[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5115 Introduced in House (IH)]







109th CONGRESS
  2d Session
                                H. R. 5115

    To amend the Internal Revenue Code of 1986 to modernize the tax 
             treatment of biomedical research corporations.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 6, 2006

  Ms. Hart (for herself, Mr. English of Pennsylvania, and Mr. Weller) 
 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 modernize the tax 
             treatment of biomedical research corporations.

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

SECTION 1. SHORT TITLE.

    (a) Short Title.--This Act may be cited as the ``U.S. Healthcare 
Technologies Competitiveness Act of 2006''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title.
        TITLE I--PROVISIONS RELATING TO CORPORATE TAX INCENTIVES

Sec. 101. Modify change of ownership rules.
Sec. 102. Net operating losses under alternative minimum tax.
Sec. 103. Research credit expansion.
Sec. 104. Medical innovation tax credit.
Sec. 105. Orphan drug credit expansion.
Sec. 106. Countermeasures and pandemic flu research incentives.
Sec. 107. Countermeasures equity tax credit.
Sec. 108. Biotechnology science parks.
Sec. 109. Expensing for qualified medical research equipment.
        TITLE II--PROVISIONS RELATING TO INVESTOR TAX INCENTIVES

Sec. 201. Capital gains rollover.
Sec. 202. Treatment of ordinary losses.
Sec. 203. Equity credit for incubational firms.
Sec. 204. Modification of passive loss rules.
Sec. 205. Modification of subchapter S rules.
Sec. 206. Treatment of bonds for biomedical research facilities as 
                            exempt facility bonds.
Sec. 207. Incentives for biotechnology zones.

        TITLE I--PROVISIONS RELATING TO CORPORATE TAX INCENTIVES

SEC. 101. MODIFY CHANGE OF OWNERSHIP RULES.

    (a) In General.--Subsection (l) of section 382 is amended by adding 
at the end the following new paragraph:
            ``(9) Certain financing transactions of biomedical research 
        corporations.--
                    ``(A) General rule.--In the case of a biomedical 
                research corporation, any owner shift involving a 5-
                percent shareholder which occurs as the result of a 
                qualified investment or qualified transaction during 
                the testing period shall be treated for purposes of 
                this section (other than this paragraph) as occurring 
                before the testing period.
                    ``(B) Biomedical research corporation.--For 
                purposes of this paragraph, the term `biomedical 
                research corporation' means, with respect to any 
                qualified investment, any domestic corporation subject 
                to tax under this subchapter which is not in bankruptcy 
                and which, as of the time of the closing on such 
                investment--
                            ``(i) holds the rights to a drug or 
                        biologic for which an investigational new drug 
                        application is in effect under section 505 of 
                        the Federal Food, Drug, and Cosmetic Act, or 
                        holds the rights to a device for which an 
                        investigational device exemption is approved 
                        under section 520(g) of such Act, and
                            ``(ii) certifies that, as of the time of 
                        such closing, the drug, biologic, or device is, 
                        or in the 6 month period beginning 3 months 
                        before such closing has been, under study 
                        pursuant to an investigational use exemption 
                        under section 505(i) or section 520(g) of the 
                        Federal Food, Drug, and Cosmetic Act.
                    ``(C) Qualified investment.--For purposes of this 
                paragraph, the term `qualified investment' means any 
                acquisition of stock by a shareholder (who after such 
                acquisition is a less than 50 percent shareholder) in a 
                biomedical research corporation if such stock is 
                acquired at its original issue (directly or through an 
                underwriter) solely in exchange for cash.
                    ``(D) Qualified transaction.--For purposes of this 
                paragraph, the term `qualified transaction' means any 
                acquisition of stock in a biomedical research 
                corporation if such stock is acquired as part of a 
                merger or acquisition by another biomedical research 
                corporation that is a loss corporation. If the 
                acquiring loss corporation is a member of a controlled 
                group of corporations under section 1563(a), the group 
                must be a loss group.
                    ``(E) Stock issued in exchange for convertible 
                debt.--For purposes of this paragraph, stock issued by 
                a biomedical research corporation in exchange for its 
                convertible debt (or stock deemed under this section to 
                be so issued) shall be treated as stock acquired by the 
                debt holder at its original issue and solely in 
                exchange for cash if the debt holder previously 
                acquired the convertible debt at its original issue and 
                solely in exchange for cash. In the case of an 
                acquisition of stock in exchange for convertible debt, 
                the requirements of this paragraph shall be applied 
                separately as of the time of closing on the investment 
                in convertible debt, and as of the time of actual 
                conversion (or deemed conversion under this section) of 
                the convertible debt for stock.
                    ``(F) Biomedical research corporation must meet 3-
                year expenditure and continuity of business tests with 
                respect to any qualified investment.--
                            ``(i) In general.--This paragraph shall not 
                        apply to a qualified investment or transaction 
                        in a biomedical research corporation unless 
                        such corporation meets the expenditure test for 
                        each year of the measuring period and the 
                        continuity of business test.
                            ``(ii) Measuring period.--For purposes of 
                        this subparagraph, the term `measuring period' 
                        means, with respect to any qualified investment 
                        or transaction, the taxable year of the 
                        biomedical research corporation in which the 
                        closing on the investment occurs, and the 2 
                        preceding taxable years.
                            ``(iii) Expenditure test.--A biomedical 
                        research corporation meets the expenditure test 
                        of this subparagraph for a taxable year if at 
                        least 35 percent of its expenditures for the 
                        taxable year (including, for purposes of this 
                        clause, payments in redemption of its stock) 
                        are expenditures described in section 41(b) or 
                        clinical and preclinical expenses.
                            ``(iv) Continuity of business test.--A 
                        biomedical research corporation meets the 
                        continuity of business test if, at all times 
                        during the 2-year period following a qualified 
                        investment or transaction, such corporation 
                        continues the business enterprise of such 
                        corporation.
                    ``(G) Effect of corporate redemptions on qualified 
                investments.--Rules similar to the rules of section 
                1202(c)(3) shall apply to qualified investments under 
                this paragraph except that `stock acquired in a 
                qualified investment' shall be substituted for 
                `qualified small business stock' each place it appears 
                therein.
                    ``(H) Effect of other transactions between 
                biomedical research corporations and investors making 
                qualified investments.--
                            ``(i) In general.--If, during the 2-year 
                        period beginning 1 year before any qualified 
                        investment, the biomedical research corporation 
                        engages in another transaction with a member of 
                        its qualified investment group and such 
                        biomedical research corporation receives any 
                        consideration other than cash in such 
                        transaction, there shall be a presumption that 
                        stock received in the otherwise qualified 
                        investment transaction was not received solely 
                        in exchange for cash.
                            ``(ii) Qualified investment group.--For 
                        purposes of this subparagraph, the term 
                        `qualified investment group' means, with 
                        respect to any qualified investment, one or 
                        more persons who receive stock issued in 
                        exchange for the qualified investment, and any 
                        person related to such persons within the 
                        meaning of section 267(b) or section 707(b).
                            ``(iii) Regulations.--The Secretary may 
                        promulgate regulations exempting from this 
                        subparagraph transactions which are customary 
                        in the bioscience research industry and are of 
                        minor value relative to the amount of the 
                        qualified investment. The Secretary may issue 
                        such regulations as may be appropriate to 
                        achieve the purposes of this paragraph to 
                        prevent abuse and to provide for treatment of 
                        biomedical research corporations under sections 
                        383 and 384 that is consistent with the 
                        purposes of this paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 102. NET OPERATING LOSSES UNDER ALTERNATIVE MINIMUM TAX.

    (a) In General.--Section 56(d)(1) (defining alternative tax net 
operating loss deduction) is amended by striking ``and'' at the end of 
subparagraph (A), by striking the period at the end of subparagraph (B) 
and inserting ``, and'', and by adding at the end the following new 
subparagraph:
                    ``(C) in the case of biomedical research 
                corporations (as defined in section 382(l)(9)(B)), the 
                amount of such deduction shall not exceed the 
                alternative minimum taxable income determined without 
                regard to such deduction.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 103. RESEARCH CREDIT EXPANSION.

    (a) Permanent Extension of Research Credit.--
            (1) In general.--Section 41 (relating to credit for 
        increasing research activities) is amended by striking 
        subsection (h).
            (2) Conforming amendment.--Paragraph (1) of section 45C(b) 
        is amended by striking subparagraph (D).
            (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after the date of the 
        enactment of this Act.
    (b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (a) of section 41(c)(4) (relating to election of 
alternative incremental credit) is amended--
            (1) in clause (i) by striking ``2.65 percent'' and 
        inserting ``3 percent'',
            (2) in clause (ii) by striking ``3.2 percent'' and 
        inserting ``4 percent'', and
            (3) in clause (iii) by striking ``3.75 percent'' and 
        inserting ``5 percent''.
    (c) Alternative Simplified Credit for Qualified Research 
Expenses.--
            (1) In general.--Subsection (c) of section 41 (relating to 
        base amount) is amended by redesignating paragraphs (5) and (6) 
        as paragraphs (6) and (7), respectively, and by inserting after 
        paragraph (4) the following new paragraph:
            ``(5) Election of alternative simplified credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under subsection (a)(1) shall be 
                equal to 12 percent of so much of the qualified 
                research expenses for the taxable year as exceeds 50 
                percent of the average qualified research expenses for 
                the 3 taxable years preceding the taxable year for 
                which the credit is being determined.
                    ``(B) Special rule in case of no qualified research 
                expenses in any of 3 preceding taxable years.--
                            ``(i) Taxpayers to which subparagraph 
                        applies.--The credit under this paragraph shall 
                        be determined under this subparagraph if the 
                        taxpayer does not have qualified research 
                        expenses in any 1 of the 3 taxable years 
                        preceding the taxable year for which the credit 
                        is being determined.
                            ``(ii) Credit rate.--The credit determined 
                        under this subparagraph shall be equal to 6 
                        percent of the qualified research expenses for 
                        the taxable year.
                    ``(C) Election.--An election under this paragraph 
                shall apply to the taxable year for which made and all 
                succeeding taxable years unless revoked with the 
                consent of the Secretary. An election under this 
                paragraph may not be made for any taxable year to which 
                an election under paragraph (4) applies.''.
            (2) Coordination with election of alternative incremental 
        credit.--Section 41(c)(4)(B) (relating to election) is amended 
        by adding at the end the following: ``An election under this 
        paragraph may not be made for any taxable year to which an 
        election under paragraph (5) applies.''.
    (d) Contract Research Expenses.--Subparagraph (D) of section 
41(b)(3) (relating to contract research expenses) is amended--
            (1) in the heading by inserting ``biomedical research 
        corporations,'' after ``eligible small businesses,'', and
            (2) in clause (i) by redesignating subclauses (II) and 
        (III) as subclauses (III) and (IV) respectively, and by 
        inserting after subclause (I) the following new subclause:
                                    ``(II) a biomedical research 
                                corporation (as defined in section 
                                382(l)(9)(B)),''.
    (e) Basic Research Expenses of Qualifying Biomedical Research 
Corporation.--Section 41(e)(3) is amended is amended to read as 
follows:
            ``(3) Qualified organization base period amount.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `qualified organization 
                base period amount' means an amount equal to the sum 
                of--
                            ``(i) the minimum basic research amount, 
                        plus
                            ``(ii) the maintenance-of-effort amount.
                    ``(B) Biomedical research corporation.--In the case 
                of a biomedical research corporation, the qualified 
                organization base period amount is zero.''.
    (f) Effective Date.-- The amendments made by this section shall 
apply to taxable years beginning after December, 31, 2006.

SEC. 104. MEDICAL INNOVATION TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 41 the following new section:

``SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.

    ``(a) General Rule.-- For purposes of section 38, the medical 
innovation credit determined under this section for the taxable year 
shall be an amount equal to 40 percent of the excess (if any) of--
            ``(1) the qualified medical innovation expenses for the 
        taxable year, over
            ``(2) the medical innovation base period amount.
    ``(b) Qualified Medical Innovation Expenses.--For purposes of this 
section--
            ``(1) In general.--The term `qualified medical innovation 
        expenses' means the amounts paid or incurred by the taxpayer 
        during the taxable year directly or indirectly to any qualified 
        academic institution for clinical testing research activities.
            ``(2) Clinical testing research activities.--
                    ``(A) In general.--The term `clinical testing 
                research activities' means human clinical testing 
                conducted at any qualified academic institution in the 
                development of any product, which occurs before--
                            ``(i) the date on which an application with 
                        respect to such product is approved under 
                        section 505(b), 506, or 507 of the Federal 
                        Food, Drug, and Cosmetic Act,
                            ``(ii) the date on which a license for such 
                        product is issued under section 351 of the 
                        Public Health Service Act, or
                            ``(iii) the date on which classification or 
                        approval of such product which is a device 
                        intended for human use is given under section 
                        513, 514, or 515 of the Federal Food, Drug, and 
                        Cosmetic Act.
                    ``(B) Product.--The term `product' means any drug, 
                biologic, or medical device.
            ``(3) Qualified academic institution.--The term `qualified 
        academic institution' means any of the following institutions:
                    ``(A) Educational institution.--An organization 
                described in section 170(b)(1)(A)(iii) which is owned 
                or affiliated with an institution of higher education 
                as described in section 3304(f).
                    ``(B) Teaching hospital.--A teaching hospital 
                which--
                            ``(i) is publicly supported or owned by an 
                        organization described in section 501(c)(3), 
                        and
                            ``(ii) is affiliated with an organization 
                        meeting the requirements of subparagraph (A).
                    ``(C) Foundation.--A medical research organization 
                described in section 501(c)(3) (other than a private 
                foundation) which is affiliated with, or owned by--
                            ``(i) an organization meeting the 
                        requirements of subparagraph (A), or
                            ``(ii) a teaching hospital meeting the 
                        requirements of subparagraph (B).
                    ``(D) Charitable research hospital.--A hospital 
                that is designated as a cancer center by the National 
                Cancer Institute.
            ``(4) Exclusion for amounts funded by grants, etc.--The 
        term `qualified medical innovation expenses' shall not include 
        any amount to the extent such amount is funded by any grant, 
        contract, or otherwise by another person (or any governmental 
        entity).
    ``(c) Medical Innovation Base Period Amount.--For purposes of this 
section, the term `medical innovation base period amount' means the 
average annual qualified medical innovation expenses paid by the 
taxpayer during the 3-taxable year period ending with the taxable year 
immediately preceding the first taxable year of the taxpayer beginning 
after December 31, 2006.
    ``(d) Special Rules.--
            ``(1) Limitation on foreign testing.--No credit shall be 
        allowed under this section with respect to any clinical testing 
        research activities conducted outside the United States.
            ``(2) Certain rules made applicable.--Rules similar to the 
        rules of subsections (f) and (g) of section 41 shall apply for 
        purposes of this section.
            ``(3) Election.--This section shall apply to any taxpayer 
        for any taxable year only if such taxpayer elects to have this 
        section apply for such taxable year.
            ``(4) Coordination with credit for increasing research 
        expenditures and with credit for clinical testing expenses for 
        certain drugs for rare diseases.--Any qualified medical 
        innovation expense for a taxable year to which an election 
        under this section applies shall not be taken into account for 
        purposes of determining the credit allowable under section 41 
        or 45C for such taxable year.''.
    (b) Credit to Be Part of General Business Credit.--
            (1) In general.--Section 38(b) (relating to current year 
        business credits) is amended by striking ``and'' at the end of 
        paragraph (29), by striking the period at the end of paragraph 
        (30) and inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(31) the medical innovation credit determined under 
        section 41A(a).''.
            (2) Transition rule.--Section 39(d) is amended by adding at 
        the end the following new paragraph:
            ``(9) No carryback of section 41a credit before 
        enactment.--No portion of the unused business credit for any 
        taxable year which is attributable to the medical innovation 
        credit determined under section 41A may be carried back to a 
        taxable year beginning before January 1, 2007.''.
    (c) Denial of Double Benefit.--Section 280C is amended by adding at 
the end the following new subsection:
    ``(e) Medical Innovation Credit.--
            ``(1) In general.--No deduction shall be allowed for that 
        portion of the qualified medical innovation expenses (as 
        defined in section 41A(b)) otherwise allowable as a deduction 
        for the taxable year which is equal to the amount of the credit 
        determined for such taxable year under section 41A(a).
            ``(2) Certain rules to apply.--Rules similar to the rules 
        of paragraphs (2), (3), and (4) of subsection (c) shall apply 
        for purposes of this subsection.''.
    (d) Deduction for Unused Portion of Credit.--Section 196(c) 
(defining qualified business credits) is amended by striking ``and'' at 
the end of paragraph (12), by striking the period at the end of 
paragraph (13) and inserting ``, and'', and by inserting after 
paragraph (13) the following new paragraph:
            ``(14) the medical innovation credit determined under 
        section 41A(a).''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding after the 
item relating to section 41 the following new item:

``Sec. 41A. Credit for medical innovation expenses.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 105. ORPHAN DRUG CREDIT EXPANSION.

    (a) In General.--Subclause (I) of section 45C(b)(2)(A)(ii) of the 
Internal Revenue Code of 1986 is amended to read as follows:
                    ``(I) after the date that the application is filed 
                for designation under such section 526 of such Act, 
                and''.
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2006.

SEC. 106. COUNTERMEASURES AND PANDEMIC FLU RESEARCH INCENTIVES.

    (a) Election of Federal Tax Incentive Regime.--
            (1) In general.--A biomedical research corporation (as 
        defined in section 382(l)(9)(B) of the Internal Revenue Code of 
        1986) may elect to apply the tax incentive described in 
        subparagraph (A), (B), or (C) for a taxable year, but such 
        biomedical research corporation may not elect to apply more 
        than one such tax incentive for such taxable year.
                    (A) Research and development limited partnerships 
                to fund countermeasure research.--
                            (i) In general.--A biomedical research 
                        corporation that elects the tax incentive 
                        described in this subparagraph may establish a 
                        limited partnership organized primarily for 
                        research related to covered countermeasures, 
                        but only if such corporation is a qualified 
                        small business as determined under section 
                        1202(d) of the Internal Revenue Code of 1986, 
                        by substituting ``$750,000,000'' for 
                        ``$50,000,000'' each place it appears. For 
                        purposes of this subparagraph, section 469 of 
                        such Code shall not apply with respect to a 
                        limited partnership established under this 
                        subparagraph.
                            (ii) Covered countermeasure.--The term 
                        ``covered countermeasure'' has the meaning 
                        given such term in division C of the Department 
                        of Defense, Emergency Supplemental 
                        Appropriations to Address Hurricanes in the 
                        Gulf of Mexico, and Pandemic Influenza Act, 
                        2006.
                    (B) Capital gains exclusion for investors to fund 
                countermeasure research.--A biomedical research 
                corporation that elects the tax incentive described in 
                this subparagraph may issue a class of stock for 
                research related to covered countermeasures (as defined 
                in subparagraph (A)(ii)) under section 1202 of the 
                Internal Revenue Code of 1986 with the following 
                modifications:
                            (i) Increased exclusion for noncorporate 
                        taxpayers.--Subsection (a) of section 1202 of 
                        such Code shall be applied by substituting 
                        ``100 percent'' for ``50 percent''.
                            (ii) Application to corporate taxpayers.--
                        Subsection (a) of section 1202 of such Code 
                        shall be applied without regard to the phrase 
                        ``other than a corporation''.
                            (iii) Reduction in holding period.--
                        Subsection (a) of section 1202 of such Code 
                        shall be applied by substituting ``3 years'' 
                        for ``5 years''.
                            (iv) Nonapplication of per-issuer 
                        limitation.--Section 1202 of such Code shall be 
                        applied without regard to subsection (b) 
                        (relating to per-issuer limitations on 
                        taxpayer's eligible gain).
                            (v) Stock of larger businesses eligible for 
                        exclusion.--Paragraph (1) of section 1202(d) of 
                        such Code (defining qualified small business) 
                        shall be applied by substituting 
                        ``$750,000,000'' for ``$50,000,000'' each place 
                        it appears.
                            (vi) Modification of working capital 
                        limitation.--Section 1202(e)(6) of such Code 
                        shall be applied--
                                    (I) in subparagraph (B), by 
                                substituting ``5 years'' for ``2 
                                years'', and
                                    (II) without regard to the last 
                                sentence.
                            (vii) Nonapplication of minimum tax 
                        preference.--Section 57(a) of such Code 
                        (relating to general rule for items of tax 
                        preference) shall be applied without regard to 
                        paragraph (7).
                    (C) Tax credit to fund countermeasure research.--A 
                biomedical research corporation that elects the tax 
                incentive described in this subparagraph may elect to 
                apply the tax credit described in subsection (b).
            (2) Reporting.--Each biomedical research corporation shall 
        submit to the Secretary of the Treasury such information 
        regarding its election of a tax incentive under this section as 
        the Secretary determines necessary.
    (b) Tax Credit to Fund Countermeasure Research.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 (relating to business related credits) is amended by 
        adding at the end the following new section:

``SEC. 45N. CREDIT FOR MEDICAL RESEARCH RELATED TO DEVELOPING 
              COUNTERMEASURES.

    ``(a) General Rule.--For purposes of section 38, in the case of a 
biomedical research corporation that makes an election, pursuant to 
section 106(a) of the U.S. Healthcare Technologies Competitiveness Act 
of 2006, to have this section apply, the countermeasures research 
credit determined under this section for the taxable year is an amount 
equal to 35 percent of the eligible countermeasures research expenses 
for the taxable year.
    ``(b) Eligible Countermeasures Research Expenses.--For purposes of 
this section--
            ``(1) Eligible countermeasures research expenses.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `eligible countermeasures 
                research expenses' means amounts paid or incurred by 
                the taxpayer during the taxable year for research, 
                including preclinical research and animal model 
                development, which would be described in subsection (b) 
                of section 41 if such subsection were applied with the 
                modifications set forth in subparagraph (B) of this 
                paragraph and that the Secretary of Health and Human 
                Services determines has significant potential to lead 
                to the development of a covered countermeasure.
                    ``(B) Modifications; increased incentive for 
                contract research payments.-- For purposes of 
                subparagraph (A), subsection (b) of section 41 shall be 
                applied--
                            ``(i) by substituting `eligible 
                        countermeasures research' for `qualified 
                        research' each place it appears in paragraphs 
                        (2) and (3) of such subsection, and
                            ``(ii) by substituting `100 percent' for 
                        `65 percent' in paragraph (3)(A) of such 
                        subsection.
                    ``(C) Exclusion for amounts funded by grants, 
                etc.--The term `eligible countermeasures research 
                expenses' shall not include any amount to the extent 
                such amount is funded by any grant, contract, or 
                otherwise by another person (or any governmental 
                entity).
            ``(2) Covered countermeasure.--The term `covered 
        countermeasure' has the meaning given such term in division C 
        of the Department of Defense, Emergency Supplemental 
        Appropriations to Address Hurricanes in the Gulf of Mexico, and 
        Pandemic Influenza Act, 2006.
    ``(c) Coordination With Credit for Increasing Research 
Expenditures.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        eligible countermeasures research expenses for a taxable year 
        shall not be taken into account for purposes of determining the 
        credit allowable under section 41 for such taxable year.
            ``(2) Expenses included in determining base period research 
        expenses.--Any eligible countermeasures research expenses for 
        any taxable year which are qualified research expenses (within 
        the meaning of section 41(b)) shall be taken into account in 
        determining base period research expenses for purposes of 
        applying section 41 to subsequent taxable years.
    ``(d) Coordination With Credit for Clinical Testing Expenses for 
Certain Drugs for Rare Diseases.--Any eligible countermeasures research 
expense for a taxable year shall not be taken into account for purposes 
of determining the credit allowable under section 45C for such taxable 
year.
    ``(e) Certain Rules Made Applicable.--Rules similar to the rules of 
paragraphs (1) and (2) of section 41(f) shall apply for purposes of 
this section.''.
            (2) Inclusion in general business credit.--Section 38(b) 
        (as amended by this Act) is further amended by striking ``and'' 
        at the end of paragraph (30), by striking the period at the end 
        of paragraph (31) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(32) the countermeasures research credit determined under 
        section 45N.''.
            (3) Denial of double benefit.--Section 280C (as amended by 
        this Act) is further amended by adding at the end the following 
        new subsection:
    ``(f) Credit for Eligible Countermeasures Research Expenses.--
            ``(1) In general.--No deduction shall be allowed for that 
        portion of the eligible countermeasures research expenses (as 
        defined in section 45N(b)) otherwise allowable as a deduction 
        for the taxable year which is equal to the amount of the credit 
        determined for such taxable year under section 45N(a).
            ``(2) Certain rules to apply.--Rules similar to the rules 
        of paragraphs (2), (3), and (4) of subsection (c) shall apply 
        for purposes of this subsection.''.
            (4) Deduction for unused portion of credit.--Section 196(c) 
        (as amended by this Act) is further amended by striking ``and'' 
        at the end of paragraph (13), by striking the period at the end 
        of paragraph (14) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(15) the countermeasures research credit determined under 
        section 45N(a).''.
            (5) Technical amendment.--The table of sections for subpart 
        D of part IV of subchapter A of chapter 1 is amended by adding 
        at the end the following new item:

``Sec. 45N. Credit for medical research related to developing 
                            countermeasures.''.

SEC. 107. COUNTERMEASURES EQUITY TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(as amended by this Act) is further amended by adding at the end the 
following new section:

``SEC. 45O. COUNTERMEASURES EQUITY TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) General rule.--For purposes of section 38, in the 
        case of a taxpayer who holds a qualified countermeasures equity 
        investment on a credit allowance date of such investment which 
        occurs during the taxable year, the countermeasures equity tax 
        credit determined under this section for such taxable year is 
        an amount equal to the applicable percentage of the amount paid 
        to the qualified countermeasures company solely in exchange for 
        its stock at original issue.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is 40 percent.
            ``(3) Credit allowance date.--For purposes of paragraph 
        (1), the term `credit allowance date' means, with respect to 
        any qualified countermeasures equity investment--
                    ``(A) the date on which such investment is 
                initially made, and
                    ``(B) each of the 3 subsequent anniversary dates of 
                such date.
    ``(b) Qualified Countermeasures Equity Investment.--For purposes of 
this section--
            ``(1) In general.--The term `qualified countermeasures 
        equity investment' means any equity investment in a qualified 
        countermeasures company if--
                    ``(A) such investment is acquired by the taxpayer 
                at its original issue (directly or through an 
                underwriter) solely in exchange for cash,
                    ``(B) not less than \1/2\ of such cash is used by 
                the qualified countermeasures company with respect to 
                research on covered countermeasures, and
                    ``(C) such investment is designated for purposes of 
                this section by the qualified countermeasures company.
        Such term shall not include any equity investment issued by a 
        qualified countermeasures company more than 5 years after the 
        date that such company receives an allocation under subsection 
        (d). Any allocation not used within such 5-year period may be 
        reallocated by the Secretary under subsection (d).
            ``(2) Limitation.--The maximum amount of equity investments 
        issued by a qualified countermeasures company which may be 
        designated under paragraph (1)(C) by such company shall not 
        exceed the portion of the limitation amount allocated under 
        subsection (d) to such company.
            ``(3) Treatment of subsequent purchasers.--The term 
        `qualified equity investment' includes any equity investment 
        which would (but for paragraph (1)(A)) be a qualified equity 
        investment in the hands of the taxpayer if such investment was 
        a qualified equity investment in the hands of a prior holder.
            ``(4) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this subsection.
            ``(5) Equity investment.--The term `equity investment' 
        means any stock (other than nonqualified preferred stock as 
        defined in section 351(g)(2)) in an entity which is a 
        corporation.
    ``(c) Qualified Countermeasures Company.--For purposes of this 
section--
            ``(1) In general.--The term `qualified countermeasures 
        company' means any domestic biomedical research corporation (as 
        defined in section 328(l)(9)(B)) that the Secretary of Health 
        and Human Services determines has significant potential to lead 
        to the development of a covered countermeasure.
            ``(2) Covered countermeasure.--The term `covered 
        countermeasure' has the meaning given such term in division C 
        of the Department of Defense, Emergency Supplemental 
        Appropriations to Address Hurricanes in the Gulf of Mexico, and 
        Pandemic Influenza Act, 2006.
    ``(d) National Limitation on Amount of Investments Designated.--
            ``(1) In general.--There is a qualified countermeasures 
        equity tax credit limitation of $150,000,000 for each taxable 
        year.
            ``(2) Allocation of limitation.--The limitation under 
        paragraph (1) shall be allocated by the Secretary among 
        qualified countermeasures companies selected by the Secretary. 
        In making allocations under the preceding sentence, the 
        Secretary shall give priority to the extent to which it is 
        reasonably anticipated that a qualified countermeasures company 
        would have insufficient taxable income and tax liability to 
        utilize research tax credits and other tax incentives provided 
        by section 106 of the U.S. Healthcare Technologies 
        Competitiveness Act of 2006.
            ``(3) Carryover of unused limitation.--If the qualified 
        countermeasures equity tax credit limitation for any taxable 
        year exceeds the aggregate amount allocated under paragraph (2) 
        for such year, such limitation for the succeeding taxable year 
        shall be increased by the amount of such excess.
    ``(e) Denial of Double Benefit.--With respect to a qualified 
countermeasures equity investment in a qualified countermeasures 
company, the countermeasures equity tax credit described in subsection 
(a) shall not apply in the case of a taxable year in which such 
qualified countermeasures company elects to apply a tax incentive 
described in section 106 of the U.S. Healthcare Technologies 
Competitiveness Act of 2006.
    ``(f) Recapture of Credit in Certain Cases.--
            ``(1) In general.--If, at any time during the 4-year period 
        beginning on the date of the original issue of a qualified 
        countermeasures equity investment in a qualified 
        countermeasures company, there is a recapture event with 
        respect to such investment, then the tax imposed by this 
        chapter for the taxable year in which such event occurs shall 
        be increased by the credit recapture amount.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) the aggregate decrease in the credits allowed 
                to the taxpayer under section 38 for all prior taxable 
                years which would have resulted if no credit had been 
                determined under this section with respect to such 
                investment, plus
                    ``(B) interest at the underpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph (1), 
        there is a recapture event with respect to a qualified 
        countermeasures equity investment in a qualified 
        countermeasures company if--
                    ``(A) such company ceases to be a qualified 
                countermeasures company, or
                    ``(B) such investment is redeemed by such company.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) 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 this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under this chapter or for purposes 
                of section 55.
    ``(g) Basis Reduction.--The basis of any qualified countermeasures 
equity investment shall be reduced by the amount of any credit 
determined under this section with respect to such investment. This 
subsection shall not apply for purposes of sections 1202, 1400B, and 
1400F.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including regulations 
which--
            ``(1) prevent the abuse of the purposes of this section,
            ``(2) impose appropriate reporting requirements, and
            ``(3) apply the provisions of this section to newly formed 
        entities.''.
    (b) Credit to Be Part of General Business Credit.--Section 38(b) 
(as amended by this Act) is further amended by striking ``and'' at the 
end of paragraph (31), by striking the period at the end of paragraph 
(32) and inserting ``, and'', and by adding at the end the following:
            ``(33) the countermeasures equity investment credit 
        determined under section 45O(a).''.
    (c) Deduction for Unused Portion of Credit.--Section 196(c) (as 
amended by this Act) is further amended by striking ``and'' at the end 
of paragraph (14), by striking the period at the end of paragraph (15) 
and inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(16) the countermeasures equity investment credit 
        determined under section 45O(a),''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 (as amended by this Act) is 
further amended by adding after the item relating to section 45N the 
following:

``Sec. 45O. Countermeasures equity tax credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 108. BIOTECHNOLOGY SCIENCE PARKS.

    (a) Expensing.--
            (1) In general.--Section 179(d) (relating to definitions 
        and special rules) is amended by adding at the end the 
        following new paragraph:
            ``(11) Application of section to property placed in service 
        in biotechnology science parks.--
                    ``(A) In general.--In the case of any section 179 
                property placed in service in any biotechnology science 
                park, this section shall be applied without regard to 
                paragraphs (1) and (2) of subsection (b).
                    ``(B) Biotechnology science park.--
                            ``(i) In general.--The term `biotechnology 
                        science park' means a group of interrelated 
                        companies and institutions, including 
                        suppliers, service providers, institutions of 
                        higher education, start-up incubators, and 
                        trade associations, that--
                                    ``(I) cooperates and competes in 
                                the field of biomedical research and 
                                medical devices,
                                    ``(II) is located in the United 
                                States,
                                    ``(III) promotes real estate 
                                development, technology transfer, and 
                                partnerships between such companies and 
                                institutions, and
                                    ``(IV) is not a business or 
                                industrial park.
                            ``(ii) Business or industrial park.--The 
                        term `business or industrial park' means a for-
                        profit real estate venture of businesses or 
                        industries which do not necessarily reinforce 
                        each other through supply chain or technology 
                        transfer mechanisms.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply with respect to property placed in service after 
        the date of the enactment of this Act.
    (b) Tax Credit for Research Activities.--
            (1) In general.--Section 41(a) (relating to credit for 
        increasing research activities) is amended by striking ``and'' 
        at the end of paragraph (2), by striking the period at the end 
        of paragraph (3) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(4) 20 percent of the qualified research expenses paid or 
        incurred by the taxpayer in carrying on any trade or business 
        located in a biotechnology science park during the taxable 
        year.''.
            (2) Biotechnology science park.--Section 41(f) (relating to 
        special rules) is amended by adding at the end the following 
        new paragraph:
            ``(7) Biotechnology science park.--
                    ``(A) In general.--The term `biotechnology science 
                park' means a group of interrelated companies and 
                institutions, including suppliers, service providers, 
                institutions of higher education, start-up incubators, 
                and trade associations, that--
                            ``(i) cooperates and competes in the field 
                        of biomedical research and medical devices,
                            ``(ii) is located in the United States,
                            ``(iii) promotes real estate development, 
                        technology transfer, and partnerships between 
                        such companies and institutions, and
                            ``(iv) is not a business or industrial 
                        park.
                    ``(B) Business or industrial park.--The term 
                `business or industrial park' means a for-profit real 
                estate venture of businesses or industries which do not 
                necessarily reinforce each other through supply chain 
                or technology transfer mechanisms.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2006.
    (c) Private Business Use of a Bond-Financed Facility.--
            (1) In general.--Subparagraph (A) of section 141(b)(6) 
        (defining private business use) is amended by inserting ``or 
        use in the performance of research using, in whole or in part, 
        funds of the United States or any agency or instrumentality 
        thereof'' before ``shall not be taken into account''.
            (2) Effective date.--
                    (A) In general.--The amendment made by this 
                subsection shall apply to any use on or after the date 
                of the enactment of this Act.
                    (B) No inference.--Nothing in the amendment made by 
                this subsection shall be construed to create any 
                inference with respect to the use of tax-exempt bond 
                financed facilities before the effective date of such 
                amendment.

SEC. 109. EXPENSING FOR QUALIFIED MEDICAL RESEARCH EQUIPMENT.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
inserting after section 179D the following new section:

``SEC. 179E. ELECTION TO EXPENSE CERTAIN MEDICAL RESEARCH EQUIPMENT.

    ``(a) Treatment as Expenses.-- A biomedical research corporation 
(as defined in section 382(l)(9)(B)) may elect to treat the cost of any 
qualified medical research property as an expense which is not 
chargeable to capital account. Any cost so treated shall be allowed as 
a deduction for the taxable year in which the qualified property is 
placed in service.
    ``(b) Election.--
            ``(1) In general.--An election under this section for any 
        taxable year shall be made on the taxpayer's return of the tax 
        imposed by this chapter for the taxable year. Such election 
        shall be made in such manner as the Secretary may by 
        regulations prescribe.
            ``(2) Election irrevocable.--Any election made under this 
        section may not be revoked except with the consent of the 
        Secretary.
    ``(c) Qualified Medical Research Property.-- The term `qualified 
medical research property' means any property--
            ``(1) the original use of which commences with the 
        taxpayer,
            ``(2) that is placed in service by the taxpayer after the 
        date of the enactment of this section,
            ``(3) that is customary in the bioscience research 
        industry, and
            ``(4) that is required for the taxpayer's advanced 
        biomedical research.''.
    (b) Conforming Amendments.--
            (1) Section 1245(a) is amended by inserting ``179E,'' after 
        ``179D,'' both places it appears in paragraphs (2)(C) and 
        (3)(C).
            (2) Section 263(a)(1) is amended by striking ``or'' at the 
        end of subparagraph (J), by striking the period at the end of 
        subparagraph (K) and inserting ``, or'', and by inserting after 
        subparagraph (K) the following new subparagraph:
                    ``(L) expenditures for which a deduction is allowed 
                under section 179E.''.
            (3) Section 312(k)(3)(B) is amended by striking ``or 179D'' 
        each place it appears in the heading and text and inserting 
        ``179D, or 179E''.
            (4) The table of sections for part VI of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 179D the following new item:

``Sec. 179E. Election to expense certain medical research equipment.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to properties placed in service after the date of the enactment 
of this Act.

        TITLE II--PROVISIONS RELATING TO INVESTOR TAX INCENTIVES

SEC. 201. CAPITAL GAINS ROLLOVER.

    (a) In General.--
            (1) Section 1045(a) is amended by inserting ``or biomedical 
        research corporation stock'' after ``qualified small business 
        stock'' each place it appears herein.
            (2) Section 1045(b) is amended by redesignating paragraphs 
        (2), (3), (4), and (5) as paragraphs (3), (4), (5), and (6), 
        respectively, and by inserting after paragraph (1) the 
        following new paragraph:
            ``(2) Biomedical research corporation.--The term 
        `biomedical research corporation' has the meaning given to such 
        term in section 382(l)(9)(B).''.
    (b) Conforming Amendments.--
            (1) The heading for section 1045 is amended by inserting 
        ``or biomedical research'' after ``small business'' each time 
        it appears.
            (2) The item relating to section 1045 in the table of 
        sections for part III of subchapter O of chapter 1 is amended 
        by inserting ``or biomedical research'' after ``small 
        business'' each time it appears.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 202. TREATMENT OF ORDINARY LOSSES.

    (a) In General.--
            (1) Section 1244(a) and (d) are amended by inserting ``or 
        biomedical research corporation stock'' after ``1244 stock.''
            (2) Section 1244 is amended by redesignating subsection (d) 
        as subsection (e) and by inserting after subsection (c) the 
        following new subsection:
    ``(d) Biomedical Research Corporation Stock Defined.--For purposes 
of this section--
            ``(1) In general.--The term `biomedical research 
        corporation stock' means stock in a domestic corporation if--
                    ``(A) at the time such stock is issued, such 
                corporation was a biomedical research corporation, and
                    ``(B) such stock was issued by such corporation for 
                money or other property (other than stock or 
                securities).
            ``(2) Biomedical research corporation.--
                    ``(A) In general.-- The term `biomedical research 
                corporation' means a corporation that--
                            ``(i) is subject to tax under this 
                        subchapter at the time such stock is issued,
                            ``(ii) is not in bankruptcy,
                            ``(iii) holds the rights to a drug or 
                        biologic for which an investigational new drug 
                        application is in effect under section 505 of 
                        the Federal Food, Drug, and Cosmetic Act or 
                        holds the rights to a device for which an 
                        investigational device exemption is approved 
                        under section 520(g) of such Act,
                            ``(iv) certifies that, as of the time of 
                        such stock issuance, the drug, biologic, or 
                        device is, or in the 6-month period beginning 3 
                        months before such closing has been, under 
                        study pursuant to an active investigational new 
                        drug or device application approved by the 
                        Commissioner of the Food and Drug 
                        Administration,
                            ``(v) has aggregate gross assets before and 
                        after the issuance that do not exceed 
                        $50,000,000, and
                            ``(vi) agrees to submit such reports to the 
                        Secretary and to shareholders as the Secretary 
                        may require to carry out the purposes of this 
                        section.''.
    (b) Conforming Amendments.--
            (1) The heading for section 1244 is amended by inserting 
        ``or biomedical research'' before ``stock''.
            (2) The item relating to section 1244 in the table of 
        sections for part IV of subchapter P of chapter 1 is amended by 
        inserting ``or biomedical research'' before ``stock.''
    (c) Effective Date.--The amendments made by this section shall 
apply to stock issued after December 31, 2006.

SEC. 203. EQUITY CREDIT FOR INCUBATIONAL FIRMS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(as amended by this Act) is amended by inserting after section 45O the 
following new section:

``SEC. 45P. INCUBATIONAL EQUITY TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) General rule.--For purposes of section 38, in the 
        case of a taxpayer who makes a qualified incubational equity 
        investment during the taxable year, the incubational equity tax 
        credit determined under this section for such taxable year is 
        an amount equal to the applicable percentage of the amount paid 
        to the qualified incubational company solely in exchange for 
        its stock at original issue.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is 40 percent.
    ``(b) Qualified Incubational Equity Investment.--For purposes of 
this section--
            ``(1) In general.--The term `qualified incubational equity 
        investment' means any equity investment in a qualified 
        incubational company if--
                    ``(A) such investment is acquired by the taxpayer 
                at its original issue (directly or through an 
                underwriter) solely in exchange for cash,
                    ``(B) not less than \1/2\ of such cash is used by 
                the qualified incubational company with respect to 
                qualifying research under section 41, and
                    ``(C) such investment is designated for purposes of 
                this section by the qualified incubational company.
        Such term shall not include any equity investment issued by a 
        qualified incubational company more than 5 years after the date 
        that such company receives an allocation under subsection (d). 
        Any allocation not used within such 5-year period may be 
        reallocated by the Secretary under subsection (d).
            ``(2) Limitation.--The maximum amount of equity investments 
        issued by a qualified incubational company which may be 
        designated under paragraph (1)(C) by such company shall not 
        exceed the portion of the limitation amount allocated under 
        subsection (f) to such company.
            ``(3) Treatment of subsequent purchasers.--The term 
        `qualified equity investment' includes any equity investment 
        which would (but for paragraph (1)(A)) be a qualified equity 
        investment in the hands of the taxpayer if such investment was 
        a qualified equity investment in the hands of a prior holder.
            ``(4) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this subsection.
            ``(5) Equity investment.--The term `equity investment' 
        means any stock (other than nonqualified preferred stock as 
        defined in section 351(g)(2)) in an entity which is a 
        corporation.
    ``(c) Qualified Incubational Company.--For purposes of this section 
the term `qualified incubational company' means any domestic biomedical 
research corporation (as defined in section 382(l)(9)(B)) subject to 
tax under subchapter C of this chapter, that has 25 employees or less 
and gross assets of less than $25,000,000.
    ``(d) National Limitation on Amount of Investments Designated.--
            ``(1) In general.--There is an incubational equity tax 
        credit limitation of $500,000,000 for each taxable year.
            ``(2) Allocation of limitation.--The limitation under 
        paragraph (1) shall be allocated by the Secretary among 
        qualified incubational companies selected by the Secretary. In 
        making allocations under the preceding sentence, the Secretary 
        shall give priority to the extent to which it is reasonably 
        anticipated that a qualified incubational company would have 
        insufficient taxable income and tax liability to utilize the 
        section 41 research tax credit.
            ``(3) Carryover of unused limitation.--If the qualified 
        incubational equity tax credit limitation for any taxable year 
        exceeds the aggregate amount allocated under paragraph (2) for 
        such year, such limitation for the succeeding taxable year 
        shall be increased by the amount of such excess.
    ``(e) Recapture of Credit in Certain Cases.--
            ``(1) In general.--If, at any time during the 4-year period 
        beginning on the date of the original issue of a qualified 
        incubational equity investment in a qualified incubational 
        company, there is a recapture event with respect to such 
        investment, then the tax imposed by this chapter for the 
        taxable year in which such event occurs shall be increased by 
        the credit recapture amount.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) the aggregate decrease in the credits allowed 
                to the taxpayer under section 38 for all prior taxable 
                years which would have resulted if no credit had been 
                determined under this section with respect to such 
                investment; plus
                    ``(B) interest at the underpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph (1), 
        there is a recapture event with respect to a qualified 
        countermeasures equity investment in a qualified 
        countermeasures company if--
                    ``(A) such company ceases to be a qualified 
                biomedical research corporation (as defined in section 
                382(l)(9)(B)), or
                    ``(B) such investment is redeemed by such company.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) 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 this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under this chapter or for purposes 
                of section 55.
    ``(f) Basis Reduction.--The basis of any qualified incubational 
equity investment shall be reduced by the amount of any credit 
determined under this section with respect to such investment. This 
subsection shall not apply for purposes of sections 1202, 1400B, and 
1400F.
    ``(g) Regulations.--The secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including regulations 
which--
            ``(1) prevent the abuse of the purposes of this section,
            ``(2) impose appropriate reporting requirements, and
            ``(3) apply the provisions of this section to newly formed 
        entities.''.
    (b) Credit to Be Part of General Business Credit.--Section 38(b) 
(as amended by this Act) is further amended by striking ``and'' at the 
end of paragraph (32), by striking the period at the end of paragraph 
(33) and inserting ``, and'', and by adding at the end the following:
            ``(34) the incubational equity tax credit determined under 
        section 45N(a).''.
    (c) Deduction for Unused Portion of Credit.--Section 196(c) of such 
Code (defining qualified business credits), as amended by this section, 
is amended by striking ``and'' at the end of paragraph (15), by 
striking the period at the end of paragraph (16) and inserting ``, 
and'', and by adding at the end the following new paragraph:
            ``(17) the incubational equity tax credit determined under 
        section 45P(a).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 (as amended by this Act) is 
further amended by adding after the item relating to section 45O the 
following new item:

``Sec. 45P. Incubational equity tax credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 204. MODIFICATION OF PASSIVE LOSS RULES.

    (a) In General.--Section 469(i) is amended--
            (1) by inserting ``or biomedical research corporation 
        activities'' after ``real estate activities'' each place it 
        appears in paragraphs (1) and (4), and
            (2) by inserting ``or biomedical or device research 
        corporation activity'' after ``real estate activity'' in 
        paragraph (6)(A).
    (b) Biomedical Research Corporation Defined.--Section 469(i) is 
amended by inserting the following new paragraph:
            ``(7) Biomedical research corporation.--The term 
        `biomedical research corporation' has the meaning given such 
        term in section 382(l)(9)(B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses incurred after December 31, 2006.

SEC. 205. MODIFICATION OF SUBCHAPTER S RULES.

    (a) In General.--Section 1361(b)(1) is amended by inserting the 
following flush sentence: ``In the case of a biomedical research 
corporation (as defined in section 382(l)(9)(B)), subparagraph (A) 
shall be applied by substituting `150' for `100'.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 206. TREATMENT OF BONDS FOR BIOMEDICAL RESEARCH FACILITIES AS 
              EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bonds.--Subsection (a) of section 
142 (relating to exempt facility bond) is amended by striking ``or'' at 
the end of paragraph (14), by striking the period at the end of 
paragraph (15) and inserting ``, or'', and by adding at the end the 
following new paragraph:
            ``(16) biomedical research facilities.''.
    (b) Biomedical Research Facilities.--Section 142 is amended by 
adding at the end the following new subsection:
    ``(n) Biomedical Research Facility.--For purposes of this section--
            ``(1) In general.-- The term `biomedical research facility' 
        means a facility owned by a private, for-profit entity 
        primarily utilized for biomedical research.
            ``(2) Biomedical research described.-- The term `biomedical 
        research' refers to research into a drug or biologic (or 
        related medical device) conducted pursuant to an 
        investigational use exemption under section 505(i) of the 
        Federal Food, Drug, and Cosmetic Act.
            ``(3) Limitation on aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be treated as 
                an issue described in subsection (a)(16) unless--
                            ``(i) the Secretary has allocated an amount 
                        to such issue under this paragraph, and
                            ``(ii) the aggregate face amount of bonds 
                        issued pursuant to such issue does not exceed 
                        such amount.
                    ``(B) Allocation.-- The Secretary may allocate 
                amounts to issues under this paragraph in such manner 
                as the Secretary determines appropriate, except that 
                the aggregate amount so allocated shall not exceed 
                $15,000,000,000.
                    ``(C) Refunding bonds.-- Subparagraph (A) shall not 
                apply with respect to any bond the proceeds of which 
                are used exclusively to refund a bond issued pursuant 
                to subsection (a)(16) (or a bond which is a part of a 
                series of refundings of a bond so issued) if the amount 
                of the refunding bond does not exceed the outstanding 
                amount of the refunded bond.''.
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) (relating to exception for certain bonds) is amended by 
striking ``or (15)'' and inserting ``(15), or (16)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2006.

SEC. 207. INCENTIVES FOR BIOTECHNOLOGY ZONES.

    (a) In General.--Subchapter U of chapter 1 (relating to designation 
and treatment of empowerment zones, enterprise communities, and rural 
development investment areas) is amended by redesignating part V as 
part VI, by redesignating section 1397F as section 1397G, and by 
inserting after part IV the following new part:

              ``PART V--INCENTIVES FOR BIOTECHNOLOGY ZONES

``Sec. 1397F. Credit to holders of qualified biotechnology zone bonds.

``SEC. 1397F. CREDIT TO HOLDERS OF QUALIFIED BIOTECHNOLOGY ZONE BONDS.

    ``(a) Allowance of Credit.--In the case of an eligible taxpayer who 
holds a qualified biotechnology zone bond on the 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 the amount determined under subsection (b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any qualified 
        biotechnology zone bond is the amount equal to the product of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (2) for the month in which such bond 
                was issued, multiplied by
                    ``(B) the face amount of the bond held by the 
                taxpayer on the credit allowance date.
            ``(2) Determination.--During each calendar month, the 
        Secretary shall determine a credit rate which shall apply to 
        bonds issued during the following calendar month. The credit 
        rate for any month is the percentage which the Secretary 
        estimates will permit the issuance of qualified biotechnology 
        zone bonds without discount and without interest cost to the 
        issuer.
    ``(c) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under part IV of 
        subchapter A (other than subpart C thereof, relating to 
        refundable credits).
    ``(d) Qualified Biotechnology Zone Bond.--For purposes of this 
section--
            ``(1) In general.--The term `qualified biotechnology zone 
        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 a qualified purpose with 
                respect to a qualified biotechnology zone entity 
                selected by an eligible State business development 
                agency,
                    ``(B) the bond is issued by a State or local 
                Government within the jurisdiction of which such 
                biotechnology zone is located,
                    ``(C) the issuer--
                            ``(i) designates such bond for purposes of 
                        this section, and
                            ``(ii) certifies that it has the written 
                        approval of the eligible State business 
                        development agency for such bond issuance, and
                    ``(D) the term of each bond which is part of such 
                issue does not exceed the maximum term permitted under 
                paragraph (2).
            ``(2) Term requirement.--During each calendar month, the 
        Secretary shall determine the maximum term permitted under this 
        paragraph for bonds issued during the following calendar month. 
        Such maximum term shall be the term which the Secretary 
        estimates will result in the present value of the obligation to 
        repay the principal on the bond being equal to 50 percent of 
        the face amount of the bond. Such present value shall be 
        determined using as a discount rate the average annual interest 
        rate of tax-exempt obligations having a term of 10 years or 
        more which are issued during the month. If the term as so 
        determined is not a multiple of a whole year, such term shall 
        be rounded to the next highest whole year.
            ``(3) Qualified biotechnology zone entity.--
                    ``(A) In general.--The term `qualified 
                biotechnology zone entity' means any for-profit private 
                entity in the business of biomedical research (or a 
                medical device manufacturer) if--
                            ``(i) such entity is not in bankruptcy,
                            ``(ii) such entity holds the rights to a 
                        drug or biologic for which an investigational 
                        new drug application is in effect under section 
                        505 of the Federal Food, Drug, and Cosmetic Act 
                        (or manufactures a related medical device), or 
                        holds the rights to a device for which an 
                        investigational device exemption is approved 
                        under section 520(g) of such Act, and
                            ``(iii) such entity certifies that, as of 
                        the time of such closing, the drug, biologic, 
                        or device is, or in the 6-month period 
                        beginning 3 months before such closing has 
                        been, under study pursuant to an 
                        investigational use exemption under section 
                        505(i) or section 520(g) of the Federal Food, 
                        Drug, and Cosmetic Act.
                    ``(B) Eligible state development agency.--The term 
                `eligible State development agency' means any State 
                agency with a purpose of developing a State's 
                biotechnology businesses.
            ``(4) Qualified purpose.--The term `qualified purpose' 
        means, with respect to any qualified biotechnology zone, 
        constructing or developing facilities utilized in the 
        biomedical research field.
            ``(5) Eligible taxpayer.--The term `eligible taxpayer' 
        means--
                    ``(A) a bank (within the meaning of section 581),
                    ``(B) an insurance company to which subchapter L 
                applies, or
                    ``(C) a corporation actively engaged in the 
                business of lending money.
    ``(e) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national 
        biotechnology zone bond limitation of $500,000,000 for each 
        calendar year.
            ``(2) Allocation of limitation.--The national biotechnology 
        zone bond limitation for a calendar year shall be allocated by 
        the Secretary among qualified companies selected by the 
        Secretary. In making allocations under the preceding sentence, 
        the Secretary shall give priority to the extent to which it is 
        reasonably anticipated that a qualified company would have 
        insufficient taxable income and tax liability to utilize 
        research tax credits and other similar credits.
            ``(3) Designation subject to limitation amount.--The 
        maximum aggregate face amount of bonds issued during any 
        calendar year which may be designated under subsection (d)(1) 
        with respect to any qualified biotechnology zone shall not 
        exceed the limitation amount allocated to such academy under 
        paragraph (2) for such calendar year.
            ``(4) Carryover of unused limitation.--If, for any calendar 
        year the limitation amount for any State, exceeds the amount of 
        bonds issued during such year which are designated under 
        subsection (d)(1) with respect to qualified biotechnology zone 
        facilities within such State, the limitation amount for such 
        State for the following calendar year shall be increased by the 
        amount of such excess.
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Credit allowance date.--The term `credit allowance 
        date' means, with respect to any issue, the last day of the 1-
        year period beginning on the date of issuance of such issue and 
        the last day of each successive 1-year period thereafter.
            ``(2) Bond.--The term `bond' includes any obligation.
            ``(3) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
    ``(g) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section.''.
    (b) Conforming Amendments.--
            (1) The table of parts for subchapter U of chapter 1 is 
        amended by striking the last item and inserting the following:

             ``Part V. Incentives for biotechnology zones.

                       ``Part VI. Regulations.''.

            (2) The table of sections for part V, as so redesignated, 
        is amended to read as follows:

``Sec. 1397G. Regulations.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2006.
                                 <all>