II 

109TH CONGRESS 

1ST SESSION S. 627 

To amend the Internal Revenue Code of 1986 to permanently extend the 

research credit, to increase the rates of the alternative incremental credit, 

and to provide an alternative simplified credit for qualified research 

expenses. 

IN THE SENATE OF THE UNITED STATES 

MARCH 15, 2005 

Mr. HATCH (for himself, Mr. BAUCUS, Mr. GRASSLEY, Mr. KYL, Mr. SMITH, 

Mr. SCHUMER, and Mr. KERRY) 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 permanently 

extend the research credit, to increase the rates of the 

alternative incremental credit, and to provide an alternative simplified credit for qualified research expenses.

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 ‘‘Investment in America 

5 Act of 2005’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds the following: 
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1 (1) Research and development performed in the 

2 United States results in quality jobs, better and 

3 safer products, increased ownership of technology4 based intellectual property, and higher productivity 

5 in the United States. 

6 (2) The extent to which companies perform and 

7 increase research and development activities in the 

8 United States is in part dependent on Federal tax 

9 policy. 

10 (3) Congress should make permanent a re11 search and development credit that provides a mean12 ingful incentive to all types of taxpayers. 

13 SEC. 3. PERMANENT EXTENSION OF RESEARCH CREDIT. 

14 (a) IN GENERAL.—Section 41 of the Internal Rev15 enue Code of 1986 (relating to credit for increasing re16 search activities) is amended by striking subsection (h). 

17 (b) CONFORMING AMENDMENT.—Paragraph (1) of 

18 section 45C(b) of such Code is amended by striking sub19 paragraph (D). 

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

21 this section shall apply to amounts paid or incurred after 

22 the date of the enactment of this Act. 
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1 SEC. 4. INCREASE IN RATES OF ALTERNATIVE INCRE2 MENTAL CREDIT. 

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

4 41(c)(4) of the Internal Revenue Code of 1986 (relating 

5 to election of alternative incremental credit) is amended— 

6 (1) by striking ‘‘2.65 percent’’ and inserting ‘‘3 

7 percent’’, 

8 (2) by striking ‘‘3.2 percent’’ and inserting ‘‘4 

9 percent’’, and 

10 (3) by striking ‘‘3.75 percent’’ and inserting ‘‘5 

11 percent’’. 

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

13 this section shall apply to taxable years ending after the 

14 date of the enactment of this Act. 

15 SEC. 5. ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED 

16 RESEARCH EXPENSES. 

17 (a) IN GENERAL.—Subsection (c) of section 41 of the 

18 Internal Revenue Code of 1986 (relating to base amount) 

19 is amended by redesignating paragraphs (5) and (6) as 

20 paragraphs (6) and (7), respectively, and by inserting 

21 after paragraph (4) the following new paragraph: 

22 ‘‘(5) ELECTION OF ALTERNATIVE SIMPLIFIED

23 CREDIT.— 

24 ‘‘(A) IN GENERAL.—At the election of the 

25 taxpayer, the credit determined under sub26 section (a)(1) shall be equal to 12 percent of so 
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1 much of the qualified research expenses for the 

2 taxable year as exceeds 50 percent of the aver3 age qualified research expenses for the 3 tax4 able years preceding the taxable year for which 

5 the credit is being determined. 

6 ‘‘(B) SPECIAL RULE IN CASE OF NO

7 QUALIFIED RESEARCH EXPENSES IN ANY OF 3

8 PRECEDING TAXABLE YEARS.— 

9 ‘‘(i) TAXPAYERS TO WHICH SUBPARA10 GRAPH APPLIES.—The credit under this 

11 paragraph shall be determined under this 

12 subparagraph if the taxpayer has no quali13 fied research expenses in any 1 of the 3 

14 taxable years preceding the taxable year 

15 for which the credit is being determined. 

16 ‘‘(ii) CREDIT RATE.—The credit de17 termined under this subparagraph shall be 

18 equal to 6 percent of the qualified research 

19 expenses for the taxable year. 

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

21 paragraph shall apply to the taxable year for 

22 which made and all succeeding taxable years 

23 unless revoked with the consent of the Sec24 retary. An election under this paragraph may 
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1 not be made for any taxable year to which an 

2 election under paragraph (4) applies.’’. 

3 (b) COORDINATION WITH ELECTION OF ALTER4 NATIVE INCREMENTAL CREDIT.— 

5 (1) IN GENERAL.—Section 41(c)(4)(B) of the 

6 Internal Revenue Code of 1986 (relating to election) 

7 is amended by adding at the end the following: ‘‘An 

8 election under this paragraph may not be made for 

9 any taxable year to which an election under para10 graph (5) applies.’’. 

11 (2) TRANSITION RULE.—In the case of an elec12 tion under section 41(c)(4) of the Internal Revenue 

13 Code of 1986 which applies to the taxable year 

14 which includes the date of the enactment of this Act, 

15 such election shall be treated as revoked with the 

16 consent of the Secretary of the Treasury if the tax17 payer makes an election under section 41(c)(5) of 

18 such Code (as added by subsection (a)) for such 

19 year. 

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

21 this section shall apply to taxable years ending after the 

22 date of the enactment of this Act.

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