<enum>I</enum><header>Provisions relating to corporate tax incentives </header> <section id="H68C5DEC7C8CD4E0E9FF4BB394D31069E"><enum>101.</enum><header>Modify change of ownership rules</header> <subsection id="H61C24B71A95C46BFB3555B559B1EDC8F"><enum>(a)</enum><header>In general</header><text>Subsection (l) of section 382 is amended by adding at the end the following new paragraph:</text> <quoted-block id="H0C33DFC849B04152B171987E3FA857F1" style="OLC"> <paragraph id="HFBB9FEE646424EDA8EFAB49D57C49CDC"><enum>(9)</enum><header>Certain financing transactions of biomedical research corporations</header> <subparagraph id="H6E0610201B194A7184F80642D1FB1B8E"><enum>(A)</enum><header>General rule</header><text>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.</text> </subparagraph><subparagraph id="HB378BB24B76945219386F076AEE80056"><enum>(B)</enum><header>Biomedical research corporation</header><text>For purposes of this paragraph, the term <term>biomedical research corporation</term> 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—</text> <clause id="HCCEF9019D17F4626A057F59B3156FB4C"><enum>(i)</enum><text>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</text> </clause><clause id="HBC2407B1F8F14E34882027493772A7E"><enum>(ii)</enum><text display-inline="yes-display-inline">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.</text> </clause></subparagraph><subparagraph id="HD38A226837FF48BB86399296A699445D"><enum>(C)</enum><header>Qualified investment</header><text>For purposes of this paragraph, the term <term>qualified investment</term> 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.</text> </subparagraph><subparagraph id="H2AD4352D721947AAB9F6C91B1614F625"><enum>(D)</enum><header>Qualified transaction</header><text>For purposes of this paragraph, the term <term>qualified transaction</term> 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.</text> </subparagraph><subparagraph id="H2C4E1DE0F12845B480218F8534FA2E31"><enum>(E)</enum><header>Stock issued in exchange for convertible debt</header><text>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.</text> </subparagraph><subparagraph id="H9A69DFCAB0814392B01394D01CFF999C"><enum>(F)</enum><header>Biomedical research corporation must meet 3-year expenditure and continuity of business tests with respect to any qualified investment</header> <clause id="H3299BDCF781442E390F8C8AD00479FC7"><enum>(i)</enum><header>In general</header><text>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.</text> </clause><clause id="H44CE037BD19740439905E451ACB87ED6"><enum>(ii)</enum><header>Measuring period</header><text>For purposes of this subparagraph, the term <term>measuring period</term> 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.</text> </clause><clause id="HE9BE83EB7E00440A921C2E0572283565"><enum>(iii)</enum><header>Expenditure test</header><text>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.</text> </clause><clause id="H9CE05CCC69CE4891A9DFEA07197859D9"><enum>(iv)</enum><header>Continuity of business test</header><text>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.</text> </clause></subparagraph><subparagraph id="H7CDDFB2BAF6B4985B07116B7731E818F"><enum>(G)</enum><header>Effect of corporate redemptions on qualified investments</header><text>Rules similar to the rules of section 1202(c)(3) shall apply to qualified investments under this paragraph except that <quote>stock acquired in a qualified investment</quote> shall be substituted for <quote>qualified small business stock</quote> each place it appears therein.</text> </subparagraph><subparagraph id="HCB910B05639745F89FFB9BD8C59321E7"><enum>(H)</enum><header>Effect of other transactions between biomedical research corporations and investors making qualified investments</header> <clause id="H9A075953A8A24DF5AE4C9FFE45A15DE4"><enum>(i)</enum><header>In general</header><text>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.</text> </clause><clause id="H7CF16DA411F74F088295F67E357F8F6F"><enum>(ii)</enum><header>Qualified investment group</header><text>For purposes of this subparagraph, the term <term>qualified investment group</term> 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).</text> </clause><clause id="H5F0192936488497BAA8302849E2E5BAF"><enum>(iii)</enum><header>Regulations</header><text>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.</text> </clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H7B995D59BF94448AB06C4731479E5E88"><enum>(b)</enum><header>Effective date</header><text>The amendment made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section><section id="HE3BC10920A2B468B936EB9648256CAB7"><enum>102.</enum><header>Research credit expansion</header> <subsection id="H64FC3650924A49D4A910AF77AFD2C5D"><enum>(a)</enum><header>Contract research expenses</header><text display-inline="yes-display-inline">Subparagraph (D) of section 41(b)(3) (relating to contract research expenses) is amended—</text> <paragraph id="H0731A664648B48E7AFA2382B07F61FCB"><enum>(1)</enum><text>in the heading by inserting <quote><header-in-text level="subparagraph" style="OLC">biomedical research corporations,</header-in-text></quote> after <quote><header-in-text level="subparagraph" style="OLC">eligible small businesses,</header-in-text></quote>, and</text> </paragraph><paragraph id="HA4FFA01A93C04588A4693DA85C7BB700"><enum>(2)</enum><text>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:</text> <quoted-block display-inline="no-display-inline" id="H19A34F3E884F48C7BF00B7136D613E3C" style="OLC"> <subclause id="HE29F91A0411F49BD87F36320499B6B6C"><enum>(II)</enum><text>a biomedical research corporation (as defined in section 382(l)(9)(B)),</text> </subclause><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection><subsection id="HA915F44885514097B68C88BBFE05D199"><enum>(b)</enum><header>Basic research expenses of qualifying biomedical research corporation</header><text>Section 41(e)(3) is amended to read as follows:</text> <quoted-block display-inline="no-display-inline" id="H72371A89545A4D7E89AAC3ECB38E20AD" style="OLC"> <paragraph commented="no" id="H3C054A98330649A78358036612E8075F"><enum>(3)</enum><header>Qualified organization base period amount</header><text>For purposes of this subsection—</text> <subparagraph commented="no" id="H17ED4D7FE67148B8B8007E7193AECC56"><enum>(A)</enum><header>In general</header><text>The term <term>qualified organization base period amount</term> means an amount equal to the sum of—</text> <clause commented="no" id="H41C83D3252614254B511257CFF53F906"><enum>(i)</enum><text>the minimum basic research amount, plus</text> </clause><clause commented="no" id="H79F33709388148009DC75882FA005713"><enum>(ii)</enum><text>the maintenance-of-effort amount.</text> </clause></subparagraph><subparagraph commented="no" id="HB9F107DE8F1B470BA448F5B57216891E"><enum>(B)</enum><header>Biomedical research corporation</header><text>In the case of a biomedical research corporation, the qualified organization base period amount is zero.</text> </subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H6F8ECCD664C94CB9B76D0086004C577C"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section><section id="HDF342CF91410467593BAB22B09CD4DF5"><enum>103.</enum><header>Orphan drug credit expansion</header> <subsection id="HA2B8FD5159B84C4D9299BD34DC4EE82"><enum>(a)</enum><header>In general</header><text>Subclause (I) of section 45C(b)(2)(A)(ii) is amended to read as follows:</text> <quoted-block id="HDBD4775009DC46D28100C99BBE5C8397" style="OLC"> <subparagraph id="HCAF11445CA224AE48E813C314CBD236B"><enum>(I)</enum><text>after the date that the application is filed for designation under section 526 of such Act, and</text> </subparagraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H86FE7C94F0784668B5C55CFA2903E7D5"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2007.</text> </subsection></section><section id="H6B2F0BE85D284B1EB0D1E8E4DDE61715"><enum>104.</enum><header>Countermeasures and pandemic flu research incentives</header> <subsection id="HA2777707BFE3401DA429D3A7B6671762"><enum>(a)</enum><header>Tax credit To fund countermeasure research</header> <paragraph id="HC49D8E0F0A514A30A6FE2ECE09BB90B1"><enum>(1)</enum><header>In general</header><text>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:</text> <quoted-block id="H7E69D4996AF54FA5AB9DD914711E3FE3" style="OLC"> <section id="HE883D6EE464A4B47B1C7002089F8DE1D"><enum>45O.</enum><header>Credit for medical research related to developing countermeasures</header> <subsection id="HEFD1ECF48D244B46BEE77AB019F1280"><enum>(a)</enum><header>General rule</header><text display-inline="yes-display-inline">For purposes of section 38, in the case of a biomedical research corporation, the countermeasures research credit determined under this section for the taxable year is an amount equal to 20 percent of the eligible countermeasures research expenses for the taxable year.</text> </subsection><subsection id="H13753C813DBE45E7AE28E9B4C63790AE"><enum>(b)</enum><header>Eligible countermeasures research expenses</header><text>For purposes of this section—</text> <paragraph id="H368CF36FB51340B38434639709FE8F4F"><enum>(1)</enum><header>Eligible countermeasures research expenses</header> <subparagraph id="H57BE0388DE4243B1AB61FE11C7206D71"><enum>(A)</enum><header>In general</header><text display-inline="yes-display-inline">Except as otherwise provided in this paragraph, the term <term>eligible countermeasures research expenses</term> 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.</text> </subparagraph><subparagraph id="HFAEC965CA87A4DA086E8D69B3C132BE6"><enum>(B)</enum><header>Modifications; increased incentive for contract research payments</header><text>For purposes of subparagraph (A), subsection (b) of section 41 shall be applied—</text> <clause commented="no" id="HF7E6DF08C9C74A689D0561F55C725715"><enum>(i)</enum><text>by substituting <quote>eligible countermeasures research</quote> for <quote>qualified research</quote> each place it appears in paragraphs (2) and (3) of such subsection, and</text> </clause><clause id="HB4CB4CDB85ED420A90131B34F6CDEB91"><enum>(ii)</enum><text>by substituting <quote>100 percent</quote> for <quote>65 percent</quote> in paragraph (3)(A) of such subsection.</text> </clause></subparagraph><subparagraph id="HC714011221A74E3EA5367D76A427B27"><enum>(C)</enum><header>Exclusion for amounts funded by grants, etc</header><text>The term <term>eligible countermeasures research expenses</term> 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).</text> </subparagraph></paragraph><paragraph id="H70FEEF6B538A41D9AE14FDE7CB31E15"><enum>(2)</enum><header>Covered countermeasure</header><text>The term <term>covered countermeasure</term> 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.</text> </paragraph></subsection><subsection id="H2C09F49272624332009D9D009D002898"><enum>(c)</enum><header>Coordination with credit for increasing research expenditures</header> <paragraph id="HAEAF3D2A8E294E06953825005440F26F"><enum>(1)</enum><header>In general</header><text>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.</text> </paragraph><paragraph id="HAC1D4A4950414C50B68F6C3F1B9D8C00"><enum>(2)</enum><header>Expenses included in determining base period research expenses</header><text>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.</text> </paragraph></subsection><subsection id="H689D285AB1CE495AA75EAC06AD2A5D"><enum>(d)</enum><header>Coordination with credit for clinical testing expenses for certain drugs for rare diseases</header><text>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.</text> </subsection><subsection id="H5D293BC776D345039B3FCDACD40218EF"><enum>(e)</enum><header>Certain rules made applicable</header><text>Rules similar to the rules of paragraphs (1) and (2) of section 41(f) shall apply for purposes of this section.</text> </subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="HCEBF82F2091B49429C6DAEF9C01E1DC2"><enum>(2)</enum><header>Inclusion in general business credit</header><text>Section 38(b) is amended by striking <quote>plus</quote> at the end of paragraph (30), by striking the period at the end of paragraph (31) and inserting <quote>, and</quote>, and by adding at the end the following new paragraph:</text> <quoted-block id="HAAC23C1A6E4446028F1FBC1E8D19EF40" style="OLC"> <paragraph id="HF3A7355C2D9E4DFD88109BBD6FE32EE"><enum>(32)</enum><text>the countermeasures research credit determined under section 45O.</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="H928BAACF58254B7D99D378E22E479C06"><enum>(3)</enum><header>Denial of double benefit</header><text>Section 280C is amended by adding at the end the following new subsection:</text> <quoted-block id="HADE343B19ECA49668474ABA5B090055F" style="OLC"> <subsection id="H2476B622536543B9889C60C9A2D6A18C"><enum>(f)</enum><header>Credit for eligible countermeasures research expenses</header> <paragraph id="H2F726E00E9C141BAA567A859F27CCEDB"><enum>(1)</enum><header>In general</header><text>No deduction shall be allowed for that portion of the eligible countermeasures research expenses (as defined in section 45O(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 45O(a).</text> </paragraph><paragraph id="H1924DEDE4C0E40D0B261BA8B1BE5F999"><enum>(2)</enum><header>Certain rules to apply</header><text>Rules similar to the rules of paragraphs (2), (3), and (4) of subsection (c) shall apply for purposes of this subsection.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="H07925942541C4D45B928D884FF4279A6"><enum>(4)</enum><header>Deduction for unused portion of credit</header><text>Section 196(c) is amended by striking <quote>and</quote> at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting <quote>, and</quote>, and by adding at the end the following new paragraph:</text> <quoted-block id="H91A9C66635614EEFAD320026073FE5BB" style="OLC"> <paragraph id="H5B9F5DF6FCD241B48547016BAC78F1A3"><enum>(14)</enum><text>the countermeasures research credit determined under section 45O(a).</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="HB7A932B81BFD413C00C2549835741876"><enum>(5)</enum><header>Technical amendment</header><text>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:</text> <quoted-block display-inline="no-display-inline" id="H2D4220FC7F124485A9818E159026F67C" style="OLC"> <toc regeneration="no-regeneration"> <toc-entry level="section">Sec. 45O. Credit for medical research related to developing countermeasures.</toc-entry> </toc> <after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection><subsection id="HC0BD849786744BC08E5CE71FB1CE2EEB"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section>

110 HR 3264 IH: American Life Sciences U.S. House of Representatives 2007-07-31 text/xml EN Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.

Short title; table of contents

(a)

Short title

This Act may be cited as the

American Life Sciences Competitiveness Act of 2007

. (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

The table of contents is as follows:

Sec. 1. Short title; table of contents.

Title I—Provisions relating to corporate tax incentives

Sec. 101. Modify change of ownership rules.

Sec. 102. Research credit expansion.

Sec. 103. Orphan drug credit expansion.

Sec. 104. Countermeasures and pandemic flu research incentives.

Title II—Provisions relating to investor tax incentives

Sec. 201. Capital gains rollover.

Sec. 202. Equity credit for incubational firms.

<enum>I</enum><header>Provisions relating to corporate tax incentives </header> <section id="H68C5DEC7C8CD4E0E9FF4BB394D31069E"><enum>101.</enum><header>Modify change of ownership rules</header> <subsection id="H61C24B71A95C46BFB3555B559B1EDC8F"><enum>(a)</enum><header>In general</header><text>Subsection (l) of section 382 is amended by adding at the end the following new paragraph:</text> <quoted-block id="H0C33DFC849B04152B171987E3FA857F1" style="OLC"> <paragraph id="HFBB9FEE646424EDA8EFAB49D57C49CDC"><enum>(9)</enum><header>Certain financing transactions of biomedical research corporations</header> <subparagraph id="H6E0610201B194A7184F80642D1FB1B8E"><enum>(A)</enum><header>General rule</header><text>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.</text> </subparagraph><subparagraph id="HB378BB24B76945219386F076AEE80056"><enum>(B)</enum><header>Biomedical research corporation</header><text>For purposes of this paragraph, the term <term>biomedical research corporation</term> 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—</text> <clause id="HCCEF9019D17F4626A057F59B3156FB4C"><enum>(i)</enum><text>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</text> </clause><clause id="HBC2407B1F8F14E34882027493772A7E"><enum>(ii)</enum><text display-inline="yes-display-inline">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.</text> </clause></subparagraph><subparagraph id="HD38A226837FF48BB86399296A699445D"><enum>(C)</enum><header>Qualified investment</header><text>For purposes of this paragraph, the term <term>qualified investment</term> 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.</text> </subparagraph><subparagraph id="H2AD4352D721947AAB9F6C91B1614F625"><enum>(D)</enum><header>Qualified transaction</header><text>For purposes of this paragraph, the term <term>qualified transaction</term> 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.</text> </subparagraph><subparagraph id="H2C4E1DE0F12845B480218F8534FA2E31"><enum>(E)</enum><header>Stock issued in exchange for convertible debt</header><text>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.</text> </subparagraph><subparagraph id="H9A69DFCAB0814392B01394D01CFF999C"><enum>(F)</enum><header>Biomedical research corporation must meet 3-year expenditure and continuity of business tests with respect to any qualified investment</header> <clause id="H3299BDCF781442E390F8C8AD00479FC7"><enum>(i)</enum><header>In general</header><text>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.</text> </clause><clause id="H44CE037BD19740439905E451ACB87ED6"><enum>(ii)</enum><header>Measuring period</header><text>For purposes of this subparagraph, the term <term>measuring period</term> 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.</text> </clause><clause id="HE9BE83EB7E00440A921C2E0572283565"><enum>(iii)</enum><header>Expenditure test</header><text>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.</text> </clause><clause id="H9CE05CCC69CE4891A9DFEA07197859D9"><enum>(iv)</enum><header>Continuity of business test</header><text>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.</text> </clause></subparagraph><subparagraph id="H7CDDFB2BAF6B4985B07116B7731E818F"><enum>(G)</enum><header>Effect of corporate redemptions on qualified investments</header><text>Rules similar to the rules of section 1202(c)(3) shall apply to qualified investments under this paragraph except that <quote>stock acquired in a qualified investment</quote> shall be substituted for <quote>qualified small business stock</quote> each place it appears therein.</text> </subparagraph><subparagraph id="HCB910B05639745F89FFB9BD8C59321E7"><enum>(H)</enum><header>Effect of other transactions between biomedical research corporations and investors making qualified investments</header> <clause id="H9A075953A8A24DF5AE4C9FFE45A15DE4"><enum>(i)</enum><header>In general</header><text>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.</text> </clause><clause id="H7CF16DA411F74F088295F67E357F8F6F"><enum>(ii)</enum><header>Qualified investment group</header><text>For purposes of this subparagraph, the term <term>qualified investment group</term> 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).</text> </clause><clause id="H5F0192936488497BAA8302849E2E5BAF"><enum>(iii)</enum><header>Regulations</header><text>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.</text> </clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H7B995D59BF94448AB06C4731479E5E88"><enum>(b)</enum><header>Effective date</header><text>The amendment made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section><section id="HE3BC10920A2B468B936EB9648256CAB7"><enum>102.</enum><header>Research credit expansion</header> <subsection id="H64FC3650924A49D4A910AF77AFD2C5D"><enum>(a)</enum><header>Contract research expenses</header><text display-inline="yes-display-inline">Subparagraph (D) of section 41(b)(3) (relating to contract research expenses) is amended—</text> <paragraph id="H0731A664648B48E7AFA2382B07F61FCB"><enum>(1)</enum><text>in the heading by inserting <quote><header-in-text level="subparagraph" style="OLC">biomedical research corporations,</header-in-text></quote> after <quote><header-in-text level="subparagraph" style="OLC">eligible small businesses,</header-in-text></quote>, and</text> </paragraph><paragraph id="HA4FFA01A93C04588A4693DA85C7BB700"><enum>(2)</enum><text>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:</text> <quoted-block display-inline="no-display-inline" id="H19A34F3E884F48C7BF00B7136D613E3C" style="OLC"> <subclause id="HE29F91A0411F49BD87F36320499B6B6C"><enum>(II)</enum><text>a biomedical research corporation (as defined in section 382(l)(9)(B)),</text> </subclause><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection><subsection id="HA915F44885514097B68C88BBFE05D199"><enum>(b)</enum><header>Basic research expenses of qualifying biomedical research corporation</header><text>Section 41(e)(3) is amended to read as follows:</text> <quoted-block display-inline="no-display-inline" id="H72371A89545A4D7E89AAC3ECB38E20AD" style="OLC"> <paragraph commented="no" id="H3C054A98330649A78358036612E8075F"><enum>(3)</enum><header>Qualified organization base period amount</header><text>For purposes of this subsection—</text> <subparagraph commented="no" id="H17ED4D7FE67148B8B8007E7193AECC56"><enum>(A)</enum><header>In general</header><text>The term <term>qualified organization base period amount</term> means an amount equal to the sum of—</text> <clause commented="no" id="H41C83D3252614254B511257CFF53F906"><enum>(i)</enum><text>the minimum basic research amount, plus</text> </clause><clause commented="no" id="H79F33709388148009DC75882FA005713"><enum>(ii)</enum><text>the maintenance-of-effort amount.</text> </clause></subparagraph><subparagraph commented="no" id="HB9F107DE8F1B470BA448F5B57216891E"><enum>(B)</enum><header>Biomedical research corporation</header><text>In the case of a biomedical research corporation, the qualified organization base period amount is zero.</text> </subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H6F8ECCD664C94CB9B76D0086004C577C"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section><section id="HDF342CF91410467593BAB22B09CD4DF5"><enum>103.</enum><header>Orphan drug credit expansion</header> <subsection id="HA2B8FD5159B84C4D9299BD34DC4EE82"><enum>(a)</enum><header>In general</header><text>Subclause (I) of section 45C(b)(2)(A)(ii) is amended to read as follows:</text> <quoted-block id="HDBD4775009DC46D28100C99BBE5C8397" style="OLC"> <subparagraph id="HCAF11445CA224AE48E813C314CBD236B"><enum>(I)</enum><text>after the date that the application is filed for designation under section 526 of such Act, and</text> </subparagraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H86FE7C94F0784668B5C55CFA2903E7D5"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2007.</text> </subsection></section><section id="H6B2F0BE85D284B1EB0D1E8E4DDE61715"><enum>104.</enum><header>Countermeasures and pandemic flu research incentives</header> <subsection id="HA2777707BFE3401DA429D3A7B6671762"><enum>(a)</enum><header>Tax credit To fund countermeasure research</header> <paragraph id="HC49D8E0F0A514A30A6FE2ECE09BB90B1"><enum>(1)</enum><header>In general</header><text>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:</text> <quoted-block id="H7E69D4996AF54FA5AB9DD914711E3FE3" style="OLC"> <section id="HE883D6EE464A4B47B1C7002089F8DE1D"><enum>45O.</enum><header>Credit for medical research related to developing countermeasures</header> <subsection id="HEFD1ECF48D244B46BEE77AB019F1280"><enum>(a)</enum><header>General rule</header><text display-inline="yes-display-inline">For purposes of section 38, in the case of a biomedical research corporation, the countermeasures research credit determined under this section for the taxable year is an amount equal to 20 percent of the eligible countermeasures research expenses for the taxable year.</text> </subsection><subsection id="H13753C813DBE45E7AE28E9B4C63790AE"><enum>(b)</enum><header>Eligible countermeasures research expenses</header><text>For purposes of this section—</text> <paragraph id="H368CF36FB51340B38434639709FE8F4F"><enum>(1)</enum><header>Eligible countermeasures research expenses</header> <subparagraph id="H57BE0388DE4243B1AB61FE11C7206D71"><enum>(A)</enum><header>In general</header><text display-inline="yes-display-inline">Except as otherwise provided in this paragraph, the term <term>eligible countermeasures research expenses</term> 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.</text> </subparagraph><subparagraph id="HFAEC965CA87A4DA086E8D69B3C132BE6"><enum>(B)</enum><header>Modifications; increased incentive for contract research payments</header><text>For purposes of subparagraph (A), subsection (b) of section 41 shall be applied—</text> <clause commented="no" id="HF7E6DF08C9C74A689D0561F55C725715"><enum>(i)</enum><text>by substituting <quote>eligible countermeasures research</quote> for <quote>qualified research</quote> each place it appears in paragraphs (2) and (3) of such subsection, and</text> </clause><clause id="HB4CB4CDB85ED420A90131B34F6CDEB91"><enum>(ii)</enum><text>by substituting <quote>100 percent</quote> for <quote>65 percent</quote> in paragraph (3)(A) of such subsection.</text> </clause></subparagraph><subparagraph id="HC714011221A74E3EA5367D76A427B27"><enum>(C)</enum><header>Exclusion for amounts funded by grants, etc</header><text>The term <term>eligible countermeasures research expenses</term> 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).</text> </subparagraph></paragraph><paragraph id="H70FEEF6B538A41D9AE14FDE7CB31E15"><enum>(2)</enum><header>Covered countermeasure</header><text>The term <term>covered countermeasure</term> 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.</text> </paragraph></subsection><subsection id="H2C09F49272624332009D9D009D002898"><enum>(c)</enum><header>Coordination with credit for increasing research expenditures</header> <paragraph id="HAEAF3D2A8E294E06953825005440F26F"><enum>(1)</enum><header>In general</header><text>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.</text> </paragraph><paragraph id="HAC1D4A4950414C50B68F6C3F1B9D8C00"><enum>(2)</enum><header>Expenses included in determining base period research expenses</header><text>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.</text> </paragraph></subsection><subsection id="H689D285AB1CE495AA75EAC06AD2A5D"><enum>(d)</enum><header>Coordination with credit for clinical testing expenses for certain drugs for rare diseases</header><text>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.</text> </subsection><subsection id="H5D293BC776D345039B3FCDACD40218EF"><enum>(e)</enum><header>Certain rules made applicable</header><text>Rules similar to the rules of paragraphs (1) and (2) of section 41(f) shall apply for purposes of this section.</text> </subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="HCEBF82F2091B49429C6DAEF9C01E1DC2"><enum>(2)</enum><header>Inclusion in general business credit</header><text>Section 38(b) is amended by striking <quote>plus</quote> at the end of paragraph (30), by striking the period at the end of paragraph (31) and inserting <quote>, and</quote>, and by adding at the end the following new paragraph:</text> <quoted-block id="HAAC23C1A6E4446028F1FBC1E8D19EF40" style="OLC"> <paragraph id="HF3A7355C2D9E4DFD88109BBD6FE32EE"><enum>(32)</enum><text>the countermeasures research credit determined under section 45O.</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="H928BAACF58254B7D99D378E22E479C06"><enum>(3)</enum><header>Denial of double benefit</header><text>Section 280C is amended by adding at the end the following new subsection:</text> <quoted-block id="HADE343B19ECA49668474ABA5B090055F" style="OLC"> <subsection id="H2476B622536543B9889C60C9A2D6A18C"><enum>(f)</enum><header>Credit for eligible countermeasures research expenses</header> <paragraph id="H2F726E00E9C141BAA567A859F27CCEDB"><enum>(1)</enum><header>In general</header><text>No deduction shall be allowed for that portion of the eligible countermeasures research expenses (as defined in section 45O(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 45O(a).</text> </paragraph><paragraph id="H1924DEDE4C0E40D0B261BA8B1BE5F999"><enum>(2)</enum><header>Certain rules to apply</header><text>Rules similar to the rules of paragraphs (2), (3), and (4) of subsection (c) shall apply for purposes of this subsection.</text> </paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="H07925942541C4D45B928D884FF4279A6"><enum>(4)</enum><header>Deduction for unused portion of credit</header><text>Section 196(c) is amended by striking <quote>and</quote> at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting <quote>, and</quote>, and by adding at the end the following new paragraph:</text> <quoted-block id="H91A9C66635614EEFAD320026073FE5BB" style="OLC"> <paragraph id="H5B9F5DF6FCD241B48547016BAC78F1A3"><enum>(14)</enum><text>the countermeasures research credit determined under section 45O(a).</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph><paragraph id="HB7A932B81BFD413C00C2549835741876"><enum>(5)</enum><header>Technical amendment</header><text>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:</text> <quoted-block display-inline="no-display-inline" id="H2D4220FC7F124485A9818E159026F67C" style="OLC"> <toc regeneration="no-regeneration"> <toc-entry level="section">Sec. 45O. Credit for medical research related to developing countermeasures.</toc-entry> </toc> <after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection><subsection id="HC0BD849786744BC08E5CE71FB1CE2EEB"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section><enum>II</enum><header>Provisions relating to investor tax incentives</header> <section id="H09E68F9717964A28B3DC899278E4F44D"><enum>201.</enum><header>Capital gains rollover</header> <subsection id="H51C0BA98284E4159B0D87E25623EA1"><enum>(a)</enum><header>In general</header> <paragraph id="H4BBB3538792042A6904CBD15E0061400"><enum>(1)</enum><text>Section 1045(a) is amended by inserting <quote>or biomedical research corporation stock</quote> after <quote>qualified small business stock</quote> each place it appears herein.</text> </paragraph><paragraph id="H1545F532FE0C43D4ABDE998858EBEA00"><enum>(2)</enum><text>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:</text> <quoted-block id="HAA362FE3A23B4AFA8BB0EA92820205D0" style="OLC"> <paragraph id="H316E39230B3F4344B3DC802D00E9DC18"><enum>(2)</enum><header>Biomedical research corporation</header><text display-inline="yes-display-inline">The term <term>biomedical research corporation</term> has the meaning given to such term in section 382(l)(9)(B) and has gross assets that do not exceed $250,000,000 and agrees to submit such reports to the Secretary and to shareholders as the Secretary may require to carry out the purposes of this section. An entity meets the gross assets test of the preceding sentence if the average annual gross assets of such entity for the 3-taxable-year period ending with the taxable year prior to the taxable year in which the sale of qualified small business stock does not exceed $250,000,000. For purposes of the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) (other than paragraph (3)(C) thereof) shall apply.</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection><subsection id="H927C317190F54BD19217114B66FE3608"><enum>(b)</enum><header>Conforming amendments</header> <paragraph id="H12A9974E97CF4B6B937550E9E2793A5"><enum>(1)</enum><text>The heading for section 1045 is amended by inserting <quote><header-in-text level="section" style="OLC">or biomedical research</header-in-text></quote> after <quote><header-in-text level="section" style="OLC">small business</header-in-text></quote> each time it appears.</text> </paragraph><paragraph id="H22AB7F6A02834C3CB66C3012DA18ED4F"><enum>(2)</enum><text>The item relating to section 1045 in the table of sections for part III of subchapter O of chapter 1 is amended by inserting <quote>or biomedical research</quote> after <quote>small business</quote> each time it appears.</text> </paragraph></subsection><subsection id="H36BFD31E18184BF1AA372E4790096368"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section><section display-inline="no-display-inline" id="HD7A6AADF52C5444E85000097077E5800" section-type="subsequent-section"><enum>202.</enum><header>Equity credit for incubational firms</header> <subsection id="HA0BBCAC68E474A9AB4A37949359BD8EE"><enum>(a)</enum><header>In general</header><text>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:</text> <quoted-block id="H75113E553155470BA29425654631BDB6" style="OLC"> <section id="H2EF0F890B2DA48989C86162B63FC6E65"><enum>45P.</enum><header>Incubational equity tax credit</header> <subsection id="H2A97A93B17E2497D00D2045CDBA49681"><enum>(a)</enum><header>Allowance of credit</header> <paragraph id="H1A8DD853A7A04850876308070444F107"><enum>(1)</enum><header>General rule</header><text>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.</text> </paragraph><paragraph id="H3DE3A749CF384674A2FD3F8831FDAD2D"><enum>(2)</enum><header>Applicable percentage</header><text>For purposes of paragraph (1), the applicable percentage is 20 percent.</text> </paragraph></subsection><subsection id="H9755EE1A7BF541BFAB599190FF5E682D"><enum>(b)</enum><header>Qualified incubational equity investment</header><text>For purposes of this section—</text> <paragraph id="H79922B5E33AD4E32827BA05CB400E98"><enum>(1)</enum><header>In general</header><text>The term <term>qualified incubational equity investment</term> means any equity investment in a qualified incubational company if—</text> <subparagraph id="H656C42C2D7AD4114A617993E2B4F9700"><enum>(A)</enum><text>such investment (not exceeding $500,000 per taxable year) is acquired by the taxpayer at its original issue (directly or through an underwriter) solely in exchange for cash,</text> </subparagraph><subparagraph id="H6A4095E0B1CC4E30A663008FD15CCC77"><enum>(B)</enum><text>not less than <fraction>½</fraction> of such cash is used by the qualified incubational company with respect to qualifying research under section 41, and</text> </subparagraph><subparagraph id="H5867F04C8E944ECC82291948CB4DAC95"><enum>(C)</enum><text>such investment is designated for purposes of this section by the qualified incubational company.</text> </subparagraph><continuation-text continuation-text-level="paragraph">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).</continuation-text></paragraph><paragraph id="HC91689DE18914D169EE8CAFF19773B"><enum>(2)</enum><header>Limitation</header><text>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.</text> </paragraph><paragraph id="H18C118CCAAC64D6E88DF2262AC43B485"><enum>(3)</enum><header>Treatment of subsequent purchasers</header><text>The term <term>qualified equity investment</term> 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.</text> </paragraph><paragraph id="HA2101C121FAB4C0BAAC6FE00D6368282"><enum>(4)</enum><header>Redemptions</header><text>A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this subsection.</text> </paragraph><paragraph id="HC19898B5BFD34FD18C465F90968EF994"><enum>(5)</enum><header>Equity investment</header><text>The term <term>equity investment</term> means any stock (other than nonqualified preferred stock as defined in section 351(g)(2)) in an entity which is a corporation.</text> </paragraph></subsection><subsection id="HAF8E965312A5487CBFF41495869CB600"><enum>(c)</enum><header>Qualified incubational company</header><text>For purposes of this section—</text> <paragraph id="H50EB34B2C11A481999C3F619C5C48F3B"><enum>(1)</enum><header>In general</header><text>The term <term>qualified incubational company</term> 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.</text> </paragraph><paragraph id="HBC409EB9152742BD91EBFC5C794BD641"><enum>(2)</enum><header>Gross assets test</header><text>For purpose of paragraph (1), rules similar to the rules of section 1244(d)(3) shall apply, determined by substituting <quote>$25,000,000</quote> for <quote>$500,000,000</quote> in subparagraph (A) thereof.</text> </paragraph></subsection><subsection id="H865B72DB812F4C42AE89A1BE40F51E77"><enum>(d)</enum><header>National limitation on amount of investments designated</header> <paragraph id="H504D9FA38F214CE78955488770CA00D1"><enum>(1)</enum><header>In general</header><text>There is an incubational equity tax credit limitation of $500,000,000 for each taxable year.</text> </paragraph><paragraph id="HD5FAA84FAA2049E0B0EF216087C6E200"><enum>(2)</enum><header>Allocation of limitation</header><text>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.</text> </paragraph><paragraph id="H5FE6CD35B6C644DF94FD147C479D68EC"><enum>(3)</enum><header>Carryover of unused limitation</header><text>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.</text> </paragraph></subsection><subsection id="HE8F482FE1B204FC400B62793A2DF0230"><enum>(e)</enum><header>Recapture of credit in certain cases</header> <paragraph id="H91B7D9B459314AA1A3A62D769E38C009"><enum>(1)</enum><header>In general</header><text>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.</text> </paragraph><paragraph id="H894AAE6812A94EF59EB008BBD19BAF95"><enum>(2)</enum><header>Credit recapture amount</header><text>For purposes of paragraph (1), the credit recapture amount is an amount equal to the sum of—</text> <subparagraph id="H6EF9679B6F5B488198B48569FE31E44D"><enum>(A)</enum><text>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</text> </subparagraph><subparagraph id="H51D5BB1A505F446D91842DB47EF135CB"><enum>(B)</enum><text>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.</text> </subparagraph><continuation-text continuation-text-level="paragraph">No deduction shall be allowed under this chapter for interest described in subparagraph (B).</continuation-text></paragraph><paragraph id="H6838A18EF580462CAAD94B244BAC9881"><enum>(3)</enum><header>Recapture event</header><text>For purposes of paragraph (1), there is a recapture event with respect to a qualified countermeasures equity investment in a qualified countermeasures company if—</text> <subparagraph id="H91AA1088F58F414BBD5215FE3922CD00"><enum>(A)</enum><text>such company ceases to be a qualified biomedical research corporation (as defined in section 382(l)(9)(B)), or</text> </subparagraph><subparagraph id="HEDF40B6D634D46E2BBEAA2204E6E86D2"><enum>(B)</enum><text>such investment is redeemed by such company.</text> </subparagraph></paragraph><paragraph id="HB12D86DFE97D4D299053998000B37710"><enum>(4)</enum><header>Special rules</header> <subparagraph id="H7BF4431DEB63462E9857FE46B6ECC36C"><enum>(A)</enum><header>Tax benefit rule</header><text>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.</text> </subparagraph><subparagraph id="HC327914ED4D5439DBA00DDF04D05EB00"><enum>(B)</enum><header>No credits against tax</header><text>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.</text> </subparagraph></paragraph></subsection><subsection id="H38EFFF3792B641F29B31002403BD30B1"><enum>(f)</enum><header>Basis reduction</header><text>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.</text> </subsection><subsection id="H8FF9597F0FF145DC9CB087C0CB9E4CDA"><enum>(g)</enum><header>Regulations</header><text>The secretary shall prescribe such regulations as may be appropriate to carry out this section, including regulations which—</text> <paragraph id="HF78676DC48644CE8B494940798E1F380"><enum>(1)</enum><text>prevent the abuse of the purposes of this section,</text> </paragraph><paragraph id="H993CE901D5AC4DED99DB61ED476F7672"><enum>(2)</enum><text>impose appropriate reporting requirements, and</text> </paragraph><paragraph id="HD8585FB3966A42298BF5E8F07F6C61E9"><enum>(3)</enum><text>apply the provisions of this section to newly formed entities.</text> </paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection display-inline="no-display-inline" id="H3AE3BBE87CA0418F8E620080386760E5"><enum>(b)</enum><header>Credit To be part of general business credit</header><text>Section 38(b) (as amended by this Act) is further amended by striking <quote>and</quote> at the end of paragraph (31), by striking the period at the end of paragraph (32) and inserting <quote>, and</quote>, and by adding at the end the following:</text> <quoted-block id="HC376ED58F9564DFDB09000F44D27F33F" style="OLC"> <paragraph id="H0E25F733383A48728705A7A136ADE7E1"><enum>(33)</enum><text>the incubational equity tax credit determined under section 45N(a).</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H467F632D516D47F18206F6B374FB22FD"><enum>(c)</enum><header>Deduction for unused portion of credit</header><text>Section 196(c) (defining qualified business credits), as amended by this section, is amended by striking <quote>and</quote> at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting <quote>, and</quote>, and by adding at the end the following new paragraph:</text> <quoted-block id="H1DCD01F4EF7444F3BEA4D83359196C6" style="OLC"> <paragraph id="H8B0C17B065A14CFA9EDE8954C16147F3"><enum>(14)</enum><text>the incubational equity tax credit determined under section 45P(a).</text> </paragraph><after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H06345EC14B8142D8AC7860FA603499AC"><enum>(d)</enum><header>Clerical amendment</header><text>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:</text> <quoted-block display-inline="no-display-inline" id="H87503AC1712F4C2BA89B2500D4D533C2" style="OLC"> <toc regeneration="no-regeneration"> <toc-entry level="section">Sec. 45P. Incubational equity tax credit.</toc-entry> </toc> <after-quoted-block>.</after-quoted-block></quoted-block> </subsection><subsection id="H083FD40E4C604EA1894D8E0730B8DFCD"><enum>(e)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2007.</text> </subsection></section>