Title: A bill to amend the Internal Revenue Code of 1986 to reform the credit for increasing research activities, and for other purposes.
Policy area: Taxation

Summary:
This bill amends the Internal Revenue Code, with respect to the tax credit for increasing research activities (known as the research and experimentation tax credit), to:
The bill also allows a business-related tax credit equal to 10% of the qualified connective manufacturing equipment expenditures made by the taxpayer during the year. The credit applies to expenditures relating to the purchase or installation of: (1) industrial equipment components that contain a microprocessor and can be connected to an electronic communication network; and (2) software, routing, or local area network components necessary to connect the components to an electronic communication network.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 2197 Introduced in Senate (IS)]

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115th CONGRESS
  1st Session
                                S. 2197

  To amend the Internal Revenue Code of 1986 to reform the credit for 
        increasing research activities, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            December 6, 2017

  Ms. Baldwin introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to reform the credit for 
        increasing research activities, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. INCREASE OF ALTERNATIVE SIMPLIFIED CREDIT.

    (a) In General.--Subparagraph (A) of section 41(c)(5) of the 
Internal Revenue Code of 1986 is amended by striking ``14 percent (12 
percent in the case of taxable years ending before January 1, 2009)'' 
and inserting ``20 percent''.
    (b) Conforming Amendment.--Clause (ii) of section 41(c)(5)(B) of 
the Internal Revenue Code of 1986 is amended by striking ``6 percent'' 
and inserting ``10 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2017.

SEC. 2. ALLOCATION OF RESEARCH EXPENSES AMONG BUSINESS COMPONENTS.

    (a) In General.--Subparagraph (A) of section 41(d)(2) of the 
Internal Revenue Code of 1986 is amended by inserting ``, and may be 
applied using a method that relies on reasonable estimation techniques 
in lieu of contemporaneous accounting to measure employee hours per 
business component'' before the period.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 3. INCLUSION OF QUALIFIED UPPER-LEVEL EMPLOYEES IN RESEARCH 
              EXPENSE CALCULATION.

    (a) In General.--Clause (ii) of section 41(b)(2)(B) of the Internal 
Revenue Code of 1986 is amended by inserting ``, without regard to the 
employee's position or management level'' before the period.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 4. REPEAL OF EXCLUSION OF ADAPTIVE RESEARCH.

    (a) In General.--Paragraph (4) of section 41(d) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (B) and by 
redesignating subparagraphs (C), (D), (E), (F), (G), and (H) as 
subparagraphs (B), (C), (D), (E), (F), and (G), respectively.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2017.

SEC. 5. INCLUSION OF COST REDUCTION RESEARCH.

    (a) In General.--Subparagraph (A) of section 41(d)(3) of the 
Internal Revenue Code of 1986 is amended--
            (1) by striking ``or'' at the end of clause (ii);
            (2) by striking the period at the end of clause (iii) and 
        inserting ``, or''; and
            (3) by adding at the end the following new clause:
                            ``(iv) reduction of costs associated with--
                                    ``(I) a business component of the 
                                taxpayer, or
                                    ``(II) research relating to a 
                                purpose described in clause (i), (ii), 
                                or (iii).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2017.

SEC. 6. INCLUSION OF OBSOLESCENCE MITIGATION.

    (a) In General.--Clause (iv) of section 41(d)(3)(A) of the Internal 
Revenue Code of 1986, as added by section 5, is amended by inserting 
``or obsolescence mitigation'' after ``reduction of costs''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2017.

SEC. 7. ELECTION OF REDUCED CREDIT MAY BE MADE ON AMENDED RETURN.

    (a) In General.--Subparagraph (C) of section 280C(c)(3) of the 
Internal Revenue Code of 1986 is amended to read as follows:
                    ``(C) Election.--An election under this paragraph 
                shall made in such manner as the Secretary may 
                prescribe and, once made with respect to a taxable 
                year, shall be irrevocable. Such election may be made 
                on the return of tax for the taxable year to which it 
                applies or on an amended return.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amended returns which are permitted to be filed under the applicable 
provisions of the Internal Revenue Code of 1986 after the date of the 
enactment of this Act.

SEC. 8. INVESTMENT IN CONNECTED MANUFACTURING EQUIPMENT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 45S. CONNECTED MANUFACTURING EQUIPMENT.

    ``(a) Amount of Credit.--For purposes of section 38, the connected 
manufacturing equipment credit for any taxable year is an amount equal 
to 10 percent of the qualified connected manufacturing equipment 
expenditures made by the taxpayer during such year.
    ``(b) Qualified Connected Manufacturing Equipment Expenditures.--
            ``(1) In general.--Subject to paragraph (2), for purposes 
        of this section, the term `qualified connected manufacturing 
        equipment expenditures' means an expenditure relating to the 
        purchase or installation of--
                    ``(A) industrial equipment components which contain 
                a microprocessor and can be connected to an electronic 
                communication network, and
                    ``(B) any software, routing, or local area network 
                components necessary to connect components described in 
                subparagraph (A) to an electronic communication 
                network.
            ``(2) Eligibility.--The Secretary, in consultation with the 
        Secretary of Commerce, shall identify the types of components 
        described in paragraph (1) which are eligible for the credit 
        under this section.
    ``(c) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section for any expenditure with respect to any 
property, the increase in the basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed.''.
    (b) Conforming Amendments.--
            (1) Section 38(b) of the Internal Revenue Code of 1986 is 
        amended--
                    (A) by striking ``plus'' at the end of paragraph 
                (35);
                    (B) by striking the period at the end of paragraph 
                (36) and inserting ``, plus''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(37) the connected manufacturing equipment credit 
        determined under section 45S(a).''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 of such Code is amended by adding at 
        the end the following new item:

``Sec. 45S. Connected manufacturing equipment credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2018.
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