I 
116TH CONGRESS 
2D SESSION 
H. R. 7537 
To amend the Internal Revenue Code of 1986 to provide an exception from 
the passive loss rules for investments in specified medical research small 
business pass-thru entities. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 9, 2020 
Mr. KELLY of Pennsylvania 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 specified medical research small business pass-thru 
entities. 
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 ‘‘Infectious Disease 
Therapies Research and Innovation Act of 2020’’. 
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS
SEC. 2. EXCEPTION FROM PASSIVE LOSS RULES FOR IN-
VESTMENTS 
IN 
SPECIFIED 
MEDICAL 
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-
nating paragraphs (4) through (7) as paragraphs (5) 
through (8), respectively, and by inserting after paragraph 
(3) the following new paragraph: 
‘‘(4) SPECIFIED
MEDICAL
RESEARCH
ACTIVI-
TIES.— 
‘‘(A) IN GENERAL.—The term ‘passive ac-
tivity’ shall not include any qualified medical re-
search activity of the taxpayer carried on by a 
specified medical research small business pass- 
thru entity. 
‘‘(B) TREATMENT OF LOSSES AND DEDUC-
TIONS.— 
‘‘(i) IN GENERAL.—Losses or deduc-
tions of a taxpayer in connection with 
qualified medical research activities carried 
on by a specified medical research small 
business pass-thru entity shall not be 
treated as losses or deductions, respec-
tively, from a passive activity except as 
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00002
Fmt 6652
Sfmt 6201
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS
provided in clause (ii) and subparagraph 
(C). 
‘‘(ii) LIMITATION.—Clause (i) shall 
apply to losses and deductions of a tax-
payer in connection with a specified med-
ical small business pass-thru entity for a 
taxable year only to the extent that the ag-
gregate losses and deductions of the tax-
payer in connection with qualified medical 
research activities of such entity for such 
taxable year do not exceed the portion of 
the taxpayer’s adjusted basis in the tax-
payer’s ownership interest in such entity 
that is attributable to money or other 
property contributed— 
‘‘(I) in exchange for such owner-
ship interest, and 
‘‘(II) specifically for use in con-
nection with qualified medical re-
search activities. 
For purposes of the preceding sentence, 
the taxpayer’s basis shall not include any 
portion of such basis which is attributable 
to an increase in a partner’s share of the 
liabilities of a partnership that is consid-
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS
ered under section 752(a) as a contribution 
of money. 
‘‘(C) TREATMENT OF CARRYOVERS.—Sub-
paragraph (B)(i) shall not apply to the portion 
of any loss or deduction that is carried over 
under subsection (b) into a taxable year other 
than the taxable year in which such loss or de-
duction arose. 
‘‘(D) QUALIFIED MEDICAL RESEARCH AC-
TIVITY.—For purposes of this paragraph, the 
term ‘qualified medical research activity’ means 
any qualified research (within the meaning of 
section 41(d)) with respect to qualified counter-
measures (as defined in section 319F–1(a)(2) 
of the Public Health Service Act (42 U.S.C. 
247d–6a(a)(2))). 
‘‘(E) 
SPECIFIED
MEDICAL
RESEARCH 
SMALL
BUSINESS
PASS-THRU
ENTITY.—For 
purposes of this paragraph, the term ‘specified 
medical research small business pass-thru enti-
ty’ means any domestic pass-thru entity for any 
taxable year if— 
‘‘(i) more than 80 percent of such en-
tity’s expenditures on qualified research for 
such taxable year are paid or incurred in 
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS
connection with qualified medical research 
activities, and 
‘‘(ii) the gross receipts (as determined 
under the rules of section 41(h)(3)) of 
such entity for the taxable year (and each 
preceding taxable year) is less than 
$1,000,000. 
‘‘(F) CAPITAL EXPENDITURES TAKEN INTO 
ACCOUNT FOR EXPENDITURES TEST.—An ex-
penditure shall not fail to be taken into account 
under subparagraph (E)(i) merely because such 
expenditure is chargeable to capital account. 
‘‘(G) 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. 
‘‘(H) AGGREGATION RULES.— 
‘‘(i) IN GENERAL.—All persons treat-
ed 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 
(E) and (F)(iii). 
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS
‘‘(ii) 
LIMITATION
WHERE
ENTITY 
WOULD NOT QUALIFY.—No entity shall be 
treated as a specified medical research 
small business pass-thru entity unless such 
entity qualifies as such both with and with-
out the application of clause (i).’’. 
(b) MATERIAL PARTICIPATION NOT REQUIRED.— 
Paragraph (5) of section 469(c) of the Internal Revenue 
Code of 1986, as redesignated by subsection (a), is amend-
ed by striking ‘‘and (3)’’ in the heading and text and in-
serting ‘‘, (3), and (4)’’. 
(c) CERTAIN RESEARCH-RELATED DEDUCTIONS AND 
CREDITS
OF SPECIFIED MEDICAL 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 the Internal Revenue Code of 1986 is 
amended by adding at the end the following new 
subparagraph: 
‘‘(E) EXCEPTION FOR SPECIFIED MEDICAL 
RESEARCH SMALL BUSINESS PASS-THRU ENTI-
TIES.—In the case of a specified medical re-
search small business pass-thru entity (as de-
fined in section 469(c)(4)), this paragraph shall 
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS
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 
clauses (ii) through (ix) as clauses (iii) through (x), 
respectively, and by inserting after clause (i) the fol-
lowing new clause: 
‘‘(ii) the credit of an individual tax-
payer determined under section 41 to the 
extent attributable to a specified medical 
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 specified medical research small business pass-thru 
entity (as defined in section 469(c)(4)).’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to losses and credits arising in tax-
able years beginning after December 31, 2020. 
Æ 
VerDate Sep 11 2014 
01:33 Jul 29, 2020
Jkt 099200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6301
E:\BILLS\H7537.IH
H7537
pamtmann on DSKBC07HB2PROD with BILLS