II 109th CONGRESS 2d Session S. 2199 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.

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.

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.

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.

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:

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.