I 
112TH CONGRESS 
2D SESSION 
H. R. 6559 
To amend the Internal Revenue Code of 1986 to provide an exception from 
the passive loss rules for investments in high technology research small 
business pass-thru entities. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 25, 2012 
Mr. GERLACH (for himself and Mr. NEAL) 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 
an exception from the passive loss rules for investments 
in high technology research small business pass-thru enti-
ties. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. EXCEPTION FROM PASSIVE LOSS RULES FOR 
INVESTMENTS IN HIGH TECHNOLOGY RE-
SEARCH SMALL BUSINESS PASS-THRU ENTI-
TIES. 
(a) IN GENERAL.—Subsection (c) of section 469 of 
the Internal Revenue Code of 1986 is amended by redesig-
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nating paragraphs (4) through (7) as paragraphs (5) 
through (8), respectively, and by inserting after paragraph 
(3) the following new paragraph: 
‘‘(4) HIGH
TECHNOLOGY
RESEARCH
ACTIVI-
TIES.— 
‘‘(A) IN GENERAL.—The term ‘passive ac-
tivity’ shall not include any activity of the tax-
payer carried on by a high technology research 
small business pass-thru entity. 
‘‘(B) 
HIGH
TECHNOLOGY
RESEARCH 
SMALL
BUSINESS
PASS-THRU
ENTITY.—For 
purposes of this paragraph, the term ‘high tech-
nology research small business pass-thru entity’ 
means any domestic pass-thru entity for any 
taxable year if— 
‘‘(i) either— 
‘‘(I) more than 75 percent of the 
entity’s expenditures (including sala-
ries, rent and overhead) for such tax-
able year are paid or incurred in con-
nection with qualified research (within 
the meaning of section 41(d)(1)(B) 
taking into account section 41(d)(4) 
and constituting elements of a process 
of experimentation for a purpose de-
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scribed in paragraph (3) of section 
41(d)), or 
‘‘(II) more than 50 percent of 
the entity’s expenditures for such tax-
able year constitute qualified research 
expenses (as defined in section 41(b), 
but determined without regard to the 
phrase ‘65 percent of’ in paragraph 
(3)(A) thereof), 
‘‘(ii) such entity is a small business 
(within 
the 
meaning 
of 
section 
41(b)(3)(D)(iii) applied by substituting 
‘250’ for ‘500’ in subclause (I) thereof), 
and 
‘‘(iii) at no time during the taxable 
year does the entity have aggregate gross 
assets in excess of $150,000,000. 
‘‘(C) PROVISIONS RELATED TO AGGREGATE 
GROSS ASSETS LIMITATION.—For purposes of 
this paragraph— 
‘‘(i) IN GENERAL.—Except as other-
wise provided in this subparagraph, the 
term ‘aggregate gross assets’ has the 
meaning given such term in section 
1202(d)(2). 
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Any increase determined under the pre-
ceding sentence shall be rounded to the 
nearest $100,000. 
‘‘(D) 
CAPITAL
EXPENDITURES
TAKEN 
INTO ACCOUNT FOR EXPENDITURES TEST.—An 
expenditure shall not fail to be taken into ac-
count under subparagraph (B)(i) merely be-
cause such expenditure is chargeable to capital 
account. 
‘‘(E) PASS-THRU
ENTITY.—For purposes 
of this paragraph, the term ‘pass-thru entity’ 
means any partnership, S corporation, or other 
entity identified by the Secretary as a pass-thru 
entity for purposes of this paragraph. 
‘‘(F) AGGREGATION
RULES.—All persons 
treated as a single employer under subsection 
(a) or (b) of section 52, or subsection (m) or 
(o) of section 414, shall be treated as a single 
entity for purposes of subparagraphs (B) and 
(C)(iii). 
‘‘(G) ACTIVITIES
NOT
ENGAGED
IN
FOR 
PROFIT AND ECONOMIC SUBSTANCE RULES.— 
Section 183 and the economic substance rules 
of section 7701(o) shall not apply to disallow 
the losses, deductions, and credits of a high 
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technology research small business pass-thru 
entity solely as a result of losses incurred by 
such entity.’’. 
(b) MATERIAL PARTICIPATION NOT REQUIRED.— 
Paragraph (5) of section 469(c) of such Code, as redesig-
nated by subsection (a), is amended by striking ‘‘and (3)’’ 
in the heading and text and inserting ‘‘, (3), and (4)’’. 
(c) CERTAIN RESEARCH-RELATED DEDUCTIONS AND 
CREDITS
OF HIGH TECHNOLOGY RESEARCH SMALL 
BUSINESS PASS-THRU ENTITIES ALLOWED
FOR PUR-
POSES OF DETERMINING ALTERNATIVE MINIMUM TAX.— 
(1) DEDUCTION FOR RESEARCH AND EXPERI-
MENTAL EXPENDITURES.—Paragraph (2) of section 
56(b) of such Code is amended by adding at the end 
the following new subparagraph: 
‘‘(E) EXCEPTION FOR HIGH TECHNOLOGY 
RESEARCH SMALL BUSINESS PASS-THRU ENTI-
TIES.—In the case of a high technology re-
search small business pass-thru entity (as de-
fined in section 469(c)(4)), this paragraph shall 
not apply to any amount allowable as a deduc-
tion under section 174(a).’’. 
(2) ALLOWANCE
OF
CERTAIN
RESEARCH-RE-
LATED
CREDITS.—Subparagraph (B) of section 
38(c)(4) of such Code is amended by redesignating 
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clauses (ii) through (ix) as clauses (iii) through (x), 
respectively, and by inserting after clause (i) the fol-
lowing new clause: 
‘‘(ii) the credits determined under sec-
tions 41 and 48D to the extent attrib-
utable to a high technology research small 
business pass-thru entity (as defined in 
section 469(c)(4)),’’. 
(d) EXCEPTION TO LIMITATION ON PASS-THRU OF 
RESEARCH CREDIT.—Subsection (g) of section 41 of such 
Code is amended by adding at the end the following: 
‘‘Paragraphs (2) and (4) shall not apply with respect to 
any high technology research small business pass-thru en-
tity (as defined in section 469(c)(4)).’’ 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
Æ 
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