25 mined under this subsection, and not under subVerDate Mar 15 2010 00:25 Aug 08, 2014 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2715.IS S2715

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1 section (a), if, in any one of the 3 taxable years pre2 ceding the taxable year for which the credit is being 

3 determined, the taxpayer has no qualified research 

4 expenses. 

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

6 under this subsection shall be equal to 10 percent of 

7 the qualified research expenses for the taxable 

8 year.’’. 

9 (2) CONSISTENT TREATMENT OF EXPENSES.— 

10 Subsection (b) of section 41 is amended by adding 

11 at the end the following new paragraph: 

12 ‘‘(5) CONSISTENT TREATMENT OF EXPENSES

13 REQUIRED.— 

14 ‘‘(A) IN GENERAL.—Notwithstanding 

15 whether the period for filing a claim for credit 

16 or refund has expired for any taxable year in 

17 the 3-taxable-year period taken into account 

18 under subsection (a), the qualified research ex19 penses taken into account for such year shall be 

20 determined on a basis consistent with the deter21 mination of qualified research expenses for the 

22 credit year. 

23 ‘‘(B) PREVENTION OF DISTORTIONS.—The 

24 Secretary may prescribe regulations to prevent 

25 distortions in calculating a taxpayer’s qualified 


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1 research expenses caused by a change in ac2 counting methods used by such taxpayer be3 tween the credit year and a year in such 3-tax4 able-year period.’’. 

5 (c) INCLUSION OF QUALIFIED RESEARCH EXPENSES

6 OF AN ACQUIRED PERSON.— 

7 (1) PARTIAL INCLUSION OF PRE-ACQUISITION

8 QUALIFIED RESEARCH EXPENSES.—Subparagraph 

9 (A) of section 41(f)(3) is amended to read as fol10 lows: 

11 ‘‘(A) ACQUISITIONS.— 

12 ‘‘(i) IN GENERAL.—If a person ac13 quires the major portion of a trade or busi14 ness of another person (hereinafter in this 

15 paragraph referred to as the ‘predecessor’) 

16 or the major portion of a separate unit of 

17 a trade or business of a predecessor, then 

18 the amount of qualified research expenses 

19 paid or incurred by the acquiring person 

20 during the 3 taxable years preceding the 

21 taxable year in which the credit under this 

22 section is determined shall be increased 

23 by— 

24 ‘‘(I) for purposes of applying this 

25 section for the taxable year in which 


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1 such acquisition is made, the amount 

2 determined under clause (ii), and 

3 ‘‘(II) for purposes of applying 

4 this section for any taxable year after 

5 the taxable year in which such acqui6 sition is made, so much of the quali7 fied research expenses paid or in8 curred by the predecessor with respect 

9 to the acquired trade or business dur10 ing the portion of the measurement 

11 period that is part of the 3-taxable12 year period preceding the taxable year 

13 for which the credit is determined as 

14 is attributable to the portion of such 

15 trade or business or separate unit ac16 quired by such person. 

17 ‘‘(ii) AMOUNT DETERMINED.—The 

18 amount determined under this clause is the 

19 amount equal to the product of— 

20 ‘‘(I) so much of the qualified re21 search expenses paid or incurred by 

22 the predecessor with respect to the ac23 quired trade or business during the 3 

24 taxable years before the taxable year 

25 in which the acquisition is made as is 


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1 attributable to the portion of such 

2 trade or business or separate unit ac3 quired by the acquiring person, and 

4 ‘‘(II) the number of months in 

5 the period beginning on the date of 

6 the acquisition and ending on the last 

7 day of the taxable year in which the 

8 acquisition is made, 

9 divided by 12. 

10 ‘‘(iii) SPECIAL RULES FOR COORDI11 NATING TAXABLE YEARS.—In the case of 

12 an acquiring person and a predecessor 

13 whose taxable years do not begin on the 

14 same date— 

15 ‘‘(I) each reference to a taxable 

16 year in clauses (i) and (ii) shall refer 

17 to the appropriate taxable year of the 

18 acquiring person, 

19 ‘‘(II) the qualified research ex20 penses paid or incurred by the prede21 cessor during each taxable year of the 

22 predecessor any portion of which is 

23 part of the measurement period shall 

24 be allocated equally among the 

25 months of such taxable year, and 


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1 ‘‘(III) the amount of such quali2 fied research expenses taken into ac3 count under clauses (i) and (ii) with 

4 respect to a taxable year of the ac5 quiring person shall be equal to the 

6 total of the expenses attributable 

7 under subclause (II) to the months oc8 curring during such taxable year. 

9 ‘‘(iv) MEASUREMENT PERIOD.—For 

10 purposes of this subparagraph, the term 

11 ‘measurement period’ means the taxable 

12 year of the acquiring person in which the 

13 acquisition is made and the 3 taxable years 

14 of the acquiring person preceding such tax15 able year.’’. 

16 (2) EXPENSES OF A PREDECESSOR.—Subpara17 graph (B) of section 41(f)(3) is amended to read as 

18 follows: 

19 ‘‘(B) DISPOSITIONS.—If the predecessor 

20 furnished to the acquiring person such informa21 tion as is necessary for the application of sub22 paragraph (A), then, for purposes of applying 

23 this section for any taxable year ending after 

24 such disposition, the amount of qualified re25 search expenses paid or incurred by the predeVerDate Mar 15 2010 00:25 Aug 08, 2014 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2715.IS S2715

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1 cessor during the 3 taxable years preceding 

2 such taxable year shall be reduced— 

3 ‘‘(i) in the case of the taxable year in 

4 which such disposition is made, by an 

5 amount equal to the product of— 

6 ‘‘(I) the amount of qualified re7 search expenses paid or incurred dur8 ing such 3 taxable years with respect 

9 to the acquired business, and 

10 ‘‘(II) the number of days in the 

11 period beginning on the date of acqui12 sition (as determined for purposes of 

13 subparagraph (A)(ii)(II)) and ending 

14 on the last day of the taxable year of 

15 the predecessor in which the disposi16 tion is made, 

17 divided by the number of days in the tax18 able year of the predecessor, and 

19 ‘‘(ii) in the case of any taxable year 

20 ending after the taxable year in which such 

21 disposition is made, the amount described 

22 in clause (i)(I).’’. 

23 (d) AGGREGATION OF EXPENDITURES.—Paragraph 

24 (1) of section 41(f), as amended by the American Tax25 payer Relief Act of 2012, is amended— 


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1 (1) by striking ‘‘of the qualified research ex2 penses, basic research payments, and amounts paid 

3 or incurred to energy research consortiums,’’ in sub4 paragraph (A)(ii) and inserting ‘‘qualified research 

5 expenses’’, and 

6 (2) by striking ‘‘of the qualified research ex7 penses, basic research payments, and amounts paid 

8 or incurred to energy research consortiums,’’ in sub9 paragraph (B)(ii) and inserting ‘‘qualified research 

10 expenses’’. 

11 (e) SPLIT 100 PERCENT CREDIT FOR CONTRACT RE12 SEARCH EXPENSES.—Subparagraph (A) of section 

13 41(b)(3) is amended to read as follows: 

14 ‘‘(A) IN GENERAL.— 

15 ‘‘(i) TAXPAYERS PAYING FOR CON16 TRACTED RESEARCH.—The term ‘contract 

17 research expenses’ means 65 percent of 

18 any amount paid or incurred by the tax19 payer to any person (other than an em20 ployee of the taxpayer) for qualified re21 search. 

22 ‘‘(ii) TAXPAYERS PERFORMING CON23 TRACTED RESEARCH.—In the case of a 

24 taxpayer (other than an entity described in 

25 subparagraph (C) or (D) or paragraph 


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1 (5)(C)) who receives amounts from any 

2 person (other than an employer of the tax3 payer) for qualified research on behalf of 

4 such person, the term ‘contract research 

5 expenses’ means so much of the qualified 

6 research expenses paid or incurred by the 

7 taxpayer as does not exceed 35 percent of 

8 the amounts so received from such person. 

9 ‘‘(iii) SPECIAL RULES.—For purposes 

10 of clause (ii)— 

11 ‘‘(I) TRADE OR BUSINESS.—The 

12 qualified research expenses of the tax13 payer shall be determined as if the 

14 trade or business of the taxpayer were 

15 the conduct of qualified research on 

16 behalf of other persons. 

17 ‘‘(II) RESEARCH NOT TREATED

18 AS FUNDED RESEARCH.—Subpara19 graph (H) of subsection (d)(4) shall 

20 not apply. 

21 ‘‘(III) QUALIFIED RESEARCH.— 

22 The qualified research expenses of a 

23 taxpayer shall be determined as if the 

24 conditions of subparagraph (B) of 

25 subsection (d)(1) are satisfied if the 


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1 business component described in sub2 paragraph (B)(ii) thereof is a business 

3 component of either of the taxpayers 

4 described in clauses (i) and (ii). 

5 ‘‘(IV) LIMITATION.—The quali6 fied research expenses of a taxpayer 

7 shall not include any expenses that 

8 would not be eligible as in-house re9 search expenses for purposes of para10 graph (2). 

11 ‘‘(iv) DENIAL OF DOUBLE BENEFIT.— 

12 The amount of any in-house research ex13 penses taken into account under this sec14 tion with respect to a taxpayer described in 

15 clause (ii) shall be reduced by the amount 

16 of the contract research expenses taken 

17 into account under such clause with re18 spect to such taxpayer for the taxable 

19 year.’’. 

20 (f) INCLUSION OF BASIC RESEARCH PAYMENTS.— 

21 Subsection (b) of section 41 is amended by redesignating 

22 paragraph (5), as added by this section, as paragraph (6), 

23 and by inserting after paragraph (4) the following new 

24 paragraph: 

25 ‘‘(5) BASIC RESEARCH PAYMENTS.— 


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1 ‘‘(A) IN GENERAL.—In the case of basic 

2 research payments made by the taxpayer, para3 graph (3)(A) shall be applied by substituting 

4 ‘100 percent’ for ‘65 percent’. 

5 ‘‘(B) BASIC RESEARCH PAYMENTS.—For 

6 purposes of this paragraph, the term ‘basic re7 search payment’ means, with respect to any 

8 taxable year, any amount paid in cash during 

9 such taxable year by a corporation to any quali10 fied organization for basic research, but only 

11 if— 

12 ‘‘(i) such payment is made pursuant 

13 to a written agreement between such cor14 poration and such qualified organization, 

15 and 

16 ‘‘(ii) except in the case of a payment 

17 to a qualified organization described in 

18 clause (iii) or (iv) of subparagraph (C), 

19 such basic research is to be performed by 

20 such qualified organization. 

21 ‘‘(C) QUALIFIED ORGANIZATION.—For 

22 purposes of this paragraph, the term ‘qualified 

23 organization’ means any of the following orga24 nizations: 


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1 ‘‘(i) EDUCATIONAL INSTITUTIONS.— 

2 Any educational organization which— 

3 ‘‘(I) is an institution of higher 

4 education (within the meaning of sec5 tion 3304(f)), and 

6 ‘‘(II) is described in section 

7 170(b)(1)(A)(ii). 

8 ‘‘(ii) CERTAIN SCIENTIFIC RESEARCH

9 ORGANIZATIONS.—Any organization not 

10 described in clause (i) which— 

11 ‘‘(I) is described in section 

12 501(c)(3) and is exempt from tax 

13 under section 501(a), 

14 ‘‘(II) is organized and operated 

15 primarily to conduct scientific re16 search, and 

17 ‘‘(III) is not a private founda18 tion. 

19 ‘‘(iii) SCIENTIFIC TAX-EXEMPT ORGA20 NIZATIONS.—Any organization which— 

21 ‘‘(I) is described in section 

22 501(c)(3) (other than a private foun23 dation) or section 501(c)(6), 

24 ‘‘(II) is exempt from tax under 

25 section 501(a), 


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1 ‘‘(III) is organized and operated 

2 primarily to promote scientific re3 search by qualified organizations de4 scribed in clause (i) pursuant to writ5 ten research agreements, and 

6 ‘‘(IV) currently expends substan7 tially all of its funds or substantially 

8 all of the basic research payments re9 ceived by it for grants to, or contracts 

10 for basic research with, an organiza11 tion described in clause (i). 

12 ‘‘(iv) CERTAIN GRANT ORGANIZA13 TIONS.—Any organization not described in 

14 clause (ii) or (iii) which— 

15 ‘‘(I) is described in section 

16 501(c)(3) and is exempt from tax 

17 under section 501(a) (other than a 

18 private foundation), 

19 ‘‘(II) is established and main20 tained by an organization established 

21 before July 10, 1981, which meets the 

22 requirements of subclause (I), 

23 ‘‘(III) is organized and operated 

24 exclusively for the purpose of making 

25 grants to organizations described in 


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1 clause (i) pursuant to written research 

2 agreements for purposes of basic re3 search, and 

4 ‘‘(IV) makes an election, rev5 ocable only with the consent of the 

6 Secretary, to be treated as a private 

7 foundation for purposes of this title 

8 (other than section 4940, relating to 

9 excise tax based on investment in10 come). 

11 ‘‘(D) DEFINITIONS AND SPECIAL RULES.— 

12 For purposes of this paragraph— 

13 ‘‘(i) BASIC RESEARCH.—The term 

14 ‘basic research’ means any original inves15 tigation for the advancement of scientific 

16 knowledge not having a specific commercial 

17 objective, except that such term shall not 

18 include— 

19 ‘‘(I) basic research conducted 

20 outside of the United States, and 

21 ‘‘(II) basic research in the social 

22 sciences, arts, or humanities. 

23 ‘‘(ii) TRADE OR BUSINESS QUALIFICA24 TION.—For purposes of applying para25 graph (1) to this paragraph, any basic reVerDate Mar 15 2010 00:25 Aug 08, 2014 Jkt 039200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\S2715.IS S2715

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1 search payments shall be treated as an 

2 amount paid in carrying on a trade or 

3 business of the taxpayer in the taxable 

4 year in which it is paid (without regard to 

5 the provisions of paragraph (3)(B)). 

6 ‘‘(iii) CERTAIN CORPORATIONS NOT

7 ELIGIBLE.—The term ‘corporation’ shall 

8 not include— 

9 ‘‘(I) an S corporation, 

10 ‘‘(II) a personal holding company 

11 (as defined in section 542), or 

12 ‘‘(III) a service organization (as 

13 defined in section 414(m)(3)).’’. 

14 (g) PERMANENT EXTENSION.— 

15 (1) Section 41 is amended by striking sub16 section (h). 

17 (2) Paragraph (1) of section 45C(b) is amended 

18 by striking subparagraph (D). 

19 (h) CONFORMING AMENDMENTS.— 

20 (1) TERMINATION OF BASIC RESEARCH PAY21 MENT CALCULATION.—Section 41 is amended— 

22 (A) by striking subsection (e), 

23 (B) by redesignating subsection (g) as sub24 section (e), and 


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1 (C) by relocating subsection (e), as so re2 designated, immediately after subsection (d). 

3 (2) SPECIAL RULES.— 

4 (A) Paragraph (4) of section 41(f) is 

5 amended by striking ‘‘and gross receipts’’. 

6 (B) Subsection (f) of section 41 is amend7 ed by striking paragraph (6). 

8 (3) CROSS-REFERENCES.— 

9 (A) Subparagraph (B) of section 45C(b)(1) 

10 is amended— 

11 (i) by striking ‘‘paragraph (3)(A)’’ in 

12 clause (ii) and inserting ‘‘paragraph 

13 (3)(A)(i)’’, 

14 (ii) by striking the period at the end 

15 of clause (ii) and inserting ‘‘, and’’, 

16 (iii) by striking ‘‘and’’ at the end of 

17 clause (i), and 

18 (iv) by adding at the end the following 

19 new clause: 

20 ‘‘(iii) by disregarding clauses (ii), (iii), 

21 and (iv) of paragraph (3)(A) of such sub22 section.’’. 

23 (B) Paragraph (2) of section 45C(c) is 

24 amended by striking ‘‘base period research exVerDate Mar 15 2010 00:25 Aug 08, 2014 Jkt 039200 PO 00000 Frm 00017 Fmt 6652 Sfmt 6201 E:\BILLS\S2715.IS S2715

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1 penses’’ and inserting ‘‘average qualified re2 search expenses’’. 

3 (C) Subparagraph (A) of section 54(l)(3) 

4 is amended by striking ‘‘section 41(g)’’ and in5 serting ‘‘section 41(e)’’. 

6 (D) Clause (i) of section 170(e)(4)(B) is 

7 amended by striking ‘‘subparagraph (A) or sub8 paragraph (B) of section 41(e)(6)’’ and insert9 ing ‘‘clause (i) or clause (ii) of section 

10 41(b)(5)(C)’’. 

11 (E) Section 280C is amended— 

12 (i) by striking ‘‘or basic research ex13 penses (as defined in section 41(e)(2))’’ in 

14 subsection (c)(1), 

15 (ii) by striking ‘‘section 41(a)(1)’’ in 

16 subsection (c)(2)(A) and inserting ‘‘section 

17 41(a)’’, and 

18 (iii) by striking ‘‘or basic research ex19 penses’’ in subsection (c)(2)(B). 

20 (F) Clause (i) of section 1400N(l)(7)(B) is 

21 amended by striking ‘‘section 41(g)’’ and insert22 ing ‘‘section 41(e)’’. 

23 (i) TECHNICAL CORRECTIONS.—Section 409 is 

24 amended— 


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1 (1) by inserting ‘‘, as in effect before the enact2 ment of the Tax Reform Act of 1984)’’ after ‘‘sec3 tion 41(c)(1)(B)’’ in subsection (b)(1)(A), 

4 (2) by inserting ‘‘, as in effect before the enact5 ment of the Tax Reform Act of 1984’’ after ‘‘relat6 ing to the employee stock ownership credit’’ in sub7 section (b)(4), 

8 (3) by inserting ‘‘(as in effect before the enact9 ment of the Tax Reform Act of 1984)’’ after ‘‘sec10 tion 41(c)(1)(B)’’ in subsection (i)(1)(A), 

11 (4) by inserting ‘‘(as in effect before the enact12 ment of the Tax Reform Act of 1984)’’ after ‘‘sec13 tion 41(c)(1)(B)’’ in subsection (m), 

14 (5) by inserting ‘‘(as so in effect)’’ after ‘‘sec15 tion 48(n)(1)’’ in subsection (m), 

16 (6) by inserting ‘‘(as in effect before the enact17 ment of the Tax Reform Act of 1984)’’ after ‘‘sec18 tion 48(n)’’ in subsection (q)(1), and 

19 (7) by inserting ‘‘(as in effect before the enact20 ment of the Tax Reform Act of 1984)’’ after ‘‘sec21 tion 41’’ in subsection (q)(3). 

22 (j) EFFECTIVE DATE.— 

23 (1) IN GENERAL.—Except as provided in para24 graphs (2) and (3), the amendments made by this 


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1 section shall apply to taxable years beginning after 

2 December 31, 2014. 

3 (2) PERMANENT EXTENSION.—The amend4 ments made by subsection (g) shall apply to 

5 amounts paid or incurred after December 31, 2013. 

6 (3) TECHNICAL CORRECTIONS.—The amend7 ments made by subsection (i) shall take effect on the 

8 date of the enactment of this Act. 

9 SEC. 3. EXCEPTION FROM PASSIVE LOSS RULES FOR IN10 VESTMENTS IN HIGH TECHNOLOGY RE11 SEARCH SMALL BUSINESS PASS-THRU ENTI12 TIES. 

13 (a) IN GENERAL.—Subsection (c) of section 469 is 

14 amended by redesignating paragraphs (4) through (7) as 

15 paragraphs (5) through (8), respectively, and by inserting 

16 after paragraph (3) the following new paragraph: 

17 ‘‘(4) HIGH TECHNOLOGY RESEARCH ACTIVI18 TIES.— 

19 ‘‘(A) IN GENERAL.—The term ‘passive ac20 tivity’ shall not include any qualified research 

21 activity of the taxpayer carried on by a high 

22 technology research small business pass-thru 

23 entity. 

24 ‘‘(B) TREATMENT OF LOSSES AND DEDUC25 TIONS.— 


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1 ‘‘(i) IN GENERAL.—Losses or deduc2 tions of a taxpayer relating to qualified re3 search activities carried on by a high tech4 nology research small business pass-thru 

5 entity shall not be treated as losses or de6 ductions, respectively, from a passive activ7 ity except as provided in clause (ii) and 

8 subparagraph (C). 

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

10 apply to losses and deductions of a tax11 payer relating to a high technology small 

12 business pass-thru entity for a taxable year 

13 only to the extent that the aggregate losses 

14 and deductions of the taxpayer relating to 

15 qualified research activities of such entity 

16 for such taxable year do not exceed the 

17 portion of the taxpayer’s adjusted basis in 

18 the taxpayer’s ownership interest in such 

19 entity that is attributable to money or 

20 other property contributed— 

21 ‘‘(I) in exchange for such owner22 ship interest, and 

23 ‘‘(II) specifically for use in con24 nection with qualified research activi25 ties. 


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1 For purposes of the preceding sentence, 

2 the taxpayer’s basis shall not include any 

3 portion of such basis which is attributable 

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

5 liabilities of a partnership that is consid6 ered under section 752(a) as a contribution 

7 of money. 

8 ‘‘(C) TREATMENT OF CARRYOVERS.—Sub9 paragraph (B)(i) shall not apply to the portion 

10 of any loss or deduction that is carried over 

11 under subsection (b) into a taxable year other 

12 than the taxable year in which such loss or de13 duction arose. 

14 ‘‘(D) QUALIFIED RESEARCH ACTIVITY.— 

15 For purposes of this paragraph, the term 

16 ‘qualified research activity’ means any activity 

17 constituting qualified research (within the 

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

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

20 41(d)) which involves a process of experimen21 tation. 

22 ‘‘(E) HIGH TECHNOLOGY RESEARCH

23 SMALL BUSINESS PASS-THRU ENTITY.—For 

24 purposes of this paragraph, the term ‘high tech25 nology research small business pass-thru entity’ 


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1 means any domestic pass-thru entity for any 

2 taxable year if— 

3 ‘‘(i) either— 

4 ‘‘(I) more than 75 percent of the 

5 entity’s expenditures (including sala6 ries, rent and overhead) for such tax7 able year are paid or incurred in con8 nection with qualified research (within 

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

10 taking into account paragraphs (3) 

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

12 a process of experimentation con13 ducted by the entity, or 

14 ‘‘(II) more than 50 percent of 

15 the entity’s expenditures for such tax16 able year constitute qualified research 

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

18 but determined without regard to the 

19 phrase ‘65 percent of’ in paragraph 

20 (3)(A) thereof), 

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

22 (within the meaning of section 

23 41(b)(3)(D)(iii), applied by substituting 

24 ‘250’ for ‘500’ in subclause (I) thereof), 

25 and 


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

2 year does the entity have aggregate gross 

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

4 ‘‘(F) PROVISIONS RELATED TO AGGRE5 GATE GROSS ASSETS LIMITATION.—For pur6 poses of this paragraph— 

7 ‘‘(i) IN GENERAL.—Except as other8 wise provided in this subparagraph, the 

9 term ‘aggregate gross assets’ has the 

10 meaning given such term in section 

11 1202(d)(2). 

12 ‘‘(ii) EXCEPTION FOR CERTAIN IN13 TANGIBLES.—Any section 197 intangible 

14 (as defined in section 197(d) and deter15 mined without regard to section 197(e)) 

16 which is used directly in connection with 

17 the research referred to in subparagraph 

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

19 determining aggregate gross assets. 

20 ‘‘(iii) EXCEPTION FOR CERTAIN FOL21 LOW-ON INVESTMENTS.—Cash from a sale 

22 of equity interests shall not be taken into 

23 account in determining aggregate gross as24 sets if— 


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1 ‘‘(I) the aggregate gross assets of 

2 such entity (determined immediately 

3 after such sale and without regard to 

4 this clause) do not exceed the sum of 

5 $150,000,000, plus 25 percent of the 

6 aggregate gross assets of such entity 

7 (determined immediately before such 

8 sale and without regard to this 

9 clause), and 

10 ‘‘(II) the aggregate gross assets 

11 of such entity (determined imme12 diately before such sale and without 

13 regard to this clause) do not exceed 

14 $150,000,000. 

15 Sales of equity interests which are part of 

16 the same plan or arrangement, or which 

17 are carried out with the principal purpose 

18 of increasing the amount of cash to which 

19 this clause applies (determined without re20 gard to this sentence), shall be treated as 

21 a single sale for purposes of this clause. 

22 ‘‘(iv) INFLATION ADJUSTMENT.—In 

23 the case of any taxable year beginning 

24 after 2014, the $150,000,000 amount in 

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


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1 and (II) of clause (iii) shall each be in2 creased by an amount equal to— 

3 ‘‘(I) such dollar amount, multi4 plied by 

5 ‘‘(II) the cost of living adjust6 ment determined under section 1(f)(3) 

7 for the calendar year in which the tax8 able year begins determined by sub9 stituting ‘calendar year 2013’ for ‘cal10 endar year 1992’ in subparagraph (B) 

11 thereof. 

12 Any increase determined under the pre13 ceding sentence shall be rounded to the 

14 nearest $100,000. 

15 ‘‘(G) CAPITAL EXPENDITURES TAKEN INTO

16 ACCOUNT FOR EXPENDITURES TEST.—An ex17 penditure shall not fail to be taken into account 

18 under subparagraph (E)(i) merely because such 

19 expenditure is chargeable to capital account. 

20 ‘‘(H) PASS-THRU ENTITY.—For purposes 

21 of this paragraph, the term ‘pass-thru entity’ 

22 means any partnership, S corporation, or other 

23 entity identified by the Secretary as a pass-thru 

24 entity for purposes of this paragraph. 

25 ‘‘(I) AGGREGATION RULES.— 


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1 ‘‘(i) IN GENERAL.—All persons treat2 ed as a single employer under subsection 

3 (a) or (b) of section 52, or subsection (m) 

4 or (o) of section 414, shall be treated as a 

5 single entity for purposes of subparagraphs 

6 (E) and (F)(iii). 

7 ‘‘(ii) LIMITATION WHERE ENTITY

8 WOULD NOT QUALIFY.—No entity shall be 

9 treated as a high technology research small 

10 business pass-thru entity unless such enti11 ty qualifies as such both with and without 

12 the application of clause (i). 

13 ‘‘(J) ACTIVITIES NOT ENGAGED IN FOR

14 PROFIT AND ECONOMIC SUBSTANCE RULES.— 

15 Section 183 and the economic substance rules 

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

17 the losses, deductions, and credits of a high 

18 technology research small business pass-thru 

19 entity solely as a result of losses incurred by 

20 such entity.’’. 

21 (b) MATERIAL PARTICIPATION NOT REQUIRED.— 

22 Paragraph (5) of section 469(c) of such Code, as redesig23 nated by subsection (a), is amended by striking ‘‘and (3)’’ 

24 in the heading and text and inserting ‘‘, (3), and (4)’’. 


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1 (c) CERTAIN RESEARCH-RELATED DEDUCTIONS AND

2 CREDITS OF HIGH TECHNOLOGY RESEARCH SMALL

3 BUSINESS PASS-THRU ENTITIES ALLOWED FOR PUR4 POSES OF DETERMINING ALTERNATIVE MINIMUM TAX.— 

5 (1) DEDUCTION FOR RESEARCH AND EXPERI6 MENTAL EXPENDITURES.—Paragraph (2) of section 

7 56(b) of such Code is amended by adding at the end 

8 the following new subparagraph: 

9 ‘‘(E) EXCEPTION FOR HIGH TECHNOLOGY

10 RESEARCH SMALL BUSINESS PASS-THRU ENTI11 TIES.—In the case of a high technology re12 search small business pass-thru entity (as de13 fined in section 469(c)(4)), this paragraph shall 

14 not apply to any amount allowable as a deduc15 tion under section 174(a).’’. 

16 (2) ALLOWANCE OF CERTAIN RESEARCH-RE17 LATED CREDITS.—Subparagraph (B) of section 

18 38(c)(4) of such Code is amended by redesignating 

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

20 respectively, and by inserting after clause (i) the fol21 lowing new clause: 

22 ‘‘(ii) the credits determined with re23 spect to an individual taxpayer under sec24 tions 41 and 48D to the extent attrib25 utable to a high technology research small 


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1 business pass-thru entity (as defined in 

2 section 469(c)(4)),’’. 

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

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

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

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

7 any high technology research small business pass-thru en8 tity (as defined in section 469(c)(4)).’’ 

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

10 this section shall apply to losses and credits arising in tax11 able years beginning on or after December 31, 2014. 

12 SEC. 4. ENHANCED CREDIT FOR HIGHLY INNOVATIVE RE13 SEARCH. 

14 (a) IN GENERAL.—Section 41, as amended by this 

15 Act, is amended by adding at the end the following new 

16 subsection: 

17 ‘‘(g) ENHANCED CREDIT FOR HIGHLY INNOVATIVE

18 RESEARCH.— 

19 ‘‘(1) IN GENERAL.—In the case of any certified 

20 highly innovative research expenses, subsection (a) 

21 shall be applied by substituting ‘35 percent’ for ‘25 

22 percent’. 

23 ‘‘(2) CERTIFIED HIGHLY INNOVATIVE RE24 SEARCH EXPENSES.—For purposes of this sub25 section— 


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1 ‘‘(A) IN GENERAL.—The term ‘certified 

2 highly innovative research expenses’ means any 

3 qualified research expenses that— 

4 ‘‘(i) are paid or incurred during the 

5 taxable year for the creation of— 

6 ‘‘(I) a qualified new product cat7 egory, or 

8 ‘‘(II) product technology that 

9 represents a significant improvement 

10 over previously existing product tech11 nology, and 

12 ‘‘(ii) are certified as provided in sub13 paragraph (D). 

14 ‘‘(B) QUALIFIED NEW PRODUCT CAT15 EGORY.—The term ‘qualified new product cat16 egory’ means a category of product that— 

17 ‘‘(i) has not previously been produced 

18 by the taxpayer, and 

19 ‘‘(ii) incorporates functions that are 

20 substantially different from other products 

21 previously produced by the taxpayer. 

22 ‘‘(C) SIGNIFICANT IMPROVEMENT OVER

23 PREVIOUSLY EXISTING PRODUCT TECH24 NOLOGY.—Product technology satisfies the re25 quirements of subparagraph (A)(i)(II) if such 


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1 technology is an enhancement of a product 

2 that— 

3 ‘‘(i) requires the use of new tech4 niques or design methods to achieve such 

5 enhancement, and 

6 ‘‘(ii) represents a significant advance 

7 in terms of the performance, energy con8 sumption, environmental benefit, public 

9 health impact, cost, or size of the product. 

10 ‘‘(D) CERTIFICATION BY NATIONAL

11 SCIENCE FOUNDATION OR NATIONAL INSTI12 TUTES OF HEALTH.— 

13 ‘‘(i) IN GENERAL.—Qualified research 

14 expenses shall not be treated as certified 

15 highly innovative research expenses for any 

16 taxable year unless such expenses, and the 

17 project to which they relate, are certified 

18 by— 

19 ‘‘(I) the National Science Foun20 dation, or 

21 ‘‘(II) the National Institutes of 

22 Health, 

23 whichever has appropriate jurisdiction over 

24 the subject matter to which such expenses 

25 relate, as meeting the requirements of subVerDate Mar 15 2010 00:25 Aug 08, 2014 Jkt 039200 PO 00000 Frm 00031 Fmt 6652 Sfmt 6201 E:\BILLS\S2715.IS S2715

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1 paragraph (A)(i) (and any regulations or 

2 guidance issued by the Secretary pursuant 

3 to such subparagraph). Such certification 

4 shall be provided by the National Science 

5 Foundation under the program established 

6 by section 4(b) of the COMPETE Act of 

7 2014, or by the National Institutes of 

8 Health under the program established by 

9 section 4(c) of such Act, whichever is ap10 propriate, and shall be attached to the re11 turn of tax for such taxable year. In no 

12 event shall any taxpayer apply for certifi13 cation to more than one of the entities de14 scribed in this subparagraph with respect 

15 to the same expenses. 

16 ‘‘(ii) ADVANCE CERTIFICATION.— 

17 ‘‘(I) IN GENERAL.—The certifi18 cation of expenses under clause (i) 

19 may be made and provided to the tax20 payer not more than 3 taxable years 

21 before the first taxable year for which 

22 the enhanced credit under this sub23 section will be claimed with respect to 

24 such expenses. 


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1 ‘‘(II) REAPPLICATION.—The Na2 tional Science Foundation and the 

3 National Institutes of Health shall 

4 each establish and make publicly 

5 available a cap on the number of 

6 times a taxpayer who has been denied 

7 certification under clause (i) with re8 spect to any qualified research ex9 penses may reapply for certification 

10 for such expenses. The cap established 

11 by each such entity shall permit not 

12 fewer than 1 reapplication with re13 spect to any expenses. 

14 ‘‘(iii) DURATION OF CERTIFI15 CATION.— 

16 ‘‘(I) IN GENERAL.—The certifi17 cation under clause (i) shall apply to 

18 expenses relating to the same project 

19 (as identified in such certification) for 

20 not more than 7 consecutive taxable 

21 years, beginning with the first taxable 

22 year for which the enhanced credit 

23 under this subsection is claimed with 

24 respect to such expenses. 


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1 ‘‘(II) SUPPORTING DOCUMENTA2 TION.—In the case of a certification 

3 that applies for more than 1 taxable 

4 year, the Secretary may require the 

5 taxpayer to provide such documenta6 tion as the Secretary deems necessary 

7 to demonstrate that the expenses to 

8 which such certification relates con9 tinue to meet the requirements of sub10 paragraph (A)(i). 

11 ‘‘(iv) LIMITATION ON CERTIFI12 CATIONS.— 

13 ‘‘(I) IN GENERAL.—The total 

14 dollar amount of expenses which are 

15 certified by each entity under clause 

16 (i) (including by means of advance 

17 certification under clause (ii)) as high18 ly innovative research expenses for 

19 purposes of credits determined in any 

20 taxable year shall not exceed 

21 $500,000,000. 

22 ‘‘(II) ADJUSTMENT FOR INFLA23 TION.—In the case of a taxable year 

24 beginning after December 31, 2016, 

25 the $500,000,000 amount in subVerDate Mar 15 2010 00:25 Aug 08, 2014 Jkt 039200 PO 00000 Frm 00034 Fmt 6652 Sfmt 6201 E:\BILLS\S2715.IS S2715

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1 clause (I) shall be increased by an 

2 amount equal to the product of such 

3 dollar amount and the cost-of-living 

4 adjustment determined under section 

5 1(f)(3) for the calendar year, deter6 mined by substituting ‘calendar year 

7 2015’ for ‘calendar year 1992’ in sub8 paragraph (B) thereof. 

9 ‘‘(III) ROUNDING.—If any 

10 amount as adjusted under subclause 

11 (II) is not a multiple of $1,000, such 

12 amount shall be rounded to the next 

13 highest multiple of $1,000.’’. 

14 (b) CERTIFICATION BY NATIONAL SCIENCE FOUNDA15 TION AS HIGHLY INNOVATIVE RESEARCH AND PRO16 MOTION OF ENHANCED CREDIT.—The National Science 

17 Foundation Authorization Act of 2002 (Public Law 107– 

18 368) is amended by adding at the end the following: 

19 ‘‘SEC. 27. CERTIFICATION AS HIGHLY INNOVATIVE RE20 SEARCH AND PROMOTION OF ENHANCED 

21 CREDIT. 

22 ‘‘(a) CERTIFICATION.— 

23 ‘‘(1) IN GENERAL.—The Director shall establish 

24 a program that provides certification of research ex25 penses as highly innovative research expenses for 


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1 purposes of the enhanced credit for highly innovative 

2 research under section 41(g) of the Internal Revenue 

3 Code of 1986. 

4 ‘‘(2) APPLICATION.—A person that desires to 

5 have research expenses certified as highly innovative 

6 research expenses for purposes of the enhanced cred7 it for highly innovation research under section 41(g) 

8 of the Internal Revenue Code of 1986, shall submit 

9 to the Director an application containing such re10 quest at such time, in such manner, and accom11 panied by such information as the Director may re12 quire. 

13 ‘‘(3) REVIEW OF SUBMISSIONS.—In carrying 

14 out paragraph (1), the Director shall establish a re15 view process that involves— 

16 ‘‘(A) a set group of reviewers from various 

17 fields and backgrounds, and 

18 ‘‘(B) published criteria, developed in con19 sultation with the Secretary of the Treasury 

20 and the Secretary of Commerce, in accordance 

21 with the requirements of section 41(g)(2)(A)(i) 

22 of the Internal Revenue Code of 1986 and any 

23 regulations or guidance issued by the Secretary 

24 of the Treasury pursuant to such section. 


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1 ‘‘(4) TIME FOR REVIEW.—A certification under 

2 this subsection shall be denied or approved within 

3 120 days of the submission of the application under 

4 paragraph (2) (270 days, in the case of an applica5 tion for advance certification under section 

6 41(g)(2)(D)(ii) of the Internal Revenue Code of 

7 1986). 

8 ‘‘(b) PROMOTION OF ENHANCED CREDIT FOR HIGH9 LY INNOVATIVE RESEARCH.—The Director shall post on 

10 the website of the National Science Foundation informa11 tion on the enhanced credit for highly innovative research 

12 under section 41(g) of the Internal Revenue Code of 1986, 

13 and the process for applying for certification of research 

14 as highly innovative research. 

15 ‘‘(c) CONFIDENTIALITY.—The Director and each re16 viewer described in subsection (a)(3)(A) shall keep con17 fidential any information provided by a person that desires 

18 to have research expenses certified as highly innovative re19 search expenses pursuant to this section.’’. 

20 (c) CERTIFICATION BY NATIONAL INSTITUTES OF

21 HEALTH AS HIGHLY INNOVATIVE RESEARCH AND PRO22 MOTION OF ENHANCED CREDIT.—Part H of title IV of 

23 the Public Health Service Act (42 U.S.C. 289 et seq.) is 

24 amended by adding at the end the following: 


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1 ‘‘SEC. 498E. CERTIFICATION AS HIGHLY INNOVATIVE RE2 SEARCH AND PROMOTION OF ENHANCED 

3 CREDIT. 

4 ‘‘(a) CERTIFICATION.— 

5 ‘‘(1) IN GENERAL.—The Director of NIH shall 

6 establish a program that provides certification of re7 search expenses as highly innovative research ex8 penses for purposes of the enhanced credit for highly 

9 innovative research under section 41(g) of the Inter10 nal Revenue Code of 1986. 

11 ‘‘(2) APPLICATION.—A person that desires to 

12 have research expenses certified as highly innovative 

13 research expenses for purposes of the enhanced cred14 it for highly innovative research under section 41(g) 

15 of the Internal Revenue Code of 1986, shall submit 

16 to the Director of NIH an application containing 

17 such request at such time, in such manner, and ac18 companied by such information as the Director may 

19 require. 

20 ‘‘(3) REVIEW OF SUBMISSIONS.—In carrying 

21 out paragraph (1), the Director shall establish a re22 view process that involves— 

23 ‘‘(A) a set group of reviewers from various 

24 fields and backgrounds, and 

25 ‘‘(B) published criteria, developed in con26 sultation with the Secretary of the Treasury 


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1 and the Secretary of Commerce, in accordance 

2 with the requirements of section 41(g)(2)(A)(i) 

3 of the Internal Revenue Code of 1986 and any 

4 regulations or guidance issued by the Secretary 

5 of the Treasury pursuant to such section. 

6 ‘‘(4) TIME FOR REVIEW.—A certification under 

7 this subsection shall be denied or approved within 

8 120 days of the submission of the application under 

9 paragraph (2) (270 days, in the case of an applica10 tion for advance certification under section 

11 41(g)(2)(D)(ii) of the Internal Revenue Code of 

12 1986). 

13 ‘‘(b) PROMOTION OF ENHANCED CREDIT FOR HIGH14 LY INNOVATIVE RESEARCH.—The Director shall post on 

15 the website of the National Institutes of Health informa16 tion on the enhanced credit for highly innovative research 

17 under section 41(g) of the Internal Revenue Code of 1986, 

18 and the process for applying for certification of research 

19 as highly innovative research. 

20 ‘‘(c) CONFIDENTIALITY.—The Director of NIH and 

21 each reviewer described in subsection (a)(3)(A) shall keep 

22 confidential any information provided by a person that de23 sires to have research expenses certified as highly innova24 tive research expenses pursuant to this section.’’. 


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

2 subsection (a) shall apply to expenses paid or incurred in 

3 taxable years beginning after December 31, 2015. 

4 SEC. 5. CREDIT ALLOWED AGAINST ALTERNATIVE MIN5 IMUM TAX. 

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

7 38(c)(4) is amended— 

8 (1) by redesignating clauses (ii), (iii), (iv), (v), 

9 (vi), (vii), (viii), and (ix) as clauses (iii), (iv), (v), 

10 (vi), (vii), (viii), (ix), and (x), respectively, and 

11 (2) by inserting after clause (i) the following 

12 new clause: 

13 ‘‘(ii) for taxable years beginning after 

14 December 31, 2013, the credit determined 

15 under section 41,’’. 

16 (b) SPECIAL RULE FOR ENHANCED CREDIT FOR

17 HIGHLY INNOVATIVE RESEARCH.—Paragraph (4) of sec18 tion 38(c) is amended by adding at the end the following 

19 new subparagraph: 

20 ‘‘(C) SPECIAL RULE FOR ENHANCED

21 CREDIT FOR HIGHLY INNOVATIVE RESEARCH.— 

22 In the case of any portion of the credit deter23 mined under section 41 which is attributable to 

24 subsection (g) of such section— 


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1 ‘‘(i) subparagraph (A) shall be applied 

2 separately with respect to such portion, 

3 and 

4 ‘‘(ii) paragraph (1) shall be applied to 

5 such portion as if the amount determined 

6 under subparagraph (B) of such paragraph 

7 were zero.’’. 

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 6. TAX-EXEMPT FINANCING OF RESEARCH PARK FA12 CILITIES. 

13 (a) IN GENERAL.—Subsection (a) of section 142 is 

14 amended— 

15 (1) by striking ‘‘or’’ at the end of paragraph 

16 (14), 

17 (2) by striking the period at the end of para18 graph (15) and inserting ‘‘, or’’, and 

19 (3) by inserting at the end the following new 

20 paragraph: 

21 ‘‘(16) research park facilities.’’. 

22 (b) DEFINITION.—Section 142 is amended by insert23 ing at the end the following new subsection: 

24 ‘‘(n) RESEARCH PARK FACILITIES.—For purposes of 

25 subsection (a)(16), the term ‘research park facility’ means 


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1 a facility (including buildings, land, or other structures) 

2 which is used in connection with research and experimen3 tation (as defined in section 168(i)(11)). For purposes of 

4 the preceding sentence, such term includes facilities which 

5 are directly related and ancillary to a research park facil6 ity (determined without regard to this sentence) if— 

7 ‘‘(1) such facilities are located on the same site 

8 as the research park facility, and 

9 ‘‘(2) not more than 25 percent of the net pro10 ceeds of the issue are used to provide such facili11 ties.’’. 

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

13 this section shall apply with respect to bonds issued on 

14 or after the date of the enactment of this Act. 

Æ 


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