Incentives for stem cell research

(a)

In general

Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter:

Stem cell research bonds

Sec. 1400N. Credit to holders of qualified stem cell research bonds

1400N.

Credit to holders of qualified stem cell research bonds

(a)

Allowance of credit

In the case of a taxpayer who holds a qualified stem cell research bond on a credit allowance date of such bond which occurs during the taxable year, there shall be allowed as a credit against the tax imposed by this chapter for such taxable year an amount equal to the sum of the credits determined under subsection (b) with respect to credit allowance dates during such year on which the taxpayer holds such bond. (b)

Amount of credit

(1)

In general

The amount of the credit determined under this subsection with respect to any credit allowance date for a qualified stem cell research bond is 25 percent of the annual credit determined with respect to such bond. (2)

Annual credit

The annual credit determined with respect to any qualified stem cell research bond is the product of— (A)the applicable credit rate, multiplied by (B)the outstanding face amount of the bond. (3)

Applicable credit rate

For purposes of paragraph (1), the applicable credit rate with respect to an issue is the rate equal to an average market yield (as of the day before the date of issuance of the issue) on outstanding long-term corporate debt obligations (determined under regulations prescribed by the Secretary). (4)

Special rule for issuance and redemption

In the case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during which the bond is outstanding. A similar rule shall apply when the bond is redeemed. (c)

Limitation based on amount of tax

(1)

In general

The credit allowed under subsection (a) for any taxable year shall not exceed the excess of— (A)the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over (B)the sum of the credits allowed under part IV of subchapter A (other than subpart C thereof, relating to refundable credits). (2)

Carryover of unused credit

If the credit allowable under subsection (a) exceeds the limitation imposed by paragraph (1) for such taxable year, such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year. (d)

Qualified stem cell research bond; credit allowance date

For purposes of this section— (1)

Qualified stem cell research bond

The term qualified stem cell research bond means any bond issued as part of an issue if— (A)95 percent or more of the proceeds of such issue are to be used for interdisciplinary scientific and medical research relating to stem cells, therapy development relating to stem cells, and development of pharmacologies and treatments through clinical trials relating to stem cells, (B)the bond is issued by a State or local government, (C)the issuer designates such bond for purposes of this section, and (D)the term of each bond which is part of such issue does not exceed 30 years. (2)

Stem cell

(A)

In general

The term stem cell means a cell with the ability to divide for indefinite periods in culture and give rise to specialized cells. (B)

Limitation

Human embryonic stem cells shall be eligible for use in any research supported by a bond issued under this section if the cells meet each of the following: (i)The stem cells were derived from human embryos that were donated from in vitro fertilization clinics, were created solely for the purposes of fertility treatment, and were in excess of the clinical need of the individuals seeking such treatment. (ii)Prior to the consideration of embryo donation and through consultation with the individuals seeking fertility treatment, it was determined that the embryos would never be implanted in a woman and would otherwise be discarded. (iii)The individuals seeking fertility treatment donated the embryos with written informed consent that the embryos would be used for research purposes. (iv)Neither the individuals for whom the embryo was created nor any other person or entity which participated in the fertility treatment through which the embryo was created received, directly or indirectly, any monetary incentive or other compensation with respect to the donation of the embryo. (3)

Report on researcher activities

A bond shall not be treated as a qualified stem cell research bond unless the issue of which such bond is a part carries a requirement under which any person who receives proceeds from such issue for a purpose described in paragraph (1)(A) is obligated to submit to the issuer an annual report— (A)describing the activities carried out (in whole or in part) with such proceeds during the preceding calendar year, and (B)including a description of whether and to what extent research for a purpose described in paragraph (1)(A) has been conducted in accordance with the requirements imposed by the issuer of such bond. (4)

Credit allowance date

The term credit allowance date means— (A)March 15, (B)June 15, (C)September 15, and (D)December 15.

Such term includes the last day on which the bond is outstanding.

(5)

Bond

The term bond includes any obligation. (6)

State

The term State includes the District of Columbia and any possession of the United States. (e)

Limitation on amount of bonds designated

(1)

In general

The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) by any issuer shall not exceed the limitation amount allocated under paragraph (2) for such calendar year to such issuer. (2)

Limitation on amount allocated to an issuer

Not more than 20 percent of the national qualified stem cell research bond limitation for a calendar year may be allocated to an issuer for the calendar year. For the purposes of the preceding sentence, a local government within a State shall be treated as the State. (3)

National limitation on amount of bonds designated

There is a national qualified stem cell research bond limitation for each calendar year. Such limitation is— (A)$10,000,000,000 for each of the calendar years 2006, 2007, and 2008, and (B)except as provided in subsection (f), zero after 2008. (4)

Carryover of unused limitation

If for any calendar year— (A)the aggregate amount allocated under paragraph (2), exceeds (B)the amount of bonds issued during such year which are designated under subsection (a) pursuant to such allocation,

the limitation amount under paragraph (3) for the following calendar year shall be increased by the amount of such excess.

(f)

Credit included in gross income

Gross income includes the amount of the credit allowed to the taxpayer under this section (determined without regard to subsection (c)) and the amount so included shall be treated as interest income. (g)

Recapture of portion of credit where cessation of compliance

(1)

In general

If any bond which when issued purported to be a qualified stem cell research bond ceases to be a qualified stem cell research bond, the issuer shall pay to the United States (at the time required by the Secretary) an amount equal to the sum of— (A)the aggregate of the credits allowable under this section with respect to such bond (determined without regard to subsection (c)) for taxable years ending during the calendar year in which such cessation occurs and the 2 preceding calendar years, and (B)interest at the underpayment rate under section 6621 on the amount determined under subparagraph (A) for each calendar year for the period beginning on the first day of such calendar year. (2)

Failure to pay

If the issuer fails to timely pay the amount required by paragraph (1) with respect to such bond, the tax imposed by this chapter on each holder of any such bond which is part of such issue shall be increased (for the taxable year of the holder in which such cessation occurs) by the aggregate decrease in the credits allowed under this section to such holder for taxable years beginning in such 3 calendar years which would have resulted solely from denying any credit under this section with respect to such issue for such taxable years. (3)

Special rules

(A)

Tax benefit rule

The tax for the taxable year shall be increased under paragraph (2) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted. (B)

No credits against tax

Any increase in tax under paragraph (2) shall not be treated as a tax imposed by this chapter for purposes of determining— (i)the amount of any credit allowable under this part, or (ii)the amount of the tax imposed by section 55. (h)

Bonds held by regulated investment companies

If any qualified stem cell research bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary. (i)

Credits may be stripped

Under regulations prescribed by the Secretary— (1)

In general

There may be a separation (including at issuance) of the ownership of a qualified stem cell research bond and the entitlement to the credit under this section with respect to such bond. In case of any such separation, the credit under this section shall be allowed to the person who on the credit allowance date holds the instrument evidencing the entitlement to the credit and not to the holder of the bond. (2)

Certain rules to apply

In the case of a separation described in paragraph (1), the rules of section 1286 shall apply to the qualified stem cell research bond as if it were a stripped bond and to the credit under this section as if it were a stripped coupon. (j)

Treatment for estimated tax purposes

Solely for purposes of sections 6654 and 6655, the credit allowed by this section to a taxpayer by reason of holding a qualified stem cell research bond on a credit allowance date shall be treated as if it were a payment of estimated tax made by the taxpayer on such date. (k)

Credit may be transferred

Nothing in any law or rule of law shall be construed to limit the transferability of the credit allowed by this section through sale and repurchase agreements. (l)

Reporting

(1)

Initial report

Issuers of qualified stem cell research bonds shall submit reports similar to the reports required under section 149(e). (2)

Annual reports

In addition to the report required by paragraph (1), issuers of qualified stem cell research bonds shall submit a report not later than March 31 of each year to the Secretary. Each such report shall include a description of— (A)the activities carried out (in whole or in part) with the proceeds of such bonds during the preceding calendar year, and (B) whether and to what extent research for a purpose described in subsection (d)(1)(A) has been conducted in accordance with the requirements imposed by the issuer of such bond. (m)

Termination

This section shall not apply to any bond issued after September 30, 2008.

(b)

Reporting

Subsection (d) of section 6049 of such Code (relating to returns regarding payments of interest) is amended by adding at the end the following new paragraph:

(8)

Reporting of credit on qualified stem cell research bonds

(A)

In general

For purposes of subsection (a), the term interest includes amounts includible in gross income under section 1400N(f) and such amounts shall be treated as paid on the credit allowance date (as defined in section 1400N(d)(3)). (B)

Reporting to corporations, etc

Except as otherwise provided in regulations, in the case of any interest described in subparagraph (A) of this paragraph, subsection (b)(4) of this section shall be applied without regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i). (C)

Regulatory authority

The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.

(c)

Conforming amendment

The table of subchapters for chapter 1 of such Code is amended by adding at the end the following new item:

Subchapter Z. Stem cell research bonds.

(d)

Effective date

The amendments made by this section shall apply to obligations issued after December 31, 2005.