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

Bill: 115-s-2197
Sponsor: full_name: Sen. Baldwin, Tammy [D-WI]
Introduced: 2017-12-06
Policy area: Taxation
Subjects: Computers and information technology

Income tax credits

Income tax deductions

Manufacturing

Research and development

Tax administration and collection, taxpayers
Latest action: action_date: 2017-12-06
text: Read twice and referred to the Committee on Finance.

Summaries:
action_date: 2017-12-06
action_desc: Introduced in Senate
text: <p>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: </p> <ul> <li> increase the alternative simplified credit rate to match the rate of the regular credit; </li> <li> allow taxpayers to use reasonable estimation techniques in lieu of contemporaneous accounting to measure employee hours per business component; </li> <li> allow employees engaging in the direct supervision or direct support of research activities which constitute qualified research to be included in the research expense calculation without regard to the employee's position or management level; </li> <li> allow the credit to be used for research related to the adaptation of an existing business component to a particular customer's requirement or need, cost reduction, or obsolescence mitigation; and </li> <li> allow taxpayers to make an election for a reduced credit (in order to be allowed a full deduction for research expenses) on an amended tax return. </li> </ul> <p>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.</p>

tv_txt: II 115th CONGRESS 1st Session S. 2197 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.

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. 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. 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. 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. 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. 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. 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. 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: 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.