Research and Development Tax Credit Expansion Act of 2023

To amend the Internal Revenue Code of 1986 to expand eligibility and increase simplification of the research credit for certain small businesses. 1. Short title This Act may be cited as the Research and Development Tax Credit Expansion Act of 2023 2. Expansion of refundable research credit for new and small businesses (a) Adjustment for inflation Paragraph (4) of section 41(h) of such Code is amended— (1) by redesignating subparagraph (C) as subparagraph (D), (2) by redesignating clause (ii) of subparagraph (B) as subparagraph (C), and by moving such subparagraph 2 ems to the left, (3) by striking Limitations Limitation on amount of election (4) by striking Amount In general (5) by adding at the end of subparagraph (B), as amended by the preceding subparagraphs of this paragraph, the following new clause: (ii) Adjustment for inflation In the case of a taxable year beginning after 2024, the dollar amounts in clause (i) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2023 2016 If any increase under the preceding sentence is not a multiple of $100, such increase shall be rounded to the nearest multiple of $100. . (b) Credit refundable against unemployment taxes (1) In general Section 3111(f)(1)(B) subsection (b) subsection (b) and section 3301 (2) Conforming amendments (A) Paragraph (2) of section 3111(f) of such Code is amended by striking the tax imposed by subsection (b) the sum of the taxes imposed by Comprehensive Legislation Ensuring Accountability and Responsiveness Act of 2023 (B) Section 3302 of such Code is amended by adding at the end the following new subsection: (i) Credit for research expenditures of qualified small businesses Any portion of the credit under section 3111(f) which is credited under such section to the tax under section 3301 shall be treated as a credit under this section. Subsection (c) shall not apply to any such credit. . (c) Qualified small business definition expanded Section 41(h)(3)(A) of such Code is amended— (1) in clause (i)(I), by striking $5,000,000 $10,000,000 (2) by amending clause (i)(II) to read as follows: (II) such entity did not have gross receipts (as so determined) exceeding an aggregate of $25,000 for any taxable year preceding the 10-taxable-year period ending with such taxable year, and , and (3) by adding at the end the following flush sentence: For purposes of the preceding sentence, gross receipts shall be determined under the rules of section 448(c)(3) without regard to subparagraph (A) thereof, except that such term shall not include any contributions to the capital of a corporation (other than contributions by a shareholder) or any amount described in section 118(b) (other than receipts from customers in exchange for goods or services). . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2023. 3. Modifications to alternative simplified credit for new and small businesses (a) In general Paragraph (4) of section 41(c) (D) Special rules for qualified small businesses In the case of a qualified small business— (i) Credit rate Subparagraph (A) shall be applied by substituting 20 percent 14 percent (ii) Special rule for 1st year of qualified research expenses If the taxpayer has no qualified research expenses in any taxable year preceding the taxable year for which the credit is being determined, subparagraph (B)(ii) shall be applied by substituting 20 percent 6 percent (iii) Special rule for other years If the taxpayer is not described in clause (ii) for the taxable year, and subparagraph (B) applies to such taxpayer for such year, at the election of the taxpayer— (I) subparagraph (B)(ii) shall be applied by substituting 10 percent 6 percent (II) subparagraph (B) shall not apply, and the average under subparagraph (A) shall be determined by disregarding any taxable year in the 3-year period described in such subparagraph in which there were no qualified research expenses. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2023.

Summary: Research and Development Tax Credit Expansion Act of 2023 This bill modifies the refundable research tax credit for new and small businesses to (1) provide for an inflation adjustment to the limit on credit refundability; (2) allow refundable amounts to cover all payroll taxes paid by such businesses; and (3) extend eligibility for the credit to small businesses with less than $10 million in gross receipts (currently, less than $5 million). The bill also increases the rate of the alternative simplified tax credit for such businesses.