II 109th CONGRESS 1st Session S. 627 IN THE SENATE OF THE UNITED STATES March 15, 2005 Mr. Hatch (for himself, Mr. Baucus, Mr. Grassley, Mr. Kyl, Mr. Smith, Mr. Schumer, and Mr. Kerry) 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 permanently extend the research credit, to increase the rates of the alternative incremental credit, and to provide an alternative simplified credit for qualified research expenses.

1.

Short title

This Act may be cited as the Investment in America Act of 2005.

2.

Findings

Congress finds the following: (1)Research and development performed in the United States results in quality jobs, better and safer products, increased ownership of technology-based intellectual property, and higher productivity in the United States. (2)The extent to which companies perform and increase research and development activities in the United States is in part dependent on Federal tax policy. (3)Congress should make permanent a research and development credit that provides a meaningful incentive to all types of taxpayers.

3.

Permanent extension of research credit

(a)

In general

Section 41 of the Internal Revenue Code of 1986 (relating to credit for increasing research activities) is amended by striking subsection (h). (b)

Conforming amendment

Paragraph (1) of section 45C(b) of such Code is amended by striking subparagraph (D). (c)

Effective date

The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

4.

Increase in rates of alternative incremental credit

(a)

In general

Subparagraph (A) of section 41(c)(4) of the Internal Revenue Code of 1986 (relating to election of alternative incremental credit) is amended— (1)by striking 2.65 percent and inserting 3 percent, (2)by striking 3.2 percent and inserting 4 percent, and (3)by striking 3.75 percent and inserting 5 percent. (b)

Effective date

The amendment made by this section shall apply to taxable years ending after the date of the enactment of this Act.

5.

Alternative simplified credit for qualified research expenses

(a)

In general

Subsection (c) of section 41 of the Internal Revenue Code of 1986 (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 has no 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. . (b)

Coordination with election of alternative incremental credit

(1)

In general

Section 41(c)(4)(B) of the Internal Revenue Code of 1986 (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.. (2)

Transition rule

In the case of an election under section 41(c)(4) of the Internal Revenue Code of 1986 which applies to the taxable year which includes the date of the enactment of this Act, such election shall be treated as revoked with the consent of the Secretary of the Treasury if the taxpayer makes an election under section 41(c)(5) of such Code (as added by subsection (a)) for such year. (c)

Effective date

The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.