Amends the Internal Revenue Code to exempt from the definition of "passive activity," for purposes of the passive loss tax rules, any qualified research activity carried on by a high technology research small business pass-thru entity.
Defines "high technology research small business pass-thru entity" as any domestic pass-thru entity if: (1) more than 75% of the entity's expenditures are paid or incurred in connection with qualified research, or (2) more than 50% of the entity's expenditures constitute qualified research expenses. Designates a high technology research entity as a small business if such entity has 250 or fewer full-time employees and does not have aggregate gross assets in excess of $150 million.
[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4855 Introduced in House (IH)]
113th CONGRESS
2d Session
H. R. 4855
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
June 12, 2014
Mr. Gerlach (for himself, Mr. Neal, Mr. Kelly of Pennsylvania, and Mr.
Kind) 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 entities.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. EXCEPTION FROM PASSIVE LOSS RULES FOR INVESTMENTS IN HIGH
TECHNOLOGY RESEARCH SMALL BUSINESS PASS-THRU ENTITIES.
(a) In General.--Subsection (c) of section 469 of the Internal
Revenue Code of 1986 is amended by redesignating paragraphs (4) through
(7) as paragraphs (5) through (8), respectively, and by inserting after
paragraph (3) the following new paragraph:
``(4) High technology research activities.--
``(A) In general.--The term `passive activity'
shall not include any qualified research activity of
the taxpayer carried on by a high technology research
small business pass-thru entity.
``(B) Treatment of losses and deductions.--
``(i) In general.--Losses or deductions of
a taxpayer relating to qualified research
activities carried on by a high technology
research small business pass-thru entity shall
not be treated as losses or deductions,
respectively, from a passive activity except as
provided in clause (ii) and subparagraph (C).
``(ii) Limitation.--Clause (i) shall apply
to losses and deductions of a taxpayer relating
to a high technology small business pass-thru
entity for a taxable year only to the extent
that the aggregate losses and deductions of the
taxpayer relating to qualified research
activities of such entity for such taxable year
do not exceed the portion of the taxpayer's
adjusted basis in the taxpayer's ownership
interest in such entity that is attributable to
money or other property contributed--
``(I) in exchange for such
ownership interest, and
``(II) specifically for use in
connection with qualified research
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 considered
under section 752(a) as a contribution of
money.
``(C) Treatment of carryovers.--Subparagraph (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 deduction arose.
``(D) Qualified research activity.--For purposes of
this paragraph, the term `qualified research activity'
means any activity constituting qualified research
(within the meaning of section 41(d)(1)(B) and taking
into account paragraphs (3) and (4) of section 41(d))
which involves a process of experimentation.
``(E) High technology research small business pass-
thru entity.--For purposes of this paragraph, the term
`high technology 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
salaries, rent and overhead) for such
taxable year are paid or incurred in
connection with qualified research
(within the meaning of section
41(d)(1)(B), taking into account
paragraphs (3) and (4) of section
41(d)) that involves a process of
experimentation conducted by the
entity, or
``(II) more than 50 percent of the
entity's expenditures for such taxable
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.
``(F) Provisions related to aggregate gross assets
limitation.--For purposes of this paragraph--
``(i) In general.--Except as otherwise
provided in this subparagraph, the term
`aggregate gross assets' has the meaning given
such term in section 1202(d)(2).
``(ii) Exception for certain intangibles.--
Any section 197 intangible (as defined in
section 197(d) and determined without regard to
section 197(e)) which is used directly in
connection with the research referred to in
subparagraph (E)(i) shall not be taken into
account in determining aggregate gross assets.
``(iii) Exception for certain follow-on
investments.--Cash from a sale of equity
interests shall not be taken into account in
determining aggregate gross assets if--
``(I) the aggregate gross assets of
such entity (determined immediately
after such sale and without regard to
this clause) do not exceed the sum of
$150,000,000, plus 25 percent of the
aggregate gross assets of such entity
(determined immediately before such
sale and without regard to this
clause), and
``(II) the aggregate gross assets
of such entity (determined immediately
before such sale and without regard to
this clause) do not exceed
$150,000,000.
Sales of equity interests which are part of the
same plan or arrangement, or which are carried
out with the principal purpose of increasing
the amount of cash to which this clause applies
(determined without regard to this sentence),
shall be treated as a single sale for purposes
of this clause.
``(iv) Inflation adjustment.--In the case
of any taxable year beginning after 2015, the
$150,000,000 amount in subparagraph (E)(iii)
and subclauses (I) and (II) of clause (iii)
shall each be increased by an amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost of living
adjustment determined under section
1(f)(3) for the calendar year in which
the taxable year begins determined by
substituting `calendar year 2014' for
`calendar year 1992' in subparagraph
(B) thereof.
Any increase determined under the preceding
sentence shall be rounded to the nearest
$100,000.
``(G) Capital expenditures taken into account for
expenditures test.--An expenditure shall not fail to be
taken into account under subparagraph (E)(i) merely
because such expenditure is chargeable to capital
account.
``(H) 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.
``(I) Aggregation rules.--
``(i) In general.--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 (E) and (F)(iii).
``(ii) Limitation where entity would not
qualify.--No entity shall be treated as a high
technology research small business pass-thru
entity unless such entity qualifies as such
both with and without the application of clause
(i).
``(J) 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
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 the Internal Revenue Code of 1986, as redesignated 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
Purposes of Determining Alternative Minimum Tax.--
(1) Deduction for research and experimental 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 high technology research small
business pass-thru entities.--In the case of a high
technology research small business pass-thru entity (as
defined in section 469(c)(4)), this paragraph shall not
apply to any amount allowable as a deduction under
section 174(a).''.
(2) Allowance of certain research-related 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 following new clause:
``(ii) the credits of an individual
taxpayer determined under sections 41 and 48D
to the extent attributable 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 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 taxable years beginning on or
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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