I 
110TH CONGRESS 
1ST SESSION H. R. 1712 
To amend the Internal Revenue Code of 1986 to provide incentives to improve 
America’s research competitiveness, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 27, 2007 
Ms. EDDIE BERNICE JOHNSON of Texas 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 
incentives to improve America’s research competitiveness, 
and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the‘‘Research and Develop-
ment Tax Credit Act of 2007’’. 
SEC. 2. SIMPLIFICATION OF RESEARCH AND DEVELOP-
MENT CREDIT. 
(a) SIMPLIFIED CREDIT FOR QUALIFIED RESEARCH 
EXPENSES.— 
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(1) IN GENERAL.—Subsection (a) of section 41 
of the Internal Revenue Code of 1986 (relating to 
credit for increasing research activities) is amended 
to read as follows: 
‘‘(a) DETERMINATION OF CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of section 38, 
the research credit determined under this section for 
the taxable year shall be equal to 20 percent of so 
much of the qualified research expenses for such 
taxable year as exceeds 50 percent of the average 
qualified research expenses for the 3 taxable years 
preceding the taxable year for which the credit is 
being determined. 
‘‘(2) SPECIAL RULE IN CASE OF NO QUALIFIED 
RESEARCH EXPENSES IN ANY OF 3 PRECEDING TAX-
ABLE YEARS.— 
‘‘(A) TAXPAYERS TO WHICH PARAGRAPH 
APPLIES.—The credit under this section shall 
be determined under this paragraph if the tax-
payer has no qualified research expenses in at 
least 1 of the 3 taxable years preceding the tax-
able year for which the credit is being deter-
mined. 
‘‘(B) CREDIT
RATE.—The credit deter-
mined under this paragraph shall be equal to 
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10 percent of the qualified research expenses 
for the taxable year.’’. 
(2) CONFORMING AMENDMENT.—Section 41 of 
such Code, as amended by section 104 of division A 
of the Tax Relief and Health Care Act of 2006, is 
amended by striking subsection (c). 
(b) UNIFORM REIMBURSEMENT RATES
FOR ALL 
CONTRACT
RESEARCH
EXPENSES
OTHER
THAN 
AMOUNTS PAID FOR BASIC RESEARCH.— 
(1) IN GENERAL.—Section 41(b)(3) of the In-
ternal Revenue Code of 1986 (relating to contract 
research expenses) is amended— 
(A) by striking ‘‘65 percent’’ and inserting 
‘‘80 percent’’, and 
(B) by striking subparagraphs (C) and 
(D). 
(2) 
BASIC
RESEARCH
PAYMENTS.—Section 
41(b) of such Code is amended by redesignating 
paragraph (4) as paragraph (5) and by inserting 
after paragraph (3) the following new paragraph: 
‘‘(4) BASIC RESEARCH PAYMENTS.— 
‘‘(A) IN GENERAL.—In the case of basic 
research payments by the taxpayer, paragraph 
(3)(A) shall be applied by substituting ‘100 per-
cent’ for ‘80 percent’. 
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‘‘(B) BASIC
RESEARCH
PAYMENTS
DE-
FINED.—For purposes of this paragraph— 
‘‘(i) IN
GENERAL.—The term ‘basic 
research payment’ means, with respect to 
any taxable year, any amount paid in cash 
during such taxable year by a corporation 
to any qualified organization for basic re-
search but only if— 
‘‘(I) such payment is pursuant to 
a written agreement between such cor-
poration and such qualified organiza-
tion, and 
‘‘(II) such basic research is to be 
performed by such qualified organiza-
tion. 
‘‘(ii) EXCEPTION
TO
REQUIREMENT 
THAT RESEARCH BE PERFORMED BY THE 
ORGANIZATION.—In the case of a qualified 
organization described in clause (iii) or (iv) 
of subparagraph (C), subclause (II) of 
clause (i) shall not apply. 
‘‘(C) 
QUALIFIED
ORGANIZATION.—For 
purposes of this paragraph, the term ‘qualified 
organization’ means any of the following orga-
nizations: 
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‘‘(i) EDUCATIONAL
INSTITUTIONS.— 
Any educational organization which— 
‘‘(I) is an institution of higher 
education (within the meaning of sec-
tion 3304(f)), and 
‘‘(II) is described in section 
170(b)(1)(A)(ii). 
‘‘(ii) CERTAIN SCIENTIFIC RESEARCH 
ORGANIZATIONS.—Any 
organization 
not 
described in clause (i) which— 
‘‘(I) 
is 
described 
in 
section 
501(c)(3) and is exempt from tax 
under section 501(a), 
‘‘(II) is organized and operated 
primarily to conduct scientific re-
search, and 
‘‘(III) is not a private founda-
tion. 
‘‘(iii) SCIENTIFIC TAX-EXEMPT ORGA-
NIZATIONS.—Any organization which— 
‘‘(I) 
is 
described 
in 
section 
501(c)(3) (other than a private foun-
dation) or section 501(c)(6), 
‘‘(II) is exempt from tax under 
section 501(a), 
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‘‘(III) is organized and operated 
primarily to promote scientific re-
search by qualified organizations de-
scribed in clause (i) pursuant to writ-
ten research agreements, and 
‘‘(IV) currently expends substan-
tially all of its funds or substantially 
all of the basic research payments re-
ceived by it for grants to, or contracts 
for basic research with, an organiza-
tion described in clause (i). 
‘‘(iv) 
CERTAIN
GRANT
ORGANIZA-
TIONS.—Any organization not described in 
clause (ii) or (iii) which— 
‘‘(I) 
is 
described 
in 
section 
501(c)(3) and is exempt from tax 
under section 501(a) (other than a 
private foundation), 
‘‘(II) is established and main-
tained by an organization established 
before July 10, 1981, which meets the 
requirements of subclause (I), 
‘‘(III) is organized and operated 
exclusively for the purpose of making 
grants to organizations described in 
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clause (i) pursuant to written research 
agreements for purposes of basic re-
search, and 
‘‘(IV) makes an election, rev-
ocable only with the consent of the 
Secretary, to be treated as a private 
foundation for purposes of this title 
(other than section 4940, relating to 
excise tax based on investment in-
come). 
‘‘(D) DEFINITIONS AND SPECIAL RULES.— 
For purposes of this paragraph— 
‘‘(i) BASIC
RESEARCH.—The term 
‘basic research’ means any original inves-
tigation for the advancement of scientific 
knowledge not having a specific commercial 
objective, except that such term shall not 
include— 
‘‘(I) basic research conducted 
outside of the United States, and 
‘‘(II) basic research in the social 
sciences, arts, or humanities. 
‘‘(ii) TRADE OR BUSINESS QUALIFICA-
TION.—For purposes of applying para-
graph (1) to this paragraph, any basic re-
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search payments shall be treated as an 
amount paid in carrying on a trade or 
business of the taxpayer in the taxable 
year in which it is paid (without regard to 
the provisions of paragraph (3)(B)). 
‘‘(iii) CERTAIN
CORPORATIONS
NOT 
ELIGIBLE.—The term ‘corporation’ shall 
not include— 
‘‘(I) an S corporation, 
‘‘(II) a personal holding company 
(as defined in section 542), or 
‘‘(III) a service organization (as 
defined in section 414(m)(3)).’’. 
(3) CONFORMING AMENDMENTS.— 
(A) Section 41 of such Code is amended by 
striking subsection (e). 
(B) Section 41(f) of such Code is amended 
by striking paragraph (6). 
(c) PERMANENT EXTENSION OF CREDIT.— 
(1) IN GENERAL.—Section 41 of the Internal 
Revenue Code of 1986 is amended by striking sub-
section (h). 
(2) CONFORMING AMENDMENT.—Paragraph (1) 
of section 45C(b) of such Code is amended by strik-
ing subparagraph (D). 
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(d) CONFORMING AMENDMENTS.— 
(1) Section 41 of the Internal Revenue Code of 
1986 is amended by redesignating subsections (d), 
(f), and (g) as subsections (c), (d), and (e), respec-
tively. 
(2) Paragraphs (2)(A) and (5) (as redesignated 
by subsection (b)(2)) of section 41(b) of such Code 
are each amended by striking ‘‘subsection (f)(1)’’ 
and inserting ‘‘subsection (d)(1)’’. 
(3) 
Sections 
45C(d)(3), 
45G(e)(2), 
and 
936(h)(5)(C)(i)(IV)(c) of such Code are each 
amended by striking ‘‘section 41(f)’’ and inserting 
‘‘section 41(d)’’. 
(4) Section 54(l)(3)(A) of such Code is amend-
ed by striking ‘‘section 41(g)’’ and inserting ‘‘section 
41(e)’’. 
(5) Section 170(e)(4)(B)(i) of such Code is 
amended by striking ‘‘subparagraph (A) or subpara-
graph (B) of section 41(e)(6)’’ and inserting ‘‘clause 
(i) or (ii) of section 41(b)(4)(C)’’. 
(6) Sections 197(f)(1)(C), 197(f)(9)(C)(i)(II), 
and 280C(b)(3) of such Code are each amended by 
striking ‘‘section 41(f)(1)’’ and inserting ‘‘section 
41(d)(1)’’. 
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(7) Section 280C(b)(3) of such Code is amend-
ed by striking ‘‘section 41(f)(5)’’ and inserting ‘‘sec-
tion 41(d)(5)’’. 
(8) Section 280C(b)(3) of such Code is amend-
ed by striking ‘‘section 41(f)(1)(B)’’ and inserting 
‘‘section 41(d)(1)(B)’’. 
(9) Section 280C(c)(1) of such Code is amend-
ed by striking ‘‘section 41(e)(2)’’ and inserting ‘‘sec-
tion 41(b)(4)(B)’’. 
(10) Section 280C(c)(2)(A) of such Code is 
amended by striking ‘‘section 41(a)(1)’’ and insert-
ing ‘‘section 41(a)’’. 
(11) Sections 936(j)(5)(D) and 965(c)(2)(C)(i) 
of such Code are each amended by striking ‘‘section 
41(f)(3)’’ and inserting ‘‘section 41(d)(3)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
(f) STUDY OF COMPLIANCE WITH SUBSTANTIATION 
REQUIREMENTS.—The Secretary of the Treasury or his 
delegate shall, not later than 1 year after the date of the 
enactment of this Act, conduct a study of taxpayer compli-
ance with the substantiation requirements for claiming the 
credit allowed under section 41 of the Internal Revenue 
Code of 1986, including a study of— 
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(1) whether taxpayers maintain adequate record 
keeping to determine eligibility for, and correct 
amount of, the credit, 
(2) the impact of failure to comply with such 
requirements on the oversight and enforcement re-
sponsibilities of the Internal Revenue Service, and 
(3) the burdens imposed on other taxpayers by 
failure to comply with such requirements. 
The Secretary shall report the results of such study to 
the Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate, 
including any recommendations for administrative or leg-
islative actions which could be taken to improve compli-
ance with such requirements. 
SEC. 3. TAX CREDIT FOR INVESTMENTS IN SMALL TECH-
NOLOGY INNOVATION COMPANIES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new 
section: 
‘‘SEC. 45N. RESEARCH INVESTMENT TAX CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of section 38, 
in the case of a taxpayer who holds a qualified eq-
uity investment on a credit allowance date of such 
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investment which occurs during the taxable year, the 
research investment tax credit determined under this 
section for such taxable year is an amount equal to 
the 5 percent of the amount paid to the qualified re-
search entity for such investment at its original 
issue. 
‘‘(2) CREDIT ALLOWANCE DATE.—For purposes 
of paragraph (1), the term ‘credit allowance date’ 
means, with respect to any qualified equity invest-
ment— 
‘‘(A) the date on which such investment is 
initially made, and 
‘‘(B) each of the 4 anniversary dates of 
such date thereafter. 
‘‘(b) QUALIFIED EQUITY INVESTMENT.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified equity 
investment’ means any equity investment in a quali-
fied research entity if— 
‘‘(A) such investment is acquired by the 
taxpayer at its original issue (directly or 
through an underwriter) solely in exchange for 
cash, 
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‘‘(B) substantially all of such cash is used 
by the qualified research entity to make quali-
fied research investments, and 
‘‘(C) such investment is designated for 
purposes of this section by the qualified re-
search entity. 
Such term shall not include any equity investment 
issued by a qualified research entity more than 5 
years after the date that such entity receives an allo-
cation under subsection (e). Any allocation not used 
within such 5-year period may be reallocated by the 
Secretary under subsection (e). 
‘‘(2) LIMITATION.—The maximum amount of 
equity investments issued by a qualified research en-
tity which may be designated under paragraph 
(1)(C) by such entity shall not exceed the portion of 
the limitation amount allocated under subsection (f) 
to such entity. 
‘‘(3) SAFE HARBOR FOR DETERMINING USE OF 
CASH.—The requirement of paragraph (1)(B) shall 
be treated as met if at least 85 percent of the aggre-
gate gross assets of the qualified research entity are 
invested in qualified research investments. 
‘‘(4) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified research investment’ 
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includes any equity investment which would (but for 
paragraph (1)(A)) be a qualified equity investment 
in the hands of the taxpayer if such investment was 
a qualified equity investment in the hands of a prior 
holder. 
‘‘(5) REDEMPTIONS.—A rule similar to the rule 
of section 1202(c)(3) shall apply for purposes of this 
subsection. 
‘‘(6) EQUITY INVESTMENT.—The term ‘equity 
investment’ means— 
‘‘(A) any stock (other than nonqualified 
preferred stock as defined in section 351(g)(2)) 
in an entity which is a corporation, and 
‘‘(B) any capital interest in an entity 
which is a partnership. 
‘‘(c) QUALIFIED RESEARCH ENTITY.—For purposes 
of this section, the term ‘qualified research entity’ means 
any domestic corporation or partnership if— 
‘‘(1) the primary mission of the entity is serv-
ing, or providing investment capital for, qualifying 
small business innovation companies, 
‘‘(2) the entity maintains accountability to engi-
neers, scientists, and other research-related profes-
sionals through their representation on any gov-
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