I 
109TH CONGRESS 
2D SESSION 
H. R. 5115 
To amend the Internal Revenue Code of 1986 to modernize the tax treatment 
of biomedical research corporations. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 6, 2006 
Ms. HART (for herself, Mr. ENGLISH of Pennsylvania, and Mr. WELLER) in-
troduced the following bill; which was referred to the Committee on Ways 
and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to modernize 
the tax treatment of biomedical research corporations. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘U.S. Healthcare Technologies Competitiveness Act of 
2006’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
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shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.— 
Sec. 1. Short title. 
TITLE I—PROVISIONS RELATING TO CORPORATE TAX 
INCENTIVES 
Sec. 101. Modify change of ownership rules. 
Sec. 102. Net operating losses under alternative minimum tax. 
Sec. 103. Research credit expansion. 
Sec. 104. Medical innovation tax credit. 
Sec. 105. Orphan drug credit expansion. 
Sec. 106. Countermeasures and pandemic flu research incentives. 
Sec. 107. Countermeasures equity tax credit. 
Sec. 108. Biotechnology science parks. 
Sec. 109. Expensing for qualified medical research equipment. 
TITLE II—PROVISIONS RELATING TO INVESTOR TAX INCENTIVES 
Sec. 201. Capital gains rollover. 
Sec. 202. Treatment of ordinary losses. 
Sec. 203. Equity credit for incubational firms. 
Sec. 204. Modification of passive loss rules. 
Sec. 205. Modification of subchapter S rules. 
Sec. 206. Treatment of bonds for biomedical research facilities as exempt facil-
ity bonds. 
Sec. 207. Incentives for biotechnology zones. 
TITLE I—PROVISIONS RELATING 
TO CORPORATE TAX INCEN-
TIVES 
SEC. 101. MODIFY CHANGE OF OWNERSHIP RULES. 
(a) IN GENERAL.—Subsection (l) of section 382 is 
amended by adding at the end the following new para-
graph: 
‘‘(9) CERTAIN
FINANCING
TRANSACTIONS
OF 
BIOMEDICAL RESEARCH CORPORATIONS.— 
‘‘(A) GENERAL RULE.—In the case of a 
biomedical research corporation, any owner 
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shift involving a 5-percent shareholder which 
occurs as the result of a qualified investment or 
qualified transaction during the testing period 
shall be treated for purposes of this section 
(other than this paragraph) as occurring before 
the testing period. 
‘‘(B) BIOMEDICAL
RESEARCH
CORPORA-
TION.—For purposes of this paragraph, the 
term ‘biomedical research corporation’ means, 
with respect to any qualified investment, any 
domestic corporation subject to tax under this 
subchapter which is not in bankruptcy and 
which, as of the time of the closing on such in-
vestment— 
‘‘(i) holds the rights to a drug or bio-
logic for which an investigational new drug 
application is in effect under section 505 
of the Federal Food, Drug, and Cosmetic 
Act, or holds the rights to a device for 
which an investigational device exemption 
is approved under section 520(g) of such 
Act, and 
‘‘(ii) certifies that, as of the time of 
such closing, the drug, biologic, or device 
is, or in the 6 month period beginning 3 
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months before such closing has been, 
under study pursuant to an investigational 
use exemption under section 505(i) or sec-
tion 520(g) of the Federal Food, Drug, 
and Cosmetic Act. 
‘‘(C) QUALIFIED INVESTMENT.—For pur-
poses of this paragraph, the term ‘qualified in-
vestment’ means any acquisition of stock by a 
shareholder (who after such acquisition is a less 
than 50 percent shareholder) in a biomedical 
research corporation if such stock is acquired at 
its original issue (directly or through an under-
writer) solely in exchange for cash. 
‘‘(D) QUALIFIED TRANSACTION.—For pur-
poses of this paragraph, the term ‘qualified 
transaction’ means any acquisition of stock in a 
biomedical research corporation if such stock is 
acquired as part of a merger or acquisition by 
another biomedical research corporation that is 
a loss corporation. If the acquiring loss corpora-
tion is a member of a controlled group of cor-
porations under section 1563(a), the group 
must be a loss group. 
‘‘(E) STOCK
ISSUED
IN
EXCHANGE
FOR 
CONVERTIBLE
DEBT.—For purposes of this 
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paragraph, stock issued by a biomedical re-
search corporation in exchange for its convert-
ible debt (or stock deemed under this section to 
be so issued) shall be treated as stock acquired 
by the debt holder at its original issue and sole-
ly in exchange for cash if the debt holder pre-
viously acquired the convertible debt at its 
original issue and solely in exchange for cash. 
In the case of an acquisition of stock in ex-
change for convertible debt, the requirements of 
this paragraph shall be applied separately as of 
the time of closing on the investment in con-
vertible debt, and as of the time of actual con-
version (or deemed conversion under this sec-
tion) of the convertible debt for stock. 
‘‘(F) BIOMEDICAL
RESEARCH
CORPORA-
TION MUST MEET 3-YEAR EXPENDITURE AND 
CONTINUITY
OF
BUSINESS
TESTS
WITH
RE-
SPECT TO ANY QUALIFIED INVESTMENT.— 
‘‘(i) IN
GENERAL.—This paragraph 
shall not apply to a qualified investment or 
transaction in a biomedical research cor-
poration unless such corporation meets the 
expenditure test for each year of the meas-
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uring period and the continuity of business 
test. 
‘‘(ii) MEASURING PERIOD.—For pur-
poses of this subparagraph, the term 
‘measuring period’ means, with respect to 
any qualified investment or transaction, 
the taxable year of the biomedical research 
corporation in which the closing on the in-
vestment occurs, and the 2 preceding tax-
able years. 
‘‘(iii) EXPENDITURE
TEST.—A bio-
medical research corporation meets the ex-
penditure test of this subparagraph for a 
taxable year if at least 35 percent of its ex-
penditures for the taxable year (including, 
for purposes of this clause, payments in re-
demption of its stock) are expenditures de-
scribed in section 41(b) or clinical and pre-
clinical expenses. 
‘‘(iv) 
CONTINUITY
OF
BUSINESS 
TEST.—A biomedical research corporation 
meets the continuity of business test if, at 
all times during the 2-year period following 
a qualified investment or transaction, such 
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corporation continues the business enter-
prise of such corporation. 
‘‘(G) EFFECT
OF
CORPORATE
REDEMP-
TIONS
ON
QUALIFIED
INVESTMENTS.—Rules 
similar to the rules of section 1202(c)(3) shall 
apply to qualified investments under this para-
graph except that ‘stock acquired in a qualified 
investment’ shall be substituted for ‘qualified 
small business stock’ each place it appears 
therein. 
‘‘(H) EFFECT
OF
OTHER
TRANSACTIONS 
BETWEEN
BIOMEDICAL
RESEARCH
CORPORA-
TIONS AND INVESTORS MAKING QUALIFIED IN-
VESTMENTS.— 
‘‘(i) IN GENERAL.—If, during the 2- 
year period beginning 1 year before any 
qualified investment, the biomedical re-
search corporation engages in another 
transaction with a member of its qualified 
investment group and such biomedical re-
search corporation receives any consider-
ation other than cash in such transaction, 
there shall be a presumption that stock re-
ceived in the otherwise qualified investment 
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transaction was not received solely in ex-
change for cash. 
‘‘(ii) 
QUALIFIED
INVESTMENT 
GROUP.—For purposes of this subpara-
graph, the term ‘qualified investment 
group’ means, with respect to any qualified 
investment, one or more persons who re-
ceive stock issued in exchange for the 
qualified investment, and any person re-
lated to such persons within the meaning 
of section 267(b) or section 707(b). 
‘‘(iii) REGULATIONS.—The Secretary 
may promulgate regulations exempting 
from this subparagraph transactions which 
are customary in the bioscience research 
industry and are of minor value relative to 
the amount of the qualified investment. 
The Secretary may issue such regulations 
as may be appropriate to achieve the pur-
poses of this paragraph to prevent abuse 
and to provide for treatment of biomedical 
research corporations under sections 383 
and 384 that is consistent with the pur-
poses of this paragraph.’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 102. NET OPERATING LOSSES UNDER ALTERNATIVE 
MINIMUM TAX. 
(a) IN GENERAL.—Section 56(d)(1) (defining alter-
native tax net operating loss deduction) is amended by 
striking ‘‘and’’ at the end of subparagraph (A), by striking 
the period at the end of subparagraph (B) and inserting 
‘‘, and’’, and by adding at the end the following new sub-
paragraph: 
‘‘(C) in the case of biomedical research 
corporations 
(as 
defined 
in 
section 
382(l)(9)(B)), the amount of such deduction 
shall not exceed the alternative minimum tax-
able income determined without regard to such 
deduction.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 103. RESEARCH CREDIT EXPANSION. 
(a) PERMANENT EXTENSION OF RESEARCH CRED-
IT.— 
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(1) IN GENERAL.—Section 41 (relating to cred-
it for increasing research activities) is amended by 
striking subsection (h). 
(2) CONFORMING AMENDMENT.—Paragraph (1) 
of section 45C(b) is amended by striking subpara-
graph (D). 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to amounts paid or in-
curred after the date of the enactment of this Act. 
(b) INCREASE IN RATES OF ALTERNATIVE INCRE-
MENTAL CREDIT.—Subparagraph (a) of section 41(c)(4) 
(relating to election of alternative incremental credit) is 
amended— 
(1) in clause (i) by striking ‘‘2.65 percent’’ and 
inserting ‘‘3 percent’’, 
(2) in clause (ii) by striking ‘‘3.2 percent’’ and 
inserting ‘‘4 percent’’, and 
(3) in clause (iii) by striking ‘‘3.75 percent’’ 
and inserting ‘‘5 percent’’. 
(c) ALTERNATIVE SIMPLIFIED CREDIT FOR QUALI-
FIED RESEARCH EXPENSES.— 
(1) IN GENERAL.—Subsection (c) of section 41 
(relating to base amount) is amended by redesig-
nating paragraphs (5) and (6) as paragraphs (6) 
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and (7), respectively, and by inserting after para-
graph (4) the following new paragraph: 
‘‘(5) ELECTION OF ALTERNATIVE SIMPLIFIED 
CREDIT.— 
‘‘(A) IN GENERAL.—At the election of the 
taxpayer, the credit determined under sub-
section (a)(1) shall be equal to 12 percent of so 
much of the qualified research expenses for the 
taxable year as exceeds 50 percent of the aver-
age qualified research expenses for the 3 tax-
able years preceding the taxable year for which 
the credit is being determined. 
‘‘(B) SPECIAL
RULE
IN
CASE
OF
NO 
QUALIFIED RESEARCH EXPENSES IN ANY OF 3 
PRECEDING TAXABLE YEARS.— 
‘‘(i) TAXPAYERS TO WHICH SUBPARA-
GRAPH
APPLIES.—The credit under this 
paragraph shall be determined under this 
subparagraph if the taxpayer does not have 
qualified research expenses in any 1 of the 
3 taxable years preceding the taxable year 
for which the credit is being determined. 
‘‘(ii) CREDIT RATE.—The credit de-
termined under this subparagraph shall be 
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equal to 6 percent of the qualified research 
expenses for the taxable year. 
‘‘(C) ELECTION.—An election under this 
paragraph shall apply to the taxable year for 
which made and all succeeding taxable years 
unless revoked with the consent of the Sec-
retary. An election under this paragraph may 
not be made for any taxable year to which an 
election under paragraph (4) applies.’’. 
(2) COORDINATION WITH ELECTION OF ALTER-
NATIVE
INCREMENTAL
CREDIT.—Section 
41(c)(4)(B) (relating to election) is amended by add-
ing at the end the following: ‘‘An election under this 
paragraph may not be made for any taxable year to 
which an election under paragraph (5) applies.’’. 
(d) CONTRACT
RESEARCH
EXPENSES.—Subpara-
graph (D) of section 41(b)(3) (relating to contract re-
search expenses) is amended— 
(1) in the heading by inserting ‘‘BIOMEDICAL 
RESEARCH CORPORATIONS,’’ after ‘‘ELIGIBLE SMALL 
BUSINESSES,’’, and 
(2) in clause (i) by redesignating subclauses 
(II) and (III) as subclauses (III) and (IV) respec-
tively, and by inserting after subclause (I) the fol-
lowing new subclause: 
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