[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2199 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 2199

To amend the Internal Revenue Code of 1986 to provide tax incentives to 
promote research and development, innovation, and continuing education.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 26, 2006

 Mr. Domenici (for himself, Mr. Bingaman, Mr. Alexander, Ms. Mikulski, 
 Mr. Lugar, Mr. Dodd, Mr. Warner, Mr. Obama, Mr. Bond, Mr. Lieberman, 
   Mr. Burns, Mrs. Murray, Mr. Craig, Mr. Bayh, Mrs. Hutchison, Ms. 
 Cantwell, Mr. DeWine, Mr. Menendez, Mr. Thomas, Mr. Kohl, Mr. Smith, 
Mr. Kerry, Mr. Voinovich, Mr. Nelson of Florida, Mr. Allen, Mr. Leahy, 
  Mr. Talent, Mr. Akaka, Mr. Chambliss, Mrs. Clinton, Mr. Cornyn, Ms. 
   Stabenow, Mr. Coleman, Mr. Dayton, Mr. Martinez, Mr. Salazar, Mr. 
Inouye, Mr. Stevens, Mr. Biden, Mr. Cochran, Mr. Hagel, Ms. Murkowski, 
 Mr. Pryor, Ms. Collins, Mr. Vitter, and Ms. Landrieu) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide tax incentives to 
promote research and development, innovation, and continuing education.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Protecting America's Competitive 
Edge Through Tax Incentives Act of 2006'' or the ``PACE-Finance Act''.

SEC. 2. EXPANSION OF CREDIT FOR RESEARCH AND DEVELOPMENT.

    (a) Credit Made Permanent.--
            (1) In general.--Section 41 of the Internal Revenue Code of 
        1986 (relating to credit for increasing research activities) is 
        amended by striking subsection (h).
            (2) Conforming amendment.--Paragraph (1) of section 45C(b) 
        of such Code 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, in taxable years ending after such date.
    (b) Credit Rate Doubled.--Paragraphs (1) and (2) of section 41(a) 
of the Internal Revenue Code of 1986 are each amended by striking ``20 
percent'' and inserting ``40 percent''.
    (c) New Regulations and Guidelines Authorized.--The Secretary of 
the Treasury shall issue such regulations or guidelines as are 
necessary--
            (1) to provide uniform conduct of tax audits relating to 
        the credit under section 41 of the Internal Revenue Code of 
        1986, and
            (2) to reflect the changing impact of technology on the 
        character of research and development, such as use of databases 
        provided by external parties and the conduct of research and 
        development through joint ventures.
    (d) Expansion of Credit to Expenses of General Collaborative 
Research Consortia.--Section 41 of the Internal Revenue Code of 1986 is 
amended--
            (1) by striking ``an energy research consortium'' in 
        subsections (a)(3) and (b)(3)(C)(i) and inserting ``a research 
        consortium'',
            (2) by striking ``energy'' each place it appears in 
        subsection (f)(6)(A),
            (3) by inserting ``or 501(c)(6)'' after ``section 
        501(c)(3)'' in subsection (f)(6)(A)(i)(I), and
            (4) by striking ``Energy research'' in the heading for 
        subsection (f)(6)(A) and inserting ``Research''.
    (e) Study of Further Expansion of Credit.--Not later than 180 days 
after the date of the enactment of this Act, the Secretary of the 
Treasury shall study and make recommendations in a report to the 
President, the Committee on Finance of the Senate, and the Committee on 
Ways and Means of the House of Representatives on the following 
possible methods of expanding the scope of the credit under section 41 
of the Internal Revenue Code of 1986:
            (1) Modification of the credit to remove the incremental 
        approach of measuring creditable research and development 
        expenditures for taxpayers with significant and consistent 
        annual research and development expenditures.
            (2) Expansion of qualifying research and development 
        expenditures to include--
                    (A) certain employee benefit costs related to 
                qualifying wages,
                    (B) 100 percent of contract research costs,
                    (C) all expenditures which would qualify for 
                treatment under section 174 of such Code,
                    (D) any other costs determined appropriate by the 
                Secretary.
            (3) Reduction or elimination of limitation of credit under 
        section 280C(c) of such Code.
    (f) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to taxable years beginning after 
December 31, 2005.

SEC. 3. UNITED STATES-BASED INNOVATION INCENTIVES STUDY.

    (a) Study.--The Secretary of the Treasury, in consultation with the 
Director of the Office of Management and Budget, shall conduct an 
analysis of the United States tax system and its effect on this country 
as a location for innovation investment and related activities. The 
analysis shall include a comparison of the tax policies of other 
nations relating to long-term innovation investment and an examination 
of various features of the United States tax system, including--
            (1) the treatment of capital gains, including the 
        appropriate rate for very long-term investments or the 
        appropriate allowance for loss write-offs,
            (2) the overall corporate tax rate, and
            (3) incentives for high-tech manufacturing and research 
        equipment through tax credits and accelerated depreciation.
    (b) Report.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary of the Treasury shall report on 
the study and analysis described in subsection (a) to the President, 
the Committee on Finance of the Senate, and the Committee on Ways and 
Means of the House of Representatives.

SEC. 4. EMPLOYEE CONTINUING EDUCATION TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45N. EMPLOYEE CONTINUING EDUCATION CREDIT.

    ``(a) Amount of Credit.--
            ``(1) In general.--For purposes of section 38, the employee 
        continuing education credit determined under this section with 
        respect to any employer for any taxable year is the applicable 
        percentage of qualified continuing education costs paid or 
        incurred by the employer during the calendar year ending with 
        or within such taxable year.
            ``(2) Applicable percentage.--For purposes of this section, 
        the applicable percentage is the percentage determined by the 
        Secretary such that the amount of the credit allowable under 
        this section for any calendar year does not exceed 
        $500,000,000.
    ``(b) Qualified Continuing Education Costs.--For purposes of this 
section, the term `qualified continuing education costs' means costs 
paid or incurred by an employer for education to maintain or improve 
knowledge or skills in science or engineering of an employee whose 
employment requires knowledge or skills in science or engineering.
    ``(c) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out the purposes of this 
section, including regulations establishing standards for educational 
courses and programs to which this section applies.''.
    (b) Credit Made Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 is amended by striking ``and'' at the 
end of paragraph (25), by striking the period at the end of paragraph 
(26) and inserting ``, and'', and by adding at the end the following 
new paragraph:
            ``(27) the employee continuing education credit determined 
        under section 45N(a).''.
    (c) Denial of Double Benefit.--Section 280C of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
subsection:
    ``(e) Employee Continuing Education Credit.--No deduction shall be 
allowed for that portion of the expenses otherwise allowable as a 
deduction for the taxable year which is equal to the amount of the 
credit determined under section 45N(a).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

        ``Sec. 45N. Employee continuing education credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2005.
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