Manufacturing Innovation in America Act of 2012 - Amends the Internal Revenue Code to allow a taxpayer to elect a tax deduction for an amount equal to 71% of the lesser of: (1) the taxpayer's patent box profit, or (2 the taxpayer's taxable income for the taxable year. Defines "patent box profit" to include gross receipts derived from the sale, lease, license, or or other disposition of qualified patent property in the course of a U.S. trade or business over the sum of the taxpayer's cost of goods sold allocable to patent gross receipts, other expenses, losses, or deductions, including research and development expenditures, allocable to such receipts, plus routine profit. Defines "qualified patent" to include a patent issued or extended by, or for which an application is pending before, the United States Patent and Trademark Office (USPTO).
Sets forth rules for the application of the patent box profit deduction to pass-thru entities, including partnerships and S corporations, trusts and estates, and agricultural and horticultural cooperatives.
[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6544 Introduced in House (IH)]
112th CONGRESS
2d Session
H. R. 6544
To amend the Internal Revenue Code of 1986 to allow a deduction for
patent box profit from the use of United States patents.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 21, 2012
Ms. Schwartz 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 allow a deduction for
patent box profit from the use of United States patents.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Manufacturing Innovation in America
Act of 2012''.
SEC. 2. DEDUCTION FOR PATENT BOX PROFITS.
(a) In General.--Part VI of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new section:
``SEC. 200. PATENT BOX PROFITS.
``(a) Allowance of Deduction.--If the taxpayer elects the
application of this section, there shall be allowed as a deduction an
amount equal to 71 percent of the lesser of--
``(1) the patent box profit of the taxpayer for the taxable
year, or
``(2) taxable income (determined without regard to this
section) for the taxable year.
``(b) Patent Box Profit.--For purposes of this section--
``(1) In general.--Except as provided by paragraph (9), the
term `patent box profit' means, with respect to a taxable year,
IP profit multiplied by the ratio--
``(A) the numerator of which is the 5-year research
and development expenditures of the taxpayer with
respect to the taxable year, and
``(B) the denominator of which is the 5-year total
costs of the taxpayer with respect to the taxable year.
``(2) IP profit.--The term `IP profit' means the excess (if
any) of--
``(A) patent gross receipts, over
``(B) the sum of--
``(i) the taxpayer's cost of goods sold for
the taxable year that are properly allocable to
patent gross receipts,
``(ii) other expenses, losses, or
deductions (other than the deduction allowed
under this section), which are properly
allocable to patent gross receipts, plus
``(iii) routine profit.
``(3) Routine profit.--The term `routine profit' means--
``(A) the taxpayer's cost of goods sold for the
taxable year properly allocable to patent gross
receipts reduced by the portion of cost of goods sold
related to the sum of cost of raw materials, cost of
items purchased for resale, and amounts incurred for
intangible property rights (including royalties and
amortization), multiplied by
``(B) 15 percent.
``(4) Allocation method.--The Secretary shall prescribe
rules for the proper allocation of items described in this
paragraph for purposes of determining patent box profit. Such
rules shall provide for the proper allocation of items whether
or not such items are directly allocable to patent gross
receipts.
``(5) Special rules.--
``(A) Determination of costs.--
``(i) In general.--Cost shall be determined
in accordance with the principles of sections
263A and 471, as provided for by the Secretary
under regulations or other guidance.
``(ii) Items brought into the united
states.--For purposes of determining cost of
goods sold, any item or service brought into
the United States shall be treated as acquired
by purchase, and its cost shall be treated as
not less than its value immediately after it
entered the United States. A similar rule shall
apply in determining the adjusted basis of
leased or rented property where the lease or
rental gives rise to patent gross receipts.
``(iii) Exports for further manufacture.--
In the case of any property described in clause
(ii) that had been exported by the taxpayer for
further manufacture, the increase in cost or
adjusted basis under subparagraph (A) shall not
exceed the difference between the value of the
property when exported and the value of the
property when brought back into the United
States after the further manufacture.
``(B) 5-year research and development
expenditures.--The term `5-year research and
development expenditures' means with respect to a
taxable year the research and development expenditures
paid or incurred by the taxpayer for the performance of
research and development in the United States for which
a deduction is allowed under subsection (a) or (b) of
section 174 (determined without regard to section 41)
for the 5-taxable-year period ending with the taxable
year.
``(C) 5-year total costs.--The term `5-year total
costs' means with respect to a taxable year the excess
of--
``(i) all costs paid or incurred by the
taxpayer for the 5-taxable year period ending
with such taxable year, over
``(ii) the sum of--
``(I) the taxpayer's cost of goods
sold for such 5-taxable year period,
``(II) interest paid or accrued for
such 5-taxable year period,
``(III) taxes paid or accrued for
such 5-taxable year period, and
``(IV) the net gain or loss for
such 5-taxable year period from the
sale or exchange of capital assets.
``(D) Rules relating to 5-year period.--For
purposes of this paragraph--
``(i) Not in existence for entire 5-year
period.--If the taxpayer was not in existence
for the entire 5-year period referred to in
subparagraphs (B) and (C), such subparagraphs
shall be applied on the basis of the period
during which such taxpayer was in existence.
``(ii) Treatment of predecessors.--Any
reference in this paragraph to a taxpayer shall
include a reference to any predecessor of such
taxpayer.
``(6) Patent gross receipts.--
``(A) In general.--The term `patent gross receipts'
means gross receipts of the taxpayer for the taxable
year which are derived from the sale, lease, license,
or other disposition of qualified patent property.
``(B) Related persons.--
``(i) In general.--The term `patent gross
receipts' shall not include any gross receipts
of the taxpayer derived from property leased,
licensed, or rented by the taxpayer for use by
any related person.
``(ii) Related person.--For purposes of
clause (i), a person shall be treated as
related to another person if such persons are
treated as a single employer under subsection
(a) or (b) of section 52 or subsection (m) or
(o) of section 414, except that determinations
under subsections (a) and (b) of section 52
shall be made without regard to section
1563(b).
``(7) Qualified patent property.--
``(A) In general.--The term `qualified patent
property' means property which is a product which
incorporates a qualified patent or patents--
``(i) if more than a substantial percentage
of the value of the product is derived from the
direct or indirect use of one or more qualified
patents, and
``(ii) the gross receipts of the taxpayer
from the sale, lease, license, or other
disposition of the product are domestic
production gross receipts under section
199(c)(4).
``(B) Special rule relating to contract
manufacturing.--For purposes of subparagraph (A)(ii),
if the product was produced to the taxpayer's
specifications within the United States under a
contract, the taxpayer's gross receipts from the sale,
lease, license or other disposition of the product
shall be treated as domestic production gross receipts
if the contract manufacturer certifies to the taxpayer
that the contract manufacturer's sale of such product
to the taxpayer resulted in domestic production gross
receipts of the contract manufacturer.
``(C) Domestic production gross receipts.--For
purposes of this paragraph, the term `domestic
production gross receipts' has the meaning given such
term by section 199(c)(4), except that the term `United
States' as defined in subsection (d)(7) of this section
shall be substituted for the term `United States' as
used in such section.
``(8) Qualified patent.--
``(A) In general.--The term `qualified patent'
means a patent--
``(i) issued or extended by, or for which
an application is pending before, the United
States Patent and Trademark Office under title
35, United States Code,
``(ii) with respect to which--
``(I) the taxpayer is the patent
owner or the holder of an exclusive
license to exploit the patent within a
specified territory or for a specific
purpose,
``(II) the taxpayer is actively
involved in the decision-making
connected with exploiting the patent,
and
``(III) either the taxpayer or a
member of the affiliated group of which
the taxpayer is a member performed
substantial activity to develop the
patented invention, its application, or
a product incorporating the patented
invention, and
``(iii) for any taxable year beginning
after the third taxable year beginning after
the date of the enactment of this section, more
than a substantial percentage of the activity
to develop the patented invention or its
application occurs in the United States.
Clause (iii) shall not apply to a patent if a member of
the taxpayer's affiliated group performed more than a
substantial percentage of the activity to develop the
patent outside the United States prior to the end of
such third taxable year, and the taxpayer owns the
patent in the United States at the end of such third
taxable year.
``(B) Special rule for certain foreign patents.--If
the taxpayer--
``(i) is the patent owner or the holder of
an exclusive license to exploit a patent which
meets the requirements of subparagraph (A),
``(ii) is issued or extended by a foreign
country a patent for the same or substantially
similar invention or application as the patent
described in clause (i), and
``(iii) is the owner of, or the holder of
an exclusive license to exploit, the foreign
patent described in clause (ii),
then the foreign patent described in clause (ii) shall
be treated as a qualified patent for purposes of this
section.
``(C) Special rules relating to licensing.--
``(i) Licensee taxpayer.--In the case of a
license of a patent to the licensee taxpayer,
the patent shall not be treated as a qualified
patent in the hands of the licensee taxpayer
unless the licensee satisfies the requirements
of subparagraph (A)(ii) and the licensor--
``(I) certifies to the licensee (in
such form and manner as the Secretary
may prescribe) that the patent
satisfies the requirements of clauses
(i) and (iii) of subparagraph (A), and
``(II) provides to the licensee
such information as the Secretary may
require to determine whether the patent
is a qualified patent.
``(ii) Licensor taxpayer.--In the case of a
license of a qualified patent by the licensor
taxpayer, the amount of royalties, profit
shares, and similar amounts received from the
license that directly relate to the production
of qualified patent property by the licensee
taxpayer shall be treated as patent gross
receipts if--
``(I) the licensor meets the
requirements of clause (i),
``(II) the licensor developed or
acquired and added substantial value to
the qualified patent, but only so long
as the licensor is regularly engaged in
the development and addition of
substantial value to property of such
kind, and
``(III) the licensee certifies to
the licensor (in such form and manner
as the Secretary may prescribe) that
the royalty relates to the production
of qualified patent property by the
licensee taxpayer.
``(D) Special rules relating to patent claims
denied or ruled invalid.--
``(i) Recapture.--If--
``(I) there is a recapture event
with respect to any claim contained in
a qualified patent, and
``(II) a deduction was allowed
under subsection (a) for any taxable
year with respect to such claim,
the tax imposed by this chapter for the taxable
year in which such recapture event occurs shall
be increased by the recapture amount.
``(ii) Recapture event.--For purposes of
clause (i), the term `recapture event' means,
with respect to a claim that--
``(I) the patent does not issue on
the basis (in whole or in part) of such
claim, or
``(II) such claim is determined by
the United States Patent and Trademark
Office or a court of competent
jurisdiction not to be valid.
``(iii) Recapture amount.--For purposes of
clause (i), the recapture amount with respect
to a claim is the sum of--
``(I) the excess of the amount by
which--
``(aa) the total tax
(determined without regard to
subsection (a)) that would be
shown on returns of tax of the
taxpayer for all taxable years
for which a deduction was
allowed under subsection (a)
with respect to such claim,
exceeds
``(bb) the total tax shown
on all returns of tax of the
taxpayer for all taxable years
for which a deduction was
allowed under subsection (a)
with respect to such claim,
determined with regard to
subsection (a), plus
``(II) in the case of a recapture
event described in clause (ii)(I),
interest at the underpayment rate
established under section 6621 on the
amount determined under subclause (I)
for each prior taxable year for the
period beginning on the due date for
filing the return for the prior taxable
year involved.
``(9) Alternative determination of patent box profit.--
``(A) In general.--In accordance with regulations
or other guidance provided by the Secretary, the
taxpayer may elect to determine patent box profit as
the amount equal to the net income derived from patent
gross receipts related to exploitation of the qualified
patent that would be received for the taxable year if
all transactions of the taxpayer for the taxable year
were conducted at arm's length under the principles of
section 482.
``(B) Election.--An election under subparagraph (A)
for a taxable year shall apply with respect to all
qualified patents. Such election, once made, may be
revoked only with the consent of the Secretary.
``(c) Alternative Method for Certain Taxpayers.--In the case of a
taxpayer which meets the $5,000,000 gross receipts test of section
448(c) for the taxable year, patent box profit shall be the greater of
the amount determined under subsection (b) or 50 percent of IP profit.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Application of section to pass-thru entities.--
``(A) Partnerships and s corporations.--In the case
of a partnership or S corporation--
``(i) the deduction under subsection (a)
shall be determined at the partner or
shareholder level,
``(ii) except as provided in clause (i),
all determinations relating to receipts,
expenses, and whether a patent is a qualified
patent shall be made at the entity level, and
``(iii) each partner or shareholder shall
take into account such person's allocable share
of each item described in clause (i) or (ii) of
subsection (b)(2)(A) (determined without regard
to whether the items described in such clause
(i) exceed the items described in such clause
(ii)).
``(B) Trusts and estates.--In the case of a trust
or estate--
``(i) the items referred to in subparagraph
(A)(ii) (as determined therein) shall be
apportioned between the beneficiaries and the
fiduciary (and among the beneficiaries) under
regulations prescribed by the Secretary, and
``(ii) for purposes of paragraph (2),
adjusted gross income of the trust or estate
shall be determined as provided in section
67(e) with the adjustments described in such
paragraph.
``(C) Application to individuals.--In the case of
an individual, subsection (a)(2) shall be applied by
substituting `adjusted gross income' for `taxable
income'. For purposes of the preceding sentence,
adjusted gross income shall be determined--
``(i) after application of sections 86,
135, 137, 199, 219, 221, 222, and 469, and
``(ii) without regard to this section.
``(D) Agricultural and horticultural
cooperatives.--
``(i) Deduction allowed to patrons.--Any
person who receives a qualified payment from a
specified agricultural or horticultural
cooperative shall be allowed for the taxable
year in which such payment is received a
deduction under subsection (a) equal to the
portion of the deduction allowed under
subsection (a) to such cooperative which is--
``(I) allowed with respect to the
portion of the patent box profit to
which such payment is attributable, and
``(II) identified by such
cooperative in a written notice mailed
to such person during the payment
period described in section 1382(d).
``(ii) Cooperative denied deduction for
portion of qualified payments.--The taxable
income of a specified agricultural or
horticultural cooperative shall not be reduced
under section 1382 by reason of that portion of
any qualified payment as does not exceed the
deduction allowable under clause (i) with
respect to such payment.
``(iii) Taxable income of cooperatives
determined without regard to certain
deductions.--For purposes of this section, the
taxable income of a specified agricultural or
horticultural cooperative shall be computed
without regard to any deduction allowable under
subsection (b) or (c) of section 1382 (relating
to patronage dividends, per-unit retain
allocations, and nonpatronage distributions).
``(iv) Special rule for marketing
cooperatives.--For purposes of this section, a
specified agricultural or horticultural
cooperative described in clause (vi)(II) shall
be treated as having manufactured, produced,
grown, or extracted in whole or significant
part any qualifying production property
marketed by the organization which its patrons
have so manufactured, produced, grown, or
extracted.
``(v) Qualified payment.--For purposes of
this paragraph, the term `qualified payment'
means, with respect to any person, any amount
which--
``(I) is described in paragraph (1)
or (3) of section 1385(a),
``(II) is received by such person
from a specified agricultural or
horticultural cooperative, and
``(III) is attributable to patent
box profits with respect to which a
deduction is allowed to such
cooperative under subsection (a).
``(vi) Specified agricultural or
horticultural cooperative.--For purposes of
this paragraph, the term `specified
agricultural or horticultural cooperative'
means an organization to which part I of
subchapter T applies which is the owner of, or
the holder of an exclusive license to exploit,
a qualified patent.
``(E) Regulations.--The Secretary may prescribe
rules requiring or restricting the allocation of items
under this paragraph and may prescribe such reporting
requirements as the Secretary determines appropriate.
``(2) Special rule for affiliated groups.--
``(A) In general.--All members of an expanded
affiliated group shall be treated as a single
corporation for purposes of this section.
``(B) Expanded affiliated group.--For purposes of
this section, the term `expanded affiliated group'
means an affiliated group as defined in section
1504(a), determined--
``(i) by substituting `more than 50
percent' for `at least 80 percent' each place
it appears, and
``(ii) without regard to paragraphs (2) and
(4) of section 1504(b).
``(C) Allocation of deduction.--Except as provided
in regulations, the deduction under subsection (a)
shall be allocated among the members of the expanded
affiliated group in proportion to each member's
respective amount (if any) of patent box profit.
``(3) Coordination with minimum tax.--For purposes of
determining alternative minimum taxable income under section
55--
``(A) patent box profit shall be determined without
regard to any adjustments under sections 56 through 59,
and
``(B) in the case of a corporation, subsection
(a)(2) shall be applied by substituting `alternative
minimum taxable income' for `taxable income'.
``(4) Coordination with domestic production activities
deduction.--This section shall be applied without regard to the
deduction allowed under section 199.
``(5) Unrelated business taxable income.--For purposes of
determining the tax imposed by section 511, subsection (a)(2)
shall be applied by substituting `unrelated business taxable
income' for `taxable income'.
``(6) Acquisitions and dispositions.--The Secretary shall
provide for the application of this subsection in cases where
the taxpayer acquires, or disposes of, the major portion of a
trade or business or the major portion of a separate unit of a
trade or business during the taxable year.
``(7) United states.--The term `United States' includes the
District of Columbia, Puerto Rico, the Virgin Islands, Guam,
American Samoa, the Commonwealth of the Northern Mariana
Islands, the Federated States of Micronesia, the Republic of
the Marshall Islands, and Palau.
``(e) Election.--
``(1) In general.--The taxpayer may make an election to
have this section apply for any taxable year.
``(2) Pass-thru entities.--In the case of a pass-thru
entity, the election shall be made at the partner or
shareholder level.
``(3) Revocation.--An election under paragraph (1), once
made, may be revoked only with the consent of the Secretary.
``(f) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to carry out this section, including regulations
which prevent the abuse of the purposes of this section.''.
(b) Conforming Amendments.--
(1) Section 56(d)(1)(A) of such Code is amended by striking
``deduction under section 199'' both places it appears and
inserting ``deductions under sections 199 and 200''.
(2) Section 56(g)(4)(C) of such Code is amended by adding
at the end the following new clause:
``(vii) Deduction for domestic business
income.--Clause (i) shall not apply to any
amount allowable as a deduction under section
200.''.
(3) The following provisions of such Code are each amended
by inserting ``200,'' after ``199,''.
(A) Section 86(b)(2)(A).
(B) Section 135(c)(4)(A).
(C) Section 137(b)(3)(A).
(D) Section 219(g)(3)(A)(ii).
(E) Section 221(b)(2)(C)(i).
(F) Section 222 (b)(2)(C)(i).
(G) Section 246(b)(1).
(H) Section 469(i)(3)(F)(iii).
(4) Section 163(j)(6)(A)(i) of such Code is amended by
striking ``and'' at the end of subclause (III) and by inserting
after subclause (IV) the following new subclause:
``(V) any deduction allowable under
section 200, and''.
(5) Section 170(b)(2)(C) of such Code is amended by
striking ``and'' at the end of clause (iv), by striking the
period at the end of clause (v) and inserting ``, and'', and by
inserting after clause (v) the following new clause:
``(vi) section 200.''.
(6) Section 172(d) of such Code is amended by adding at the
end the following new paragraph:
``(8) Domestic business income.--The deduction under
section 200 shall not be allowed.''.
(7) Section 199(c) of such Code is amended by adding at the
end the following new paragraph:
``(8) Coordination with patent box profits deduction.--
Qualified production activities income, taxable income, and
domestic production gross receipts shall be determined without
regard to section 200.''.
(8) Section 199(d)(2)(B) of such Code is amended by
striking ``this section'' and inserting ``this section and
section 200''.
(9) Section 613(a) of such Code is amended by striking
``deduction under section 199'' and inserting ``deductions
under sections 199 and 200''.
(10) Section 613A(d)(1) of such Code is amended by
redesignating subparagraphs (C), (D), and (E) as subparagraphs
(D), (E), and (F), respectively, and by inserting after
subparagraph (B) the following new subparagraph:
``(C) any deduction allowable under section 200,''.
(11) Section 1402(a) of such Code is amended by striking
``and'' at the end of paragraph (16), by redesignating
paragraph (17) as paragraph (18), and by inserting after
paragraph (16) the following new paragraph:
``(17) the deduction provided by section 200 shall not be
allowed; and''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 of such Code is amended by adding at the end
the following new item:
``Sec. 200. Patent box profits.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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