[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 41 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                 S. 41

  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

                            January 4, 2007

  Mr. Baucus 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 Competitiveness Act of 
2007''.

SEC. 2. SIMPLIFICATION OF RESEARCH AND DEVELOPMENT CREDIT.

    (a) 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, as 
        amended by section 104 of division A of the Tax Relief and 
        Health Care Act of 2006, is amended by striking subsection (c).
    (b) 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).
    (c) Permanent Extension of Credit.--
            (1) In general.--Section 41 of the Internal Revenue Code of 
        1986 is amended by striking subsection (h).
            (2) Conforming amendment.--Paragraph (1) of section 45C(b) 
        of such Code is amended by striking subparagraph (D).
    (d) 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)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.
    (f) 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.

SEC. 3. TAX CREDIT FOR INVESTMENTS IN SMALL TECHNOLOGY INNOVATION 
              COMPANIES.

    (a) In General.--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 section:

``SEC. 45N. RESEARCH INVESTMENT TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, in the case 
        of a taxpayer who holds a qualified equity investment on a 
        credit allowance date of such investment which occurs during 
        the taxable year, the research investment tax credit determined 
        under this section for such taxable year is an amount equal to 
        the 5 percent of the amount paid to the qualified research 
        entity for such investment at its original issue.
            ``(2) Credit allowance date.--For purposes of paragraph 
        (1), the term `credit allowance date' means, with respect to 
        any qualified equity investment--
                    ``(A) the date on which such investment is 
                initially made, and
                    ``(B) each of the 4 anniversary dates of such date 
                thereafter.
    ``(b) Qualified Equity Investment.--For purposes of this section--
            ``(1) In general.--The term `qualified equity investment' 
        means any equity investment in a qualified research entity if--
                    ``(A) such investment is acquired by the taxpayer 
                at its original issue (directly or through an 
                underwriter) solely in exchange for cash,
                    ``(B) substantially all of such cash is used by the 
                qualified research entity to make qualified research 
                investments, and
                    ``(C) such investment is designated for purposes of 
                this section by the qualified research entity.
        Such term shall not include any equity investment issued by a 
        qualified research entity more than 5 years after the date that 
        such entity receives an allocation under subsection (e). Any 
        allocation not used within such 5-year period may be 
        reallocated by the Secretary under subsection (e).
            ``(2) Limitation.--The maximum amount of equity investments 
        issued by a qualified research entity which may be designated 
        under paragraph (1)(C) by such entity shall not exceed the 
        portion of the limitation amount allocated under subsection (f) 
        to such entity.
            ``(3) Safe harbor for determining use of cash.--The 
        requirement of paragraph (1)(B) shall be treated as met if at 
        least 85 percent of the aggregate gross assets of the qualified 
        research entity are invested in qualified research investments.
            ``(4) Treatment of subsequent purchasers.--The term 
        `qualified research investment' 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.
            ``(5) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this subsection.
            ``(6) Equity investment.--The term `equity investment' 
        means--
                    ``(A) any stock (other than nonqualified preferred 
                stock as defined in section 351(g)(2)) in an entity 
                which is a corporation, and
                    ``(B) any capital interest in an entity which is a 
                partnership.
    ``(c) Qualified Research Entity.--For purposes of this section, the 
term `qualified research entity' means any domestic corporation or 
partnership if--
            ``(1) the primary mission of the entity is serving, or 
        providing investment capital for, qualifying small business 
        innovation companies,
            ``(2) the entity maintains accountability to engineers, 
        scientists, and other research-related professionals through 
        their representation on any governing board of the entity or on 
        any advisory board to the entity, and
            ``(3) the entity is certified by the Secretary for purposes 
        of this section as being a qualified research entity.
    ``(d) Qualified Research Investments.--For purposes of this 
section--
            ``(1) In general.--The term `qualified research investment' 
        means--
                    ``(A) any capital or equity investment in, or loan 
                to, any qualifying small business innovation company, 
                which when added to any other such investment in or 
                loan to such company taken into account for purposes of 
                this section for any taxable year does not exceed 
                $10,000,000, and
                    ``(B) the purchase from another qualified research 
                entity of any loan made by such entity which is a 
                qualified research investment.
            ``(2) Qualifying small business innovation company.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `qualifying small business innovation company' 
                means, with respect to any taxable year, any 
                corporation (including a nonprofit corporation) or 
                partnership if for such year--
                            ``(i) the gross receipts of such entity do 
                        not exceed $10,000,000,
                            ``(ii) the aggregate gross assets of such 
                        entity do not exceed $25,000,000, and
                            ``(iii) at least 50 percent of the gross 
                        expenditures of such entity would qualify as 
                        research or experimental expenditures under 
                        section 174.
                All persons treated as a single employer under 
                subsection (a) or (b) of section 52 or subsection (m) 
                or (o) of section 414 shall be treated as one person 
                for purposes of this subparagraph.
                    ``(B) Aggregate gross assets.--For purposes of 
                subparagraph (A)(ii), the term `aggregate gross assets' 
                shall have meaning given such term by section 
                1202(d)(2), except such term shall not include 
                intangibles and goodwill.
    ``(e) National Limitation on Amount of Investments Designated.--
            ``(1) In general.--There is a research investment tax 
        credit limitation for each calendar year. Such limitation is--
                    ``(A) $500,000,000 for 2007,
                    ``(B) $750,000,000 for 2008 and 2009, and
                    ``(C) $1,000,000,000 for 2010 and 2011.
            ``(2) Allocation of limitation.--The limitation under 
        paragraph (1) shall be allocated by the Secretary among 
        qualified research entities selected by the Secretary, with not 
        more than $25,000,000 allocated to any 1 qualified research 
        entity in any calendar year. In making allocations under the 
        preceding sentence, the Secretary shall give priority to any 
        entity--
                    ``(A) with a record of having successfully provided 
                capital or technical assistance to qualifying small 
                business innovation companies, or
                    ``(B) which intends to satisfy the requirement 
                under subsection (b)(1)(B) by making qualified research 
                investments in 1 or more companies in which persons 
                unrelated to such entity (within the meaning of section 
                267(b) or 707(b)(1)) hold the majority equity interest, 
                and
        if more than 1 qualified research entity meets subparagraph (A) 
        or (B), the Secretary shall give priority to the entity with 
        the earliest investment. If insufficient allocations are 
        available for all qualified applicants in any calendar year, 
        the priorities established for such applicants without 
        allocations shall be carried over to the succeeding calendar 
        year.
            ``(3) Carryover of unused limitation.--If the research 
        investment tax credit limitation for any calendar year exceeds 
        the aggregate amount allocated under paragraph (2) for such 
        year, such limitation for the succeeding calendar year shall be 
        increased by the amount of such excess. No amount may be 
        carried under the preceding sentence to any calendar year after 
        2018.
    ``(f) Recapture of Credit in Certain Cases.--
            ``(1) In general.--If, at any time during the 7-year period 
        beginning on the date of the original issue of a qualified 
        equity investment in a qualified research entity, 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.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) 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
                    ``(B) 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.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph (1), 
        there is a recapture event with respect to an equity investment 
        in a qualified research entity if--
                    ``(A) such entity ceases to be a qualified research 
                entity,
                    ``(B) the proceeds of the investment cease to be 
                used as required of subsection (b)(1)(B), or
                    ``(C) such investment is redeemed by such entity.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--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.
                    ``(B) No credits against tax.--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.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including 
regulations--
            ``(1) which prevent the abuse of the purposes of this 
        section,
            ``(2) which provide rules for determining whether the 
        requirement of subsection (b)(1)(B) is treated as met,
            ``(3) which impose appropriate reporting requirements, and
            ``(4) which apply the provisions of this section to newly 
        formed entities.''.
    (b) Credit Treated as Business Credit.--Section 38(b) of the 
Internal Revenue Code of 1986 (relating to current year business 
credit) is amended by striking ``and'' at the end of paragraph (29), by 
striking the period at the end of paragraph (30) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(31) the credit determined under section 45N(a).''.
    (c) Conforming 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. Research investment tax credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to investments made after December 31, 2006.

SEC. 4. TAX-EXEMPT FINANCING OF RESEARCH PARK FACILITIES.

    (a) In General.--Subsection (a) of section 142 is amended--
            (1) by striking ``or'' at the end of paragraph (14),
            (2) by striking the period at the end of paragraph (15) and 
        inserting ``, or'', and
            (3) by inserting at the end the following new paragraph:
            ``(16) research park facility.''.
    (b) Definition.--Section 142 is amended by inserting at the end the 
following new subsection:
    ``(n) Research Park Facility.--For purposes of subsection (a)(16), 
the term `research park facility' means a facility (including 
buildings, land, or other structures) which is used in connection with 
research and experimentation (as defined in section 168(i)(11)). For 
purposes of the preceding sentence, such term includes facilities which 
are directly related and ancillary to a research park facility 
(determined without regard to this sentence) if--
            ``(1) such facilities are located on the same site as the 
        research park facility, and
            ``(2) not more than 25 percent of the net proceeds of the 
        issue are used to provide such facilities.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to bonds issued on or after the date of the 
enactment of this Act.

SEC. 5. CLARIFICATION OF APPLICATION OF PRIVATE ACTIVITY BOND RULES 
              WITH RESPECT TO FUNDING OF FEDERAL RESEARCH AGREEMENTS.

    Not later than June 30, 2007, the Secretary of the Treasury shall 
prescribe guidance identifying the circumstances, if any, in which the 
rights of the Federal Government granted under chapter 18 of title 35, 
United States Code (commonly known as the Bayh-Dole Act (Pub. Law No. 
96-517)) constitute private business use under the private activity 
bond rules in section 141 of the Internal Revenue Code of 1986.
                                 <all>