a qualified equity investment in the hands of a prior 
holder. 
‘‘(4) REDEMPTIONS.—A rule similar to the rule 
of section 1202(c)(3) shall apply for purposes of this 
subsection. 
‘‘(5) EQUITY INVESTMENT.—The term ‘equity 
investment’ means any stock (other than non-
qualified preferred stock as defined in section 
351(g)(2)) in an entity which is a corporation. 
‘‘(c) QUALIFIED
INCUBATIONAL
COMPANY.—For 
purposes of this section the term ‘qualified incubational 
company’ means any domestic biomedical research cor-
poration (as defined in section 382(l)(9)(B)) subject to tax 
under subchapter C of this chapter, that has 25 employees 
or less and gross assets of less than $25,000,000. 
‘‘(d) NATIONAL LIMITATION ON AMOUNT OF INVEST-
MENTS DESIGNATED.— 
‘‘(1) IN GENERAL.—There is an incubational 
equity tax credit limitation of $500,000,000 for each 
taxable year. 
‘‘(2) ALLOCATION OF LIMITATION.—The limita-
tion under paragraph (1) shall be allocated by the 
Secretary among qualified incubational companies 
selected by the Secretary. In making allocations 
under the preceding sentence, the Secretary shall 
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give priority to the extent to which it is reasonably 
anticipated that a qualified incubational company 
would have insufficient taxable income and tax liabil-
ity to utilize the section 41 research tax credit. 
‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If 
the qualified incubational equity tax credit limitation 
for any taxable year exceeds the aggregate amount 
allocated under paragraph (2) for such year, such 
limitation for the succeeding taxable year shall be in-
creased by the amount of such excess. 
‘‘(e) RECAPTURE OF CREDIT IN CERTAIN CASES.— 
‘‘(1) IN GENERAL.—If, at any time during the 
4-year period beginning on the date of the original 
issue of a qualified incubational equity investment in 
a qualified incubational company, there is a recap-
ture event with respect to such investment, then the 
tax imposed by this chapter for the taxable year in 
which such event occurs shall be increased by the 
credit recapture amount. 
‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur-
poses of paragraph (1), the credit recapture amount 
is an amount equal to the sum of— 
‘‘(A) the aggregate decrease in the credits 
allowed to the taxpayer under section 38 for all 
prior taxable years which would have resulted if 
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no credit had been determined under this sec-
tion with respect to such investment; plus 
‘‘(B) interest at the underpayment rate es-
tablished under section 6621 on the amount de-
termined under subparagraph (A) for each 
prior taxable year for the period beginning on 
the due date for filing the return for the prior 
taxable year involved. 
No deduction shall be allowed under this chapter for 
interest described in subparagraph (B). 
‘‘(3) RECAPTURE
EVENT.—For purposes of 
paragraph (1), there is a recapture event with re-
spect to a qualified countermeasures equity invest-
ment in a qualified countermeasures company if— 
‘‘(A) such company ceases to be a qualified 
biomedical research corporation (as defined in 
section 382(l)(9)(B)), or 
‘‘(B) such investment is redeemed by such 
company. 
‘‘(4) SPECIAL RULES.— 
‘‘(A) TAX
BENEFIT
RULE.—The tax for 
the taxable year shall be increased under para-
graph (1) only with respect to credits allowed 
by reason of this section which were used to re-
duce tax liability. In the case of credits not so 
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used to reduce tax liability, the carryforwards 
and carrybacks under section 39 shall be appro-
priately adjusted. 
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be 
treated as a tax imposed by this chapter for 
purposes of determining the amount of any 
credit under this chapter or for purposes of sec-
tion 55. 
‘‘(f) BASIS REDUCTION.—The basis of any qualified 
incubational equity investment shall be reduced by the 
amount of any credit determined under this section with 
respect to such investment. This subsection shall not apply 
for purposes of sections 1202, 1400B, and 1400F. 
‘‘(g) REGULATIONS.—The secretary shall prescribe 
such regulations as may be appropriate to carry out this 
section, including regulations which— 
‘‘(1) prevent the abuse of the purposes of this 
section, 
‘‘(2) impose appropriate reporting require-
ments, and 
‘‘(3) apply the provisions of this section to 
newly formed entities.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) (as amended by this Act) is fur-
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ther amended by striking ‘‘and’’ at the end of paragraph 
(32), by striking the period at the end of paragraph (33) 
and inserting ‘‘, and’’, and by adding at the end the fol-
lowing: 
‘‘(34) the incubational equity tax credit deter-
mined under section 45N(a).’’. 
(c) DEDUCTION FOR UNUSED PORTION OF CRED-
IT.—Section 196(c) of such Code (defining qualified busi-
ness credits), as amended by this section, is amended by 
striking ‘‘and’’ at the end of paragraph (15), by striking 
the period at the end of paragraph (16) and inserting ‘‘, 
and’’, and by adding at the end the following new para-
graph: 
‘‘(17) the incubational equity tax credit deter-
mined under section 45P(a).’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
(as amended by this Act) is further amended by adding 
after the item relating to section 45O the following new 
item: 
‘‘Sec. 45P. Incubational equity tax credit.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 204. MODIFICATION OF PASSIVE LOSS RULES. 
(a) IN GENERAL.—Section 469(i) is amended— 
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(1) by inserting ‘‘or biomedical research cor-
poration activities’’ after ‘‘real estate activities’’ each 
place it appears in paragraphs (1) and (4), and 
(2) by inserting ‘‘or biomedical or device re-
search corporation activity’’ after ‘‘real estate activ-
ity’’ in paragraph (6)(A). 
(b) BIOMEDICAL
RESEARCH
CORPORATION
DE-
FINED.—Section 469(i) is amended by inserting the fol-
lowing new paragraph: 
‘‘(7) BIOMEDICAL RESEARCH CORPORATION.— 
The term ‘biomedical research corporation’ has the 
meaning given such term in section 382(l)(9)(B).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to losses incurred after December 
31, 2006. 
SEC. 205. MODIFICATION OF SUBCHAPTER S RULES. 
(a) IN GENERAL.—Section 1361(b)(1) is amended by 
inserting the following flush sentence: ‘‘In the case of a 
biomedical research corporation (as defined in section 
382(l)(9)(B)), subparagraph (A) shall be applied by sub-
stituting ‘150’ for ‘100’.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
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SEC. 206. TREATMENT OF BONDS FOR BIOMEDICAL RE-
SEARCH FACILITIES AS EXEMPT FACILITY 
BONDS. 
(a) TREATMENT AS EXEMPT FACILITY BONDS.— 
Subsection (a) of section 142 (relating to exempt facility 
bond) is amended by striking ‘‘or’’ at the end of paragraph 
(14), by striking the period at the end of paragraph (15) 
and inserting ‘‘, or’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(16) biomedical research facilities.’’. 
(b) BIOMEDICAL RESEARCH FACILITIES.—Section 
142 is amended by adding at the end the following new 
subsection: 
‘‘(n) BIOMEDICAL RESEARCH FACILITY.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.— The term ‘biomedical re-
search facility’ means a facility owned by a private, 
for-profit entity primarily utilized for biomedical re-
search. 
‘‘(2) BIOMEDICAL
RESEARCH
DESCRIBED.— 
The term ‘biomedical research’ refers to research 
into a drug or biologic (or related medical device) 
conducted pursuant to an investigational use exemp-
tion under section 505(i) of the Federal Food, Drug, 
and Cosmetic Act. 
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‘‘(3) 
LIMITATION
ON
AGGREGATE
FACE 
AMOUNT OF TAX-EXEMPT FINANCING.— 
‘‘(A) IN GENERAL.—An issue shall not be 
treated as an issue described in subsection 
(a)(16) unless— 
‘‘(i) the Secretary has allocated an 
amount to such issue under this para-
graph, and 
‘‘(ii) the aggregate face amount of 
bonds issued pursuant to such issue does 
not exceed such amount. 
‘‘(B) ALLOCATION.— The Secretary may 
allocate amounts to issues under this paragraph 
in such manner as the Secretary determines ap-
propriate, except that the aggregate amount so 
allocated shall not exceed $15,000,000,000. 
‘‘(C) REFUNDING BONDS.— Subparagraph 
(A) shall not apply with respect to any bond the 
proceeds of which are used exclusively to refund 
a bond issued pursuant to subsection (a)(16) 
(or a bond which is a part of a series of 
refundings of a bond so issued) if the amount 
of the refunding bond does not exceed the out-
standing amount of the refunded bond.’’. 
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(c) EXEMPTION FROM GENERAL STATE VOLUME 
CAPS.—Paragraph (3) of section 146(g) (relating to ex-
ception for certain bonds) is amended by striking ‘‘or 
(15)’’ and inserting ‘‘(15), or (16)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to bonds issued after December 
31, 2006. 
SEC. 207. INCENTIVES FOR BIOTECHNOLOGY ZONES. 
(a) IN GENERAL.—Subchapter U of chapter 1 (relat-
ing to designation and treatment of empowerment zones, 
enterprise communities, and rural development investment 
areas) is amended by redesignating part V as part VI, by 
redesignating section 1397F as section 1397G, and by in-
serting after part IV the following new part: 
‘‘PART V—INCENTIVES FOR BIOTECHNOLOGY 
ZONES 
‘‘Sec. 1397F. Credit to holders of qualified biotechnology zone bonds. 
‘‘SEC. 1397F. CREDIT TO HOLDERS OF QUALIFIED BIO-
TECHNOLOGY ZONE BONDS. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli-
gible taxpayer who holds a qualified biotechnology zone 
bond on the credit allowance date of such bond which oc-
curs during the taxable year, there shall be allowed as a 
credit against the tax imposed by this chapter for such 
taxable year the amount determined under subsection (b). 
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‘‘(b) AMOUNT OF CREDIT.— 
‘‘(1) IN GENERAL.—The amount of the credit 
determined under this subsection with respect to any 
qualified biotechnology zone bond is the amount 
equal to the product of— 
‘‘(A) the credit rate determined by the Sec-
retary under paragraph (2) for the month in 
which such bond was issued, multiplied by 
‘‘(B) the face amount of the bond held by 
the taxpayer on the credit allowance date. 
‘‘(2) DETERMINATION.—During each calendar 
month, the Secretary shall determine a credit rate 
which shall apply to bonds issued during the fol-
lowing calendar month. The credit rate for any 
month is the percentage which the Secretary esti-
mates will permit the issuance of qualified bio-
technology zone bonds without discount and without 
interest cost to the issuer. 
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The 
credit allowed under subsection (a) for any taxable year 
shall not exceed the excess of— 
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by sec-
tion 55, over 
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‘‘(2) the sum of the credits allowable under part 
IV of subchapter A (other than subpart C thereof, 
relating to refundable credits). 
‘‘(d) QUALIFIED BIOTECHNOLOGY ZONE BOND.— 
For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘qualified bio-
technology zone bond’ means any bond issued as 
part of an issue if— 
‘‘(A) 95 percent or more of the proceeds of 
such issue are to be used for a qualified pur-
pose with respect to a qualified biotechnology 
zone entity selected by an eligible State busi-
ness development agency, 
‘‘(B) the bond is issued by a State or local 
Government within the jurisdiction of which 
such biotechnology zone is located, 
‘‘(C) the issuer— 
‘‘(i) designates such bond for purposes 
of this section, and 
‘‘(ii) certifies that it has the written 
approval of the eligible State business de-
velopment agency for such bond issuance, 
and 
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‘‘(D) the term of each bond which is part 
of such issue does not exceed the maximum 
term permitted under paragraph (2). 
‘‘(2) TERM REQUIREMENT.—During each cal-
endar month, the Secretary shall determine the max-
imum term permitted under this paragraph for 
bonds issued during the following calendar month. 
Such maximum term shall be the term which the 
Secretary estimates will result in the present value 
of the obligation to repay the principal on the bond 
being equal to 50 percent of the face amount of the 
bond. Such present value shall be determined using 
as a discount rate the average annual interest rate 
of tax-exempt obligations having a term of 10 years 
or more which are issued during the month. If the 
term as so determined is not a multiple of a whole 
year, such term shall be rounded to the next highest 
whole year. 
‘‘(3) QUALIFIED BIOTECHNOLOGY ZONE ENTI-
TY.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
biotechnology zone entity’ means any for-profit 
private entity in the business of biomedical re-
search (or a medical device manufacturer) if— 
‘‘(i) such entity is not in bankruptcy, 
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‘‘(ii) such entity holds the rights to a 
drug or biologic for which an investiga-
tional new drug application is in effect 
under section 505 of the Federal Food, 
Drug, and Cosmetic Act (or manufactures 
a related medical device), or holds the 
rights to a device for which an investiga-
tional device exemption is approved under 
section 520(g) of such Act, and 
‘‘(iii) such entity certifies that, as of 
the time of such closing, the drug, biologic, 
or device is, or in the 6-month period be-
ginning 3 months before such closing has 
been, under study pursuant to an inves-
tigational use exemption under section 
505(i) or section 520(g) of the Federal 
Food, Drug, and Cosmetic Act. 
‘‘(B) 
ELIGIBLE
STATE
DEVELOPMENT 
AGENCY.—The term ‘eligible State development 
agency’ means any State agency with a purpose 
of developing a State’s biotechnology busi-
nesses. 
‘‘(4) QUALIFIED PURPOSE.—The term ‘quali-
fied purpose’ means, with respect to any qualified 
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biotechnology zone, constructing or developing facili-
ties utilized in the biomedical research field. 
‘‘(5) ELIGIBLE TAXPAYER.—The term ‘eligible 
taxpayer’ means— 
‘‘(A) a bank (within the meaning of section 
581), 
‘‘(B) an insurance company to which sub-
chapter L applies, or 
‘‘(C) a corporation actively engaged in the 
business of lending money. 
‘‘(e) LIMITATION
ON AMOUNT
OF BONDS DES-
IGNATED.— 
‘‘(1) NATIONAL LIMITATION.—There is a na-
tional 
biotechnology 
zone 
bond 
limitation 
of 
$500,000,000 for each calendar year. 
‘‘(2) ALLOCATION
OF
LIMITATION.—The na-
tional biotechnology zone bond limitation for a cal-
endar year shall be allocated by the Secretary among 
qualified companies selected by the Secretary. In 
making allocations under the preceding sentence, the 
Secretary shall give priority to the extent to which 
it is reasonably anticipated that a qualified company 
would have insufficient taxable income and tax liabil-
ity to utilize research tax credits and other similar 
credits. 
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‘‘(3) DESIGNATION
SUBJECT
TO
LIMITATION 
AMOUNT.—The maximum aggregate face amount of 
bonds issued during any calendar year which may be 
designated under subsection (d)(1) with respect to 
any qualified biotechnology zone shall not exceed the 
limitation amount allocated to such academy under 
paragraph (2) for such calendar year. 
‘‘(4) CARRYOVER OF UNUSED LIMITATION.—If, 
for any calendar year the limitation amount for any 
State, exceeds the amount of bonds issued during 
such year which are designated under subsection 
(d)(1) with respect to qualified biotechnology zone 
facilities within such State, the limitation amount 
for such State for the following calendar year shall 
be increased by the amount of such excess. 
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion— 
‘‘(1) CREDIT
ALLOWANCE
DATE.—The term 
‘credit allowance date’ means, with respect to any 
issue, the last day of the 1-year period beginning on 
the date of issuance of such issue and the last day 
of each successive 1-year period thereafter. 
‘‘(2) BOND.—The term ‘bond’ includes any ob-
ligation. 
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‘‘(3) STATE.—The term ‘State’ includes the 
District of Columbia and any possession of the 
United States. 
‘‘(g) CREDIT INCLUDED IN GROSS INCOME.—Gross 
income includes the amount of the credit allowed to the 
taxpayer under this section.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) The table of parts for subchapter U of 
chapter 1 is amended by striking the last item and 
inserting the following: 
‘‘PART V. INCENTIVES FOR BIOTECHNOLOGY ZONES. 
‘‘PART VI. REGULATIONS.’’. 
(2) The table of sections for part V, as so re-
designated, is amended to read as follows: 
‘‘Sec. 1397G. Regulations.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to obligations issued after Decem-
ber 31, 2006. 
Æ 
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