[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 2715 Introduced in Senate (IS)]

113th CONGRESS
  2d Session
                                S. 2715

    To amend the Internal Revenue Code of 1986 to increase and make 
  permanent the alternative simplified research credit, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 2014

  Mr. Carper 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 increase and make 
  permanent the alternative simplified research credit, 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; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Competitiveness 
and Opportunity by Modernizing and Permanently Extending the Tax Credit 
for Experimentation Act of 2014'' or the ``COMPETE Act of 2014''.
    (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.

SEC. 2. PERMANENT EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

    (a) Simplified Credit for Qualified Research Expenses.--Subsection 
(a) of section 41 is amended to read as follows:
    ``(a) General Rule.--For purposes of section 38, the research 
credit determined under this section for the taxable year shall be an 
amount equal to 25 percent of so much of the qualified research 
expenses for the taxable year as exceeds 50 percent of the average 
qualified research expenses for the 3 taxable years preceding the 
taxable year for which the credit is being determined.''.
    (b) Special Rules and Termination of Base Amount Calculation.--
            (1) In general.--Subsection (c) of section 41 is amended to 
        read as follows:
    ``(c) Special Rule in Case of No Qualified Research Expenses in Any 
of 3 Preceding Taxable Years.--
            ``(1) Taxpayers to which subsection applies.--The credit 
        under this section shall be determined under this subsection, 
        and not under subsection (a), if, in any one of the 3 taxable 
        years preceding the taxable year for which the credit is being 
        determined, the taxpayer has no qualified research expenses.
            ``(2) Credit rate.--The credit determined under this 
        subsection shall be equal to 10 percent of the qualified 
        research expenses for the taxable year.''.
            (2) Consistent treatment of expenses.--Subsection (b) of 
        section 41 is amended by adding at the end the following new 
        paragraph:
            ``(5) Consistent treatment of expenses required.--
                    ``(A) In general.--Notwithstanding whether the 
                period for filing a claim for credit or refund has 
                expired for any taxable year in the 3-taxable-year 
                period taken into account under subsection (a), the 
                qualified research expenses taken into account for such 
                year shall be determined on a basis consistent with the 
                determination of qualified research expenses for the 
                credit year.
                    ``(B) Prevention of distortions.--The Secretary may 
                prescribe regulations to prevent distortions in 
                calculating a taxpayer's qualified research expenses 
                caused by a change in accounting methods used by such 
                taxpayer between the credit year and a year in such 3-
                taxable-year period.''.
    (c) Inclusion of Qualified Research Expenses of an Acquired 
Person.--
            (1) Partial inclusion of pre-acquisition qualified research 
        expenses.--Subparagraph (A) of section 41(f)(3) is amended to 
        read as follows:
                    ``(A) Acquisitions.--
                            ``(i) In general.--If a person acquires the 
                        major portion of a trade or business of another 
                        person (hereinafter in this paragraph referred 
                        to as the `predecessor') or the major portion 
                        of a separate unit of a trade or business of a 
                        predecessor, then the amount of qualified 
                        research expenses paid or incurred by the 
                        acquiring person during the 3 taxable years 
                        preceding the taxable year in which the credit 
                        under this section is determined shall be 
                        increased by--
                                    ``(I) for purposes of applying this 
                                section for the taxable year in which 
                                such acquisition is made, the amount 
                                determined under clause (ii), and
                                    ``(II) for purposes of applying 
                                this section for any taxable year after 
                                the taxable year in which such 
                                acquisition is made, so much of the 
                                qualified research expenses paid or 
                                incurred by the predecessor with 
                                respect to the acquired trade or 
                                business during the portion of the 
                                measurement period that is part of the 
                                3-taxable-year period preceding the 
                                taxable year for which the credit is 
                                determined as is attributable to the 
                                portion of such trade or business or 
                                separate unit acquired by such person.
                            ``(ii) Amount determined.--The amount 
                        determined under this clause is the amount 
                        equal to the product of--
                                    ``(I) so much of the qualified 
                                research expenses paid or incurred by 
                                the predecessor with respect to the 
                                acquired trade or business during the 3 
                                taxable years before the taxable year 
                                in which the acquisition is made as is 
                                attributable to the portion of such 
                                trade or business or separate unit 
                                acquired by the acquiring person, and
                                    ``(II) the number of months in the 
                                period beginning on the date of the 
                                acquisition and ending on the last day 
                                of the taxable year in which the 
                                acquisition is made,
                        divided by 12.
                            ``(iii) Special rules for coordinating 
                        taxable years.--In the case of an acquiring 
                        person and a predecessor whose taxable years do 
                        not begin on the same date--
                                    ``(I) each reference to a taxable 
                                year in clauses (i) and (ii) shall 
                                refer to the appropriate taxable year 
                                of the acquiring person,
                                    ``(II) the qualified research 
                                expenses paid or incurred by the 
                                predecessor during each taxable year of 
                                the predecessor any portion of which is 
                                part of the measurement period shall be 
                                allocated equally among the months of 
                                such taxable year, and
                                    ``(III) the amount of such 
                                qualified research expenses taken into 
                                account under clauses (i) and (ii) with 
                                respect to a taxable year of the 
                                acquiring person shall be equal to the 
                                total of the expenses attributable 
                                under subclause (II) to the months 
                                occurring during such taxable year.
                            ``(iv) Measurement period.--For purposes of 
                        this subparagraph, the term `measurement 
                        period' means the taxable year of the acquiring 
                        person in which the acquisition is made and the 
                        3 taxable years of the acquiring person 
                        preceding such taxable year.''.
            (2) Expenses of a predecessor.--Subparagraph (B) of section 
        41(f)(3) is amended to read as follows:
                    ``(B) Dispositions.--If the predecessor furnished 
                to the acquiring person such information as is 
                necessary for the application of subparagraph (A), 
                then, for purposes of applying this section for any 
                taxable year ending after such disposition, the amount 
                of qualified research expenses paid or incurred by the 
                predecessor during the 3 taxable years preceding such 
                taxable year shall be reduced--
                            ``(i) in the case of the taxable year in 
                        which such disposition is made, by an amount 
                        equal to the product of--
                                    ``(I) the amount of qualified 
                                research expenses paid or incurred 
                                during such 3 taxable years with 
                                respect to the acquired business, and
                                    ``(II) the number of days in the 
                                period beginning on the date of 
                                acquisition (as determined for purposes 
                                of subparagraph (A)(ii)(II)) and ending 
                                on the last day of the taxable year of 
                                the predecessor in which the 
                                disposition is made,
                        divided by the number of days in the taxable 
                        year of the predecessor, and
                            ``(ii) in the case of any taxable year 
                        ending after the taxable year in which such 
                        disposition is made, the amount described in 
                        clause (i)(I).''.
    (d) Aggregation of Expenditures.--Paragraph (1) of section 41(f), 
as amended by the American Taxpayer Relief Act of 2012, is amended--
            (1) by striking ``of the qualified research expenses, basic 
        research payments, and amounts paid or incurred to energy 
        research consortiums,'' in subparagraph (A)(ii) and inserting 
        ``qualified research expenses'', and
            (2) by striking ``of the qualified research expenses, basic 
        research payments, and amounts paid or incurred to energy 
        research consortiums,'' in subparagraph (B)(ii) and inserting 
        ``qualified research expenses''.
    (e) Split 100 Percent Credit for Contract Research Expenses.--
Subparagraph (A) of section 41(b)(3) is amended to read as follows:
                    ``(A) In general.--
                            ``(i) Taxpayers paying for contracted 
                        research.--The term `contract research 
                        expenses' means 65 percent of any amount paid 
                        or incurred by the taxpayer to any person 
                        (other than an employee of the taxpayer) for 
                        qualified research.
                            ``(ii) Taxpayers performing contracted 
                        research.--In the case of a taxpayer (other 
                        than an entity described in subparagraph (C) or 
                        (D) or paragraph (5)(C)) who receives amounts 
                        from any person (other than an employer of the 
                        taxpayer) for qualified research on behalf of 
                        such person, the term `contract research 
                        expenses' means so much of the qualified 
                        research expenses paid or incurred by the 
                        taxpayer as does not exceed 35 percent of the 
                        amounts so received from such person.
                            ``(iii) Special rules.--For purposes of 
                        clause (ii)--
                                    ``(I) Trade or business.--The 
                                qualified research expenses of the 
                                taxpayer shall be determined as if the 
                                trade or business of the taxpayer were 
                                the conduct of qualified research on 
                                behalf of other persons.
                                    ``(II) Research not treated as 
                                funded research.--Subparagraph (H) of 
                                subsection (d)(4) shall not apply.
                                    ``(III) Qualified research.--The 
                                qualified research expenses of a 
                                taxpayer shall be determined as if the 
                                conditions of subparagraph (B) of 
                                subsection (d)(1) are satisfied if the 
                                business component described in 
                                subparagraph (B)(ii) thereof is a 
                                business component of either of the 
                                taxpayers described in clauses (i) and 
                                (ii).
                                    ``(IV) Limitation.--The qualified 
                                research expenses of a taxpayer shall 
                                not include any expenses that would not 
                                be eligible as in-house research 
                                expenses for purposes of paragraph (2).
                            ``(iv) Denial of double benefit.--The 
                        amount of any in-house research expenses taken 
                        into account under this section with respect to 
                        a taxpayer described in clause (ii) shall be 
                        reduced by the amount of the contract research 
                        expenses taken into account under such clause 
                        with respect to such taxpayer for the taxable 
                        year.''.
    (f) Inclusion of Basic Research Payments.--Subsection (b) of 
section 41 is amended by redesignating paragraph (5), as added by this 
section, as paragraph (6), and by inserting after paragraph (4) the 
following new paragraph:
            ``(5) Basic research payments.--
                    ``(A) In general.--In the case of basic research 
                payments made by the taxpayer, paragraph (3)(A) shall 
                be applied by substituting `100 percent' for `65 
                percent'.
                    ``(B) Basic research payments.--For purposes of 
                this paragraph, 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 made pursuant to a 
                        written agreement between such corporation and 
                        such qualified organization, and
                            ``(ii) except in the case of a payment to a 
                        qualified organization described in clause 
                        (iii) or (iv) of subparagraph (C), such basic 
                        research is to be performed by such qualified 
                        organization.
                    ``(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)).''.
    (g) Permanent Extension.--
            (1) Section 41 is amended by striking subsection (h).
            (2) Paragraph (1) of section 45C(b) is amended by striking 
        subparagraph (D).
    (h) Conforming Amendments.--
            (1) Termination of basic research payment calculation.--
        Section 41 is amended--
                    (A) by striking subsection (e),
                    (B) by redesignating subsection (g) as subsection 
                (e), and
                    (C) by relocating subsection (e), as so 
                redesignated, immediately after subsection (d).
            (2) Special rules.--
                    (A) Paragraph (4) of section 41(f) is amended by 
                striking ``and gross receipts''.
                    (B) Subsection (f) of section 41 is amended by 
                striking paragraph (6).
            (3) Cross-references.--
                    (A) Subparagraph (B) of section 45C(b)(1) is 
                amended--
                            (i) by striking ``paragraph (3)(A)'' in 
                        clause (ii) and inserting ``paragraph 
                        (3)(A)(i)'',
                            (ii) by striking the period at the end of 
                        clause (ii) and inserting ``, and'',
                            (iii) by striking ``and'' at the end of 
                        clause (i), and
                            (iv) by adding at the end the following new 
                        clause:
                            ``(iii) by disregarding clauses (ii), 
                        (iii), and (iv) of paragraph (3)(A) of such 
                        subsection.''.
                    (B) Paragraph (2) of section 45C(c) is amended by 
                striking ``base period research expenses'' and 
                inserting ``average qualified research expenses''.
                    (C) Subparagraph (A) of section 54(l)(3) is amended 
                by striking ``section 41(g)'' and inserting ``section 
                41(e)''.
                    (D) Clause (i) of section 170(e)(4)(B) is amended 
                by striking ``subparagraph (A) or subparagraph (B) of 
                section 41(e)(6)'' and inserting ``clause (i) or clause 
                (ii) of section 41(b)(5)(C)''.
                    (E) Section 280C is amended--
                            (i) by striking ``or basic research 
                        expenses (as defined in section 41(e)(2))'' in 
                        subsection (c)(1),
                            (ii) by striking ``section 41(a)(1)'' in 
                        subsection (c)(2)(A) and inserting ``section 
                        41(a)'', and
                            (iii) by striking ``or basic research 
                        expenses'' in subsection (c)(2)(B).
                    (F) Clause (i) of section 1400N(l)(7)(B) is amended 
                by striking ``section 41(g)'' and inserting ``section 
                41(e)''.
    (i) Technical Corrections.--Section 409 is amended--
            (1) by inserting ``, as in effect before the enactment of 
        the Tax Reform Act of 1984)'' after ``section 41(c)(1)(B)'' in 
        subsection (b)(1)(A),
            (2) by inserting ``, as in effect before the enactment of 
        the Tax Reform Act of 1984'' after ``relating to the employee 
        stock ownership credit'' in subsection (b)(4),
            (3) by inserting ``(as in effect before the enactment of 
        the Tax Reform Act of 1984)'' after ``section 41(c)(1)(B)'' in 
        subsection (i)(1)(A),
            (4) by inserting ``(as in effect before the enactment of 
        the Tax Reform Act of 1984)'' after ``section 41(c)(1)(B)'' in 
        subsection (m),
            (5) by inserting ``(as so in effect)'' after ``section 
        48(n)(1)'' in subsection (m),
            (6) by inserting ``(as in effect before the enactment of 
        the Tax Reform Act of 1984)'' after ``section 48(n)'' in 
        subsection (q)(1), and
            (7) by inserting ``(as in effect before the enactment of 
        the Tax Reform Act of 1984)'' after ``section 41'' in 
        subsection (q)(3).
    (j) Effective Date.--
            (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to taxable 
        years beginning after December 31, 2014.
            (2) Permanent extension.--The amendments made by subsection 
        (g) shall apply to amounts paid or incurred after December 31, 
        2013.
            (3) Technical corrections.--The amendments made by 
        subsection (i) shall take effect on the date of the enactment 
        of this Act.

SEC. 3. EXCEPTION FROM PASSIVE LOSS RULES FOR INVESTMENTS IN HIGH 
              TECHNOLOGY RESEARCH SMALL BUSINESS PASS-THRU ENTITIES.

    (a) In General.--Subsection (c) of section 469 is amended by 
redesignating paragraphs (4) through (7) as paragraphs (5) through (8), 
respectively, and by inserting after paragraph (3) the following new 
paragraph:
            ``(4) High technology research activities.--
                    ``(A) In general.--The term `passive activity' 
                shall not include any qualified research activity of 
                the taxpayer carried on by a high technology research 
                small business pass-thru entity.
                    ``(B) Treatment of losses and deductions.--
                            ``(i) In general.--Losses or deductions of 
                        a taxpayer relating to qualified research 
                        activities carried on by a high technology 
                        research small business pass-thru entity shall 
                        not be treated as losses or deductions, 
                        respectively, from a passive activity except as 
                        provided in clause (ii) and subparagraph (C).
                            ``(ii) Limitation.--Clause (i) shall apply 
                        to losses and deductions of a taxpayer relating 
                        to a high technology small business pass-thru 
                        entity for a taxable year only to the extent 
                        that the aggregate losses and deductions of the 
                        taxpayer relating to qualified research 
                        activities of such entity for such taxable year 
                        do not exceed the portion of the taxpayer's 
                        adjusted basis in the taxpayer's ownership 
                        interest in such entity that is attributable to 
                        money or other property contributed--
                                    ``(I) in exchange for such 
                                ownership interest, and
                                    ``(II) specifically for use in 
                                connection with qualified research 
                                activities.
                        For purposes of the preceding sentence, the 
                        taxpayer's basis shall not include any portion 
                        of such basis which is attributable to an 
                        increase in a partner's share of the 
                        liabilities of a partnership that is considered 
                        under section 752(a) as a contribution of 
                        money.
                    ``(C) Treatment of carryovers.--Subparagraph (B)(i) 
                shall not apply to the portion of any loss or deduction 
                that is carried over under subsection (b) into a 
                taxable year other than the taxable year in which such 
                loss or deduction arose.
                    ``(D) Qualified research activity.--For purposes of 
                this paragraph, the term `qualified research activity' 
                means any activity constituting qualified research 
                (within the meaning of section 41(d)(1)(B) and taking 
                into account paragraphs (3) and (4) of section 41(d)) 
                which involves a process of experimentation.
                    ``(E) High technology research small business pass-
                thru entity.--For purposes of this paragraph, the term 
                `high technology research small business pass-thru 
                entity' means any domestic pass-thru entity for any 
                taxable year if--
                            ``(i) either--
                                    ``(I) more than 75 percent of the 
                                entity's expenditures (including 
                                salaries, rent and overhead) for such 
                                taxable year are paid or incurred in 
                                connection with qualified research 
                                (within the meaning of section 
                                41(d)(1)(B), taking into account 
                                paragraphs (3) and (4) of section 
                                41(d)) that involves a process of 
                                experimentation conducted by the 
                                entity, or
                                    ``(II) more than 50 percent of the 
                                entity's expenditures for such taxable 
                                year constitute qualified research 
                                expenses (as defined in section 41(b), 
                                but determined without regard to the 
                                phrase `65 percent of' in paragraph 
                                (3)(A) thereof),
                            ``(ii) such entity is a small business 
                        (within the meaning of section 
                        41(b)(3)(D)(iii), applied by substituting `250' 
                        for `500' in subclause (I) thereof), and
                            ``(iii) at no time during the taxable year 
                        does the entity have aggregate gross assets in 
                        excess of $150,000,000.
                    ``(F) Provisions related to aggregate gross assets 
                limitation.--For purposes of this paragraph--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the term 
                        `aggregate gross assets' has the meaning given 
                        such term in section 1202(d)(2).
                            ``(ii) Exception for certain intangibles.--
                        Any section 197 intangible (as defined in 
                        section 197(d) and determined without regard to 
                        section 197(e)) which is used directly in 
                        connection with the research referred to in 
                        subparagraph (E)(i) shall not be taken into 
                        account in determining aggregate gross assets.
                            ``(iii) Exception for certain follow-on 
                        investments.--Cash from a sale of equity 
                        interests shall not be taken into account in 
                        determining aggregate gross assets if--
                                    ``(I) the aggregate gross assets of 
                                such entity (determined immediately 
                                after such sale and without regard to 
                                this clause) do not exceed the sum of 
                                $150,000,000, plus 25 percent of the 
                                aggregate gross assets of such entity 
                                (determined immediately before such 
                                sale and without regard to this 
                                clause), and
                                    ``(II) the aggregate gross assets 
                                of such entity (determined immediately 
                                before such sale and without regard to 
                                this clause) do not exceed 
                                $150,000,000.
                        Sales of equity interests which are part of the 
                        same plan or arrangement, or which are carried 
                        out with the principal purpose of increasing 
                        the amount of cash to which this clause applies 
                        (determined without regard to this sentence), 
                        shall be treated as a single sale for purposes 
                        of this clause.
                            ``(iv) Inflation adjustment.--In the case 
                        of any taxable year beginning after 2014, the 
                        $150,000,000 amount in subparagraph (E)(iii) 
                        and subclauses (I) and (II) of clause (iii) 
                        shall each be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost of living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins determined by 
                                substituting `calendar year 2013' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                        Any increase determined under the preceding 
                        sentence shall be rounded to the nearest 
                        $100,000.
                    ``(G) Capital expenditures taken into account for 
                expenditures test.--An expenditure shall not fail to be 
                taken into account under subparagraph (E)(i) merely 
                because such expenditure is chargeable to capital 
                account.
                    ``(H) Pass-thru entity.--For purposes of this 
                paragraph, the term `pass-thru entity' means any 
                partnership, S corporation, or other entity identified 
                by the Secretary as a pass-thru entity for purposes of 
                this paragraph.
                    ``(I) Aggregation rules.--
                            ``(i) In general.--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 a single entity for 
                        purposes of subparagraphs (E) and (F)(iii).
                            ``(ii) Limitation where entity would not 
                        qualify.--No entity shall be treated as a high 
                        technology research small business pass-thru 
                        entity unless such entity qualifies as such 
                        both with and without the application of clause 
                        (i).
                    ``(J) Activities not engaged in for profit and 
                economic substance rules.--Section 183 and the economic 
                substance rules of section 7701(o) shall not apply to 
                disallow the losses, deductions, and credits of a high 
                technology research small business pass-thru entity 
                solely as a result of losses incurred by such 
                entity.''.
    (b) Material Participation Not Required.--Paragraph (5) of section 
469(c) of such Code, as redesignated by subsection (a), is amended by 
striking ``and (3)'' in the heading and text and inserting ``, (3), and 
(4)''.
    (c) Certain Research-Related Deductions and Credits of High 
Technology Research Small Business Pass-Thru Entities Allowed for 
Purposes of Determining Alternative Minimum Tax.--
            (1) Deduction for research and experimental expenditures.--
        Paragraph (2) of section 56(b) of such Code is amended by 
        adding at the end the following new subparagraph:
                    ``(E) Exception for high technology research small 
                business pass-thru entities.--In the case of a high 
                technology research small business pass-thru entity (as 
                defined in section 469(c)(4)), this paragraph shall not 
                apply to any amount allowable as a deduction under 
                section 174(a).''.
            (2) Allowance of certain research-related credits.--
        Subparagraph (B) of section 38(c)(4) of such Code is amended by 
        redesignating clauses (ii) through (ix) as clauses (iii) 
        through (x), respectively, and by inserting after clause (i) 
        the following new clause:
                            ``(ii) the credits determined with respect 
                        to an individual taxpayer under sections 41 and 
                        48D to the extent attributable to a high 
                        technology research small business pass-thru 
                        entity (as defined in section 469(c)(4)),''.
    (d) Exception to Limitation on Pass-Thru of Research Credit.--
Subsection (g) of section 41 of such Code is amended by adding at the 
end the following: ``Paragraphs (2) and (4) shall not apply with 
respect to any high technology research small business pass-thru entity 
(as defined in section 469(c)(4)).''
    (e) Effective Date.--The amendments made by this section shall 
apply to losses and credits arising in taxable years beginning on or 
after December 31, 2014.

SEC. 4. ENHANCED CREDIT FOR HIGHLY INNOVATIVE RESEARCH.

    (a) In General.--Section 41, as amended by this Act, is amended by 
adding at the end the following new subsection:
    ``(g) Enhanced Credit for Highly Innovative Research.--
            ``(1) In general.--In the case of any certified highly 
        innovative research expenses, subsection (a) shall be applied 
        by substituting `35 percent' for `25 percent'.
            ``(2) Certified highly innovative research expenses.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `certified highly 
                innovative research expenses' means any qualified 
                research expenses that--
                            ``(i) are paid or incurred during the 
                        taxable year for the creation of--
                                    ``(I) a qualified new product 
                                category, or
                                    ``(II) product technology that 
                                represents a significant improvement 
                                over previously existing product 
                                technology, and
                            ``(ii) are certified as provided in 
                        subparagraph (D).
                    ``(B) Qualified new product category.--The term 
                `qualified new product category' means a category of 
                product that--
                            ``(i) has not previously been produced by 
                        the taxpayer, and
                            ``(ii) incorporates functions that are 
                        substantially different from other products 
                        previously produced by the taxpayer.
                    ``(C) Significant improvement over previously 
                existing product technology.--Product technology 
                satisfies the requirements of subparagraph (A)(i)(II) 
                if such technology is an enhancement of a product 
                that--
                            ``(i) requires the use of new techniques or 
                        design methods to achieve such enhancement, and
                            ``(ii) represents a significant advance in 
                        terms of the performance, energy consumption, 
                        environmental benefit, public health impact, 
                        cost, or size of the product.
                    ``(D) Certification by national science foundation 
                or national institutes of health.--
                            ``(i) In general.--Qualified research 
                        expenses shall not be treated as certified 
                        highly innovative research expenses for any 
                        taxable year unless such expenses, and the 
                        project to which they relate, are certified 
                        by--
                                    ``(I) the National Science 
                                Foundation, or
                                    ``(II) the National Institutes of 
                                Health,
                        whichever has appropriate jurisdiction over the 
                        subject matter to which such expenses relate, 
                        as meeting the requirements of subparagraph 
                        (A)(i) (and any regulations or guidance issued 
                        by the Secretary pursuant to such 
                        subparagraph). Such certification shall be 
                        provided by the National Science Foundation 
                        under the program established by section 4(b) 
                        of the COMPETE Act of 2014, or by the National 
                        Institutes of Health under the program 
                        established by section 4(c) of such Act, 
                        whichever is appropriate, and shall be attached 
                        to the return of tax for such taxable year. In 
                        no event shall any taxpayer apply for 
                        certification to more than one of the entities 
                        described in this subparagraph with respect to 
                        the same expenses.
                            ``(ii) Advance certification.--
                                    ``(I) In general.--The 
                                certification of expenses under clause 
                                (i) may be made and provided to the 
                                taxpayer not more than 3 taxable years 
                                before the first taxable year for which 
                                the enhanced credit under this 
                                subsection will be claimed with respect 
                                to such expenses.
                                    ``(II) Reapplication.--The National 
                                Science Foundation and the National 
                                Institutes of Health shall each 
                                establish and make publicly available a 
                                cap on the number of times a taxpayer 
                                who has been denied certification under 
                                clause (i) with respect to any 
                                qualified research expenses may reapply 
                                for certification for such expenses. 
                                The cap established by each such entity 
                                shall permit not fewer than 1 
                                reapplication with respect to any 
                                expenses.
                            ``(iii) Duration of certification.--
                                    ``(I) In general.--The 
                                certification under clause (i) shall 
                                apply to expenses relating to the same 
                                project (as identified in such 
                                certification) for not more than 7 
                                consecutive taxable years, beginning 
                                with the first taxable year for which 
                                the enhanced credit under this 
                                subsection is claimed with respect to 
                                such expenses.
                                    ``(II) Supporting documentation.--
                                In the case of a certification that 
                                applies for more than 1 taxable year, 
                                the Secretary may require the taxpayer 
                                to provide such documentation as the 
                                Secretary deems necessary to 
                                demonstrate that the expenses to which 
                                such certification relates continue to 
                                meet the requirements of subparagraph 
                                (A)(i).
                            ``(iv) Limitation on certifications.--
                                    ``(I) In general.--The total dollar 
                                amount of expenses which are certified 
                                by each entity under clause (i) 
                                (including by means of advance 
                                certification under clause (ii)) as 
                                highly innovative research expenses for 
                                purposes of credits determined in any 
                                taxable year shall not exceed 
                                $500,000,000.
                                    ``(II) Adjustment for inflation.--
                                In the case of a taxable year beginning 
                                after December 31, 2016, the 
                                $500,000,000 amount in subclause (I) 
                                shall be increased by an amount equal 
                                to the product of such dollar amount 
                                and the cost-of-living adjustment 
                                determined under section 1(f)(3) for 
                                the calendar year, determined by 
                                substituting `calendar year 2015' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                                    ``(III) Rounding.--If any amount as 
                                adjusted under subclause (II) is not a 
                                multiple of $1,000, such amount shall 
                                be rounded to the next highest multiple 
                                of $1,000.''.
    (b) Certification by National Science Foundation as Highly 
Innovative Research and Promotion of Enhanced Credit.--The National 
Science Foundation Authorization Act of 2002 (Public Law 107-368) is 
amended by adding at the end the following:

``SEC. 27. CERTIFICATION AS HIGHLY INNOVATIVE RESEARCH AND PROMOTION OF 
              ENHANCED CREDIT.

    ``(a) Certification.--
            ``(1) In general.--The Director shall establish a program 
        that provides certification of research expenses as highly 
        innovative research expenses for purposes of the enhanced 
        credit for highly innovative research under section 41(g) of 
        the Internal Revenue Code of 1986.
            ``(2) Application.--A person that desires to have research 
        expenses certified as highly innovative research expenses for 
        purposes of the enhanced credit for highly innovation research 
        under section 41(g) of the Internal Revenue Code of 1986, shall 
        submit to the Director an application containing such request 
        at such time, in such manner, and accompanied by such 
        information as the Director may require.
            ``(3) Review of submissions.--In carrying out paragraph 
        (1), the Director shall establish a review process that 
        involves--
                    ``(A) a set group of reviewers from various fields 
                and backgrounds, and
                    ``(B) published criteria, developed in consultation 
                with the Secretary of the Treasury and the Secretary of 
                Commerce, in accordance with the requirements of 
                section 41(g)(2)(A)(i) of the Internal Revenue Code of 
                1986 and any regulations or guidance issued by the 
                Secretary of the Treasury pursuant to such section.
            ``(4) Time for review.--A certification under this 
        subsection shall be denied or approved within 120 days of the 
        submission of the application under paragraph (2) (270 days, in 
        the case of an application for advance certification under 
        section 41(g)(2)(D)(ii) of the Internal Revenue Code of 1986).
    ``(b) Promotion of Enhanced Credit for Highly Innovative 
Research.--The Director shall post on the website of the National 
Science Foundation information on the enhanced credit for highly 
innovative research under section 41(g) of the Internal Revenue Code of 
1986, and the process for applying for certification of research as 
highly innovative research.
    ``(c) Confidentiality.--The Director and each reviewer described in 
subsection (a)(3)(A) shall keep confidential any information provided 
by a person that desires to have research expenses certified as highly 
innovative research expenses pursuant to this section.''.
    (c) Certification by National Institutes of Health as Highly 
Innovative Research and Promotion of Enhanced Credit.--Part H of title 
IV of the Public Health Service Act (42 U.S.C. 289 et seq.) is amended 
by adding at the end the following:

``SEC. 498E. CERTIFICATION AS HIGHLY INNOVATIVE RESEARCH AND PROMOTION 
              OF ENHANCED CREDIT.

    ``(a) Certification.--
            ``(1) In general.--The Director of NIH shall establish a 
        program that provides certification of research expenses as 
        highly innovative research expenses for purposes of the 
        enhanced credit for highly innovative research under section 
        41(g) of the Internal Revenue Code of 1986.
            ``(2) Application.--A person that desires to have research 
        expenses certified as highly innovative research expenses for 
        purposes of the enhanced credit for highly innovative research 
        under section 41(g) of the Internal Revenue Code of 1986, shall 
        submit to the Director of NIH an application containing such 
        request at such time, in such manner, and accompanied by such 
        information as the Director may require.
            ``(3) Review of submissions.--In carrying out paragraph 
        (1), the Director shall establish a review process that 
        involves--
                    ``(A) a set group of reviewers from various fields 
                and backgrounds, and
                    ``(B) published criteria, developed in consultation 
                with the Secretary of the Treasury and the Secretary of 
                Commerce, in accordance with the requirements of 
                section 41(g)(2)(A)(i) of the Internal Revenue Code of 
                1986 and any regulations or guidance issued by the 
                Secretary of the Treasury pursuant to such section.
            ``(4) Time for review.--A certification under this 
        subsection shall be denied or approved within 120 days of the 
        submission of the application under paragraph (2) (270 days, in 
        the case of an application for advance certification under 
        section 41(g)(2)(D)(ii) of the Internal Revenue Code of 1986).
    ``(b) Promotion of Enhanced Credit for Highly Innovative 
Research.--The Director shall post on the website of the National 
Institutes of Health information on the enhanced credit for highly 
innovative research under section 41(g) of the Internal Revenue Code of 
1986, and the process for applying for certification of research as 
highly innovative research.
    ``(c) Confidentiality.--The Director of NIH and each reviewer 
described in subsection (a)(3)(A) shall keep confidential any 
information provided by a person that desires to have research expenses 
certified as highly innovative research expenses pursuant to this 
section.''.
    (d) Effective Date.--The amendment made by subsection (a) shall 
apply to expenses paid or incurred in taxable years beginning after 
December 31, 2015.

SEC. 5. CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.

    (a) In General.--Subparagraph (B) of section 38(c)(4) is amended--
            (1) by redesignating clauses (ii), (iii), (iv), (v), (vi), 
        (vii), (viii), and (ix) as clauses (iii), (iv), (v), (vi), 
        (vii), (viii), (ix), and (x), respectively, and
            (2) by inserting after clause (i) the following new clause:
                            ``(ii) for taxable years beginning after 
                        December 31, 2013, the credit determined under 
                        section 41,''.
    (b) Special Rule for Enhanced Credit for Highly Innovative 
Research.--Paragraph (4) of section 38(c) is amended by adding at the 
end the following new subparagraph:
                    ``(C) Special rule for enhanced credit for highly 
                innovative research.--In the case of any portion of the 
                credit determined under section 41 which is 
                attributable to subsection (g) of such section--
                            ``(i) subparagraph (A) shall be applied 
                        separately with respect to such portion, and
                            ``(ii) paragraph (1) shall be applied to 
                        such portion as if the amount determined under 
                        subparagraph (B) of such paragraph were 
                        zero.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2014.

SEC. 6. 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 facilities.''.
    (b) Definition.--Section 142 is amended by inserting at the end the 
following new subsection:
    ``(n) Research Park Facilities.--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.
                                 <all>