[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 3460 Introduced in Senate (IS)]

112th CONGRESS
  2d Session
                                S. 3460

   To amend the Internal Revenue Code of 1986 to provide for startup 
 businesses to use a portion of the research and development credit to 
                         offset payroll taxes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 2012

     Mr. Coons (for himself, Mr. Enzi, Mr. Schumer, and Mr. Rubio) 
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 for startup 
 businesses to use a portion of the research and development credit to 
                         offset payroll taxes.

    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 ``Startup Innovation Credit Act of 
2012''.

SEC. 2. TREATMENT OF RESEARCH CREDIT FOR CERTAIN STARTUP COMPANIES.

    (a) In General.--
            (1) In general.--Section 41 of the Internal Revenue Code of 
        1986 is amended by adding at the end the following new 
        subsection:
    ``(i) Treatment of Credit to Qualified Small Businesses.--
            ``(1) In general.--At the election of a qualified small 
        business, the payroll tax credit portion of the credit 
        determined under subsection (a) shall be treated as a credit 
        allowed under section 3111(f) (and not under this section).
            ``(2) Payroll tax credit portion.--For purposes of this 
        subsection, the payroll tax credit portion of the credit 
        determined under subsection (a) for any taxable year is so much 
        of such credit as does not exceed $250,000.
            ``(3) Qualified small business.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified small 
                business' means, with respect to any taxable year--
                            ``(i) a corporation, partnership, or S 
                        corporation if--
                                    ``(I) the gross receipts (as 
                                determined under subsection (c)(7)) of 
                                such entity for the taxable year is 
                                less than $5,000,000, and
                                    ``(II) such entity did not have 
                                gross receipts (as so determined) for 
                                any period preceding the 5-taxable-year 
                                period ending with such taxable year, 
                                and
                            ``(ii) any person not described in 
                        subparagraph (A) if clauses (i) and (ii) of 
                        subparagraph (A) applied to such person, 
                        determined--
                                    ``(I) by substituting `person' for 
                                `entity' each place it appears), and
                                    ``(II) in the case of an 
                                individual, by only taking into account 
                                the aggregate gross receipts received 
                                by such individual in carrying on 
                                trades or businesses of such 
                                individual.
                    ``(B) Limitation.--Such term shall not include an 
                organization which is exempt from taxation under 
                section 501.
            ``(4) Election.--
                    ``(A) In general.--In the case of a partnership or 
                S corporation, an election under this subsection shall 
                be made at the entity level.
                    ``(B) Revocation.--An election under this 
                subsection may not be revoked without the consent of 
                the Secretary.
                    ``(C) Limitation.--A taxpayer may not make an 
                election under this subsection if such taxpayer has 
                made an election under this subsection for 5 or more 
                preceding taxable years.
            ``(5) Aggregation rules.--For purposes of determining the 
        $250,000 limitation under paragraph (2) and determining gross 
        receipts under paragraph (3), all members of the same 
        controlled group of corporations (within the meaning of section 
        267(f)) and all persons under common control (within the 
        meaning of section 52(b) but determined by treating an interest 
        of more than 50 percent as a controlling interest) shall be 
        treated as 1 person.
            ``(6) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection, including--
                    ``(A) regulations to prevent the avoidance of the 
                purposes of paragraph (3) through the use of successor 
                companies or other means,
                    ``(B) regulations to minimize compliance and 
                recordkeeping burdens under this subsection for start-
                up companies, and
                    ``(C) regulations for recapturing the benefit of 
                credits determined under section 3111(f) in cases where 
                there is a subsequent adjustment to the payroll tax 
                credit portion of the credit determined under 
                subsection (a), including requiring amended returns in 
                the cases where there is such an adjustment.''.
            (2) Conforming amendment.--Section 280C(c) of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new paragraph:
            ``(5) Treatment of qualified small business credit.--For 
        purposes of determining the amount of any credit under section 
        41(a) under this subsection, any election under section 41(i) 
        shall be disregarded.''.
    (b) Credit Allowed Against FICA Taxes.--
            (1) In general.--Section 3111 of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        subsection:
    ``(f) Credit for Research Expenditures of Qualified Small 
Businesses.--
            ``(1) In general.--In the case of a qualified small 
        business which has made an election under section 41(i), there 
        shall be allowed as a credit against the tax imposed by 
        subsection (a) on wages paid with respect to the employment of 
        all employees of the qualified small business for days in an 
        applicable calendar quarter an amount equal to the payroll tax 
        credit portion of the research credit determined under section 
        41(a).
            ``(2) Carryover of unused credit.--In any case in which the 
        payroll tax credit portion of the research credit determined 
        under section 41(a) exceeds the tax imposed under subsection 
        (a) for an applicable calendar quarter--
                    ``(A) the succeeding calendar quarter shall be 
                treated as an applicable calendar quarter, and
                    ``(B) the amount of credit allowed under paragraph 
                (1) shall be reduced by the amount of credit allowed 
                under such paragraph for all preceding applicable 
                calendar quarters.
            ``(3) Allocation of credit for controlled groups, etc.--In 
        determining the amount of the credit under this subsection--
                    ``(A) all persons treated as a single taxpayer 
                under section 41 shall be treated as a single taxpayer 
                under this section, and
                    ``(B) the credit (if any) allowable by this section 
                to each such member shall be its proportionate share of 
                the qualified research expenses, basic research 
                payments, and amounts paid or incurred to energy 
                research consortiums, giving rise to the credit 
                allowable under section 41.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) Applicable calendar quarter.--The term 
                `applicable calendar quarter' means--
                            ``(i) the first calendar quarter following 
                        the date on which the qualified small business 
                        files a return under section 6012 for the 
                        taxable year for which the payroll tax credit 
                        portion of the research credit under section 
                        41(a) is determined, and
                            ``(ii) any succeeding calendar quarter 
                        treated as an applicable calendar quarter under 
                        paragraph (2)(A).
                    ``For purposes of determining the date on which a 
                return is filed, rules similar to the rules of section 
                6513 shall apply.
                    ``(B) Other terms.--Any term used in this 
                subsection which is also used in section 41 shall have 
                the meaning given such term under section 41.''.
            (2) Transfers to federal old-age and survivors insurance 
        trust fund.--There are hereby appropriated to the Federal Old-
        Age and Survivors Trust Fund and the Federal Disability 
        Insurance Trust Fund established under section 201 of the 
        Social Security Act (42 U.S.C. 401) amounts equal to the 
        reduction in revenues to the Treasury by reason of the 
        amendments made by paragraph (1). Amounts appropriated by the 
        preceding sentence shall be transferred from the general fund 
        at such times and in such manner as to replicate to the extent 
        possible the transfers which would have occurred to such Trust 
        Fund had such amendments not been enacted.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.
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