[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2884 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 2884

  To amend the Internal Revenue Code of 1986 to provide incentives to 
  improve America's research competitiveness, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 17, 2008

Ms. Collins (for herself and Mr. Hatch) 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 incentives to 
  improve America's research competitiveness, and for other purposes.

    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 ``Research and Development Tax Credit 
Improvement Act of 2008''.

SEC. 2. SIMPLIFICATION OF RESEARCH AND DEVELOPMENT CREDIT.

    (a) Transition to Fully Implemented Simplified Credit for Qualified 
Research Expanses.--
            (1) Phase-out of traditional credit.--Section 41(a) of the 
        Internal Revenue Code of 1986 is amended--
                    (A) by striking ``20 percent'' each place it 
                appears and inserting ``the applicable percentage'', 
                and
                    (B) by adding at the end the following new flush 
                sentence:
``For purposes of this subsection, the term `applicable percentage' 
means 20 percent with respect to taxable years beginning in 2008 and 
2009.''.
            (2) Phase-in of simplified credit.--Section 41(c)(5)(A) of 
        such Code is amended--
                    (A) by striking ``12 percent'' and inserting ``the 
                applicable percentage'', and
                    (B) by adding at the end the following new 
                sentence: ``For purposes of the preceding sentence, the 
                term `applicable percentage' means 16 percent with 
                respect to taxable years beginning in 2008 and 18 
                percent with respect to taxable years beginning in 
                2009.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2007.
    (b) Fully Implemented Simplified Credit for Qualified Research 
Expenses.--
            (1) In general.--Subsection (a) of section 41 of the 
        Internal Revenue Code of 1986 (relating to credit for 
        increasing research activities) is amended to read as follows:
    ``(a) Determination of Credit.--
            ``(1) In general.--For purposes of section 38, the research 
        credit determined under this section for the taxable year shall 
        be equal to 20 percent of so much of the qualified research 
        expenses for such 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.
            ``(2) Special rule in case of no qualified research 
        expenses in any of 3 preceding taxable years.--
                    ``(A) Taxpayers to which paragraph applies.--The 
                credit under this section shall be determined under 
                this paragraph if the taxpayer has no qualified 
                research expenses in at least 1 of the 3 taxable years 
                preceding the taxable year for which the credit is 
                being determined.
                    ``(B) Credit rate.--The credit determined under 
                this paragraph shall be equal to 10 percent of the 
                qualified research expenses for the taxable year.''.
            (2) Conforming amendment.--Section 41 of such Code is 
        amended by striking subsection (c).
    (c) Uniform Reimbursement Rates for All Contract Research Expenses 
Other Than Amounts Paid for Basic Research.--
            (1) In general.--Section 41(b)(3) of the Internal Revenue 
        Code of 1986 (relating to contract research expenses) is 
        amended--
                    (A) by striking ``65 percent'' and inserting ``80 
                percent'', and
                    (B) by striking subparagraphs (C) and (D).
            (2) Basic research payments.--Section 41(b) of such Code is 
        amended by redesignating paragraph (4) as paragraph (5) and by 
        inserting after paragraph (3) the following new paragraph:
            ``(4) Basic research payments.--
                    ``(A) In general.--In the case of basic research 
                payments by the taxpayer, paragraph (3)(A) shall be 
                applied by substituting `100 percent' for `80 percent'.
                    ``(B) Basic research payments defined.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `basic research 
                        payment' means, with respect to any taxable 
                        year, any amount paid in cash during such 
                        taxable year by a corporation to any qualified 
                        organization for basic research but only if--
                                    ``(I) such payment is pursuant to a 
                                written agreement between such 
                                corporation and such qualified 
                                organization, and
                                    ``(II) such basic research is to be 
                                performed by such qualified 
                                organization.
                            ``(ii) Exception to requirement that 
                        research be performed by the organization.--In 
                        the case of a qualified organization described 
                        in clause (iii) or (iv) of subparagraph (C), 
                        subclause (II) of clause (i) shall not apply.
                    ``(C) Qualified organization.--For purposes of this 
                paragraph, the term `qualified organization' means any 
                of the following organizations:
                            ``(i) Educational institutions.--Any 
                        educational organization which--
                                    ``(I) is an institution of higher 
                                education (within the meaning of 
                                section 3304(f)), and
                                    ``(II) is described in section 
                                170(b)(1)(A)(ii).
                            ``(ii) Certain scientific research 
                        organizations.--Any organization not described 
                        in clause (i) which--
                                    ``(I) is described in section 
                                501(c)(3) and is exempt from tax under 
                                section 501(a),
                                    ``(II) is organized and operated 
                                primarily to conduct scientific 
                                research, and
                                    ``(III) is not a private 
                                foundation.
                            ``(iii) Scientific tax-exempt 
                        organizations.--Any organization which--
                                    ``(I) is described in section 
                                501(c)(3) (other than a private 
                                foundation) or section 501(c)(6),
                                    ``(II) is exempt from tax under 
                                section 501(a),
                                    ``(III) is organized and operated 
                                primarily to promote scientific 
                                research by qualified organizations 
                                described in clause (i) pursuant to 
                                written research agreements, and
                                    ``(IV) currently expends 
                                substantially all of its funds or 
                                substantially all of the basic research 
                                payments received by it for grants to, 
                                or contracts for basic research with, 
                                an organization described in clause 
                                (i).
                            ``(iv) Certain grant organizations.--Any 
                        organization not described in clause (ii) or 
                        (iii) which--
                                    ``(I) is described in section 
                                501(c)(3) and is exempt from tax under 
                                section 501(a) (other than a private 
                                foundation),
                                    ``(II) is established and 
                                maintained by an organization 
                                established before July 10, 1981, which 
                                meets the requirements of subclause 
                                (I),
                                    ``(III) is organized and operated 
                                exclusively for the purpose of making 
                                grants to organizations described in 
                                clause (i) pursuant to written research 
                                agreements for purposes of basic 
                                research, and
                                    ``(IV) makes an election, revocable 
                                only with the consent of the Secretary, 
                                to be treated as a private foundation 
                                for purposes of this title (other than 
                                section 4940, relating to excise tax 
                                based on investment income).
                    ``(D) Definitions and special rules.--For purposes 
                of this paragraph--
                            ``(i) Basic research.--The term `basic 
                        research' means any original investigation for 
                        the advancement of scientific knowledge not 
                        having a specific commercial objective, except 
                        that such term shall not include--
                                    ``(I) basic research conducted 
                                outside of the United States, and
                                    ``(II) basic research in the social 
                                sciences, arts, or humanities.
                            ``(ii) Trade or business qualification.--
                        For purposes of applying paragraph (1) to this 
                        paragraph, any basic research payments shall be 
                        treated as an amount paid in carrying on a 
                        trade or business of the taxpayer in the 
                        taxable year in which it is paid (without 
                        regard to the provisions of paragraph (3)(B)).
                            ``(iii) Certain corporations not 
                        eligible.--The term `corporation' shall not 
                        include--
                                    ``(I) an S corporation,
                                    ``(II) a personal holding company 
                                (as defined in section 542), or
                                    ``(III) a service organization (as 
                                defined in section 414(m)(3)).''.
            (3) Conforming amendments.--
                    (A) Section 41 of such Code is amended by striking 
                subsection (e).
                    (B) Section 41(f) of such Code is amended by 
                striking paragraph (6).
    (d) 5-Year Extension of Credit.--
            (1) In general.--Section 41(h)(1)(B) of the Internal 
        Revenue Code of 1986 is amended by striking ``December 31, 
        2007'' and inserting ``December 31, 2012''.
            (2) Conforming amendment.--Section 45C(b)(1)(D) of such 
        Code is amended by striking ``December 31, 2007'' and inserting 
        ``December 31, 2012''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2007.
    (e) Conforming Amendments.--
            (1) Section 41 of the Internal Revenue Code of 1986 is 
        amended by redesignating subsections (d), (f), and (g) as 
        subsections (c), (d), and (e), respectively.
            (2) Paragraphs (2)(A) and (5) (as redesignated by 
        subsection (b)(2)) of section 41(b) of such Code are each 
        amended by striking ``subsection (f)(1)'' and inserting 
        ``subsection (d)(1)''.
            (3) Sections 45C(d)(3), 45G(e)(2), and 
        936(h)(5)(C)(i)(IV)(c) of such Code are each amended by 
        striking ``section 41(f)'' and inserting ``section 41(d)''.
            (4) Section 54(l)(3)(A) of such Code is amended by striking 
        ``section 41(g)'' and inserting ``section 41(e)''.
            (5) Section 170(e)(4)(B)(i) of such Code is amended by 
        striking ``subparagraph (A) or subparagraph (B) of section 
        41(e)(6)'' and inserting ``clause (i) or (ii) of section 
        41(b)(4)(C)''.
            (6) Sections 197(f)(1)(C), 197(f)(9)(C)(i)(II), and 
        280C(b)(3) of such Code are each amended by striking ``section 
        41(f)(1)'' and inserting ``section 41(d)(1)''.
            (7) Section 280C(b)(3) of such Code is amended by striking 
        ``section 41(f)(5)'' and inserting ``section 41(d)(5)''.
            (8) Section 280C(b)(3) of such Code is amended by striking 
        ``section 41(f)(1)(B)'' and inserting ``section 41(d)(1)(B)''.
            (9) Section 280C(c)(1) of such Code is amended by striking 
        ``section 41(e)(2)'' and inserting ``section 41(b)(4)(B)''.
            (10) Section 280C(c)(2)(A) of such Code is amended by 
        striking ``section 41(a)(1)'' and inserting ``section 41(a)''.
            (11) Sections 936(j)(5)(D) and 965(c)(2)(C)(i) of such Code 
        are each amended by striking ``section 41(f)(3)'' and inserting 
        ``section 41(d)(3)''.
    (f) Effective Date.--Except as otherwise provided in this section, 
the amendments made by this section shall apply to taxable years 
beginning after December 31, 2009.
    (g) Study of Compliance With Substantiation Requirements.--The 
Secretary of the Treasury or his delegate shall, not later than 1 year 
after the date of the enactment of this Act, conduct a study of 
taxpayer compliance with the substantiation requirements for claiming 
the credit allowed under section 41 of the Internal Revenue Code of 
1986, including a study of--
            (1) whether taxpayers maintain adequate record keeping to 
        determine eligibility for, and correct amount of, the credit,
            (2) the impact of failure to comply with such requirements 
        on the oversight and enforcement responsibilities of the 
        Internal Revenue Service, and
            (3) the burdens imposed on other taxpayers by failure to 
        comply with such requirements.
The Secretary shall report the results of such study to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate, including any recommendations for administrative 
or legislative actions which could be taken to improve compliance with 
such requirements.
                                 <all>