American Innovation and Jobs Act

II 117TH CONGRESS 1ST SESSION S. 749 To amend the Internal Revenue Code of 1986 to enhance tax benefits for research activities. IN THE SENATE OF THE UNITED STATES MARCH 15, 2021 Ms. HASSAN (for herself, Mr. YOUNG, Ms. CORTEZ MASTO, Mr. PORTMAN, and Mr. SASSE) 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 enhance tax benefits for research activities. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘American Innovation 4 and Jobs Act’’. 5 SEC. 2. RESTORING IMMEDIATE EXPENSING FOR RE- 6 SEARCH AND DEVELOPMENT INVESTMENTS. 7 (a) IN GENERAL.—Section 174 of the Internal Rev- 8 enue Code of 1986 is amended to read as follows: 9 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 749 IS ‘‘SEC. 174. RESEARCH AND EXPERIMENTAL EXPENDITURES. 1 ‘‘(a) TREATMENT AS EXPENSES.— 2 ‘‘(1) IN GENERAL.—A taxpayer may treat re- 3 search or experimental expenditures which are paid 4 or incurred by him during the taxable year in con- 5 nection with his trade or business as expenses which 6 are not chargeable to capital account. The expendi- 7 tures so treated shall be allowed as a deduction. 8 ‘‘(2) WHEN METHOD MAY BE ADOPTED.— 9 ‘‘(A) WITHOUT CONSENT.—A taxpayer 10 may, without the consent of the Secretary, 11 adopt the method provided in this subsection 12 for his first taxable year for which expenditures 13 described in paragraph (1) are paid or incurred. 14 ‘‘(B) WITH CONSENT.—A taxpayer may, 15 with the consent of the Secretary, adopt at any 16 time the method provided in this subsection. 17 ‘‘(3) SCOPE.—The method adopted under this 18 subsection shall apply to all expenditures described 19 in paragraph (1). The method adopted shall be ad- 20 hered to in computing taxable income for the taxable 21 year and for all subsequent taxable years unless, 22 with the approval of the Secretary, a change to a 23 different method is authorized with respect to part 24 or all of such expenditures. 25 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 749 IS ‘‘(b) AMORTIZATION OF CERTAIN RESEARCH AND 1 EXPERIMENTAL EXPENDITURES.— 2 ‘‘(1) IN GENERAL.—At the election of the tax- 3 payer, made in accordance with regulations pre- 4 scribed by the Secretary, research or experimental 5 expenditures which are— 6 ‘‘(A) paid or incurred by the taxpayer in 7 connection with his trade or business, 8 ‘‘(B) not treated as expenses under sub- 9 section (a), and 10 ‘‘(C) chargeable to capital account but not 11 chargeable to property of a character which is 12 subject to the allowance under section 167 (re- 13 lating to allowance for depreciation, etc.) or sec- 14 tion 611 (relating to allowance for depletion), 15 may be treated as deferred expenses. In computing 16 taxable income, such deferred expenses shall be al- 17 lowed as a deduction ratably over such period of not 18 less than 60 months as may be selected by the tax- 19 payer (beginning with the month in which the tax- 20 payer first realizes benefits from such expenditures). 21 Such deferred expenses are expenditures properly 22 chargeable to capital account for purposes of section 23 1016(a)(1) (relating to adjustments to basis of prop- 24 erty). 25 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 749 IS ‘‘(2) TIME FOR AND SCOPE OF ELECTION.—The 1 election provided by paragraph (1) may be made for 2 any taxable year, but only if made not later than the 3 time prescribed by law for filing the return for such 4 taxable year (including extensions thereof). The 5 method so elected, and the period selected by the 6 taxpayer, shall be adhered to in computing taxable 7 income for the taxable year for which the election is 8 made and for all subsequent taxable years unless, 9 with the approval of the Secretary, a change to a 10 different method (or to a different period) is author- 11 ized with respect to part or all of such expenditures. 12 The election shall not apply to any expenditure paid 13 or incurred during any taxable year before the tax- 14 able year for which the taxpayer makes the election. 15 ‘‘(c) LAND AND OTHER PROPERTY.—This section 16 shall not apply to any expenditure for the acquisition or 17 improvement of land, or for the acquisition or improve- 18 ment of property to be used in connection with the re- 19 search or experimentation and of a character which is sub- 20 ject to the allowance under section 167 (relating to allow- 21 ance for depreciation, etc.) or section 611 (relating to al- 22 lowance for depletion); but for purposes of this section al- 23 lowances under section 167, and allowances under section 24 611, shall be considered as expenditures. 25 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 749 IS ‘‘(d) EXPLORATION EXPENDITURES.—This section 1 shall not apply to any expenditure paid or incurred for 2 the purpose of ascertaining the existence, location, extent, 3 or quality of any deposit of ore or other mineral (including 4 oil and gas). 5 ‘‘(e) ONLY REASONABLE RESEARCH EXPENDITURES 6 ELIGIBLE.—This section shall apply to a research or ex- 7 perimental expenditure only to the extent that the amount 8 thereof is reasonable under the circumstances. 9 ‘‘(f) CROSS REFERENCES.— 10 ‘‘(1) For adjustments to basis of property for 11 amounts allowed as deductions as deferred expenses 12 under subsection (b), see section 1016(a)(14). 13 ‘‘(2) For election of 10-year amortization of ex- 14 penditures allowable as a deduction under subsection 15 (a), see section 59(e).’’. 16 (b) CLERICAL AMENDMENT.—The table of sections 17 for part VI of subchapter B of chapter 1 is amended by 18 striking the item relating to section 174 and inserting the 19 following new item: 20 ‘‘Sec. 174. Research and experimental expenditures’’. (c) CONFORMING AMENDMENTS.— 21 (1) Section 41(d)(1)(A) is amended by striking 22 ‘‘specified research or experimental expenditures 23 under section 174’’ and inserting ‘‘expenses under 24 section 174’’. 25 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 749 IS (2) Section 280C(c) is amended to read as fol- 1 lows: 2 ‘‘(c) CREDIT FOR INCREASING RESEARCH ACTIVI- 3 TIES.— 4 ‘‘(1) IN GENERAL.—No deduction shall be al- 5 lowed for that portion of the qualified research ex- 6 penses (as defined in section 41(b)) or basic re- 7 search expenses (as defined in section 41(e)(2)) oth- 8 erwise allowable as a deduction for the taxable year 9 which is equal to the amount of the credit deter- 10 mined for such taxable year under section 41(a). 11 ‘‘(2) SIMILAR RULE WHERE TAXPAYER CAP- 12 ITALIZES RATHER THAN DEDUCTS EXPENSES.—If— 13 ‘‘(A) the amount of the credit determined 14 for the taxable year under section 41(a)(1), ex- 15 ceeds 16 ‘‘(B) the amount allowable as a deduction 17 for such taxable year for qualified research ex- 18 penses or basic research expenses (determined 19 without regard to paragraph (1)), 20 the amount chargeable to capital account for the 21 taxable year for such expenses shall be reduced by 22 the amount of such excess. 23 ‘‘(3) ELECTION OF REDUCED CREDIT.— 24 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 749 IS ‘‘(A) IN GENERAL.—In the case of any 1 taxable year for which an election is made 2 under this paragraph— 3 ‘‘(i) paragraphs (1) and (2) shall not 4 apply, and 5 ‘‘(ii) the amount of the credit under 6 section 41(a) shall be the amount deter- 7 mined under subparagraph (B). 8 ‘‘(B) AMOUNT OF REDUCED CREDIT.—The 9 amount of credit determined under this sub- 10 paragraph for any taxable year shall be the 11 amount equal to the excess of— 12 ‘‘(i) the amount of credit determined 13 under section 41(a) without regard to this 14 paragraph, over 15 ‘‘(ii) the product of— 16 ‘‘(I) the amount described in 17 clause (i), and 18 ‘‘(II) the rate of tax under sec- 19 tion 11(b). 20 ‘‘(C) ELECTION.—An election under this 21 paragraph for any taxable year shall be made 22 not later than the time for filing the return of 23 tax for such year (including extensions), shall 24 be made on such return, and shall be made in 25 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 749 IS such manner as the Secretary may prescribe. 1 Such an election, once made, shall be irrev- 2 ocable. 3 ‘‘(4) CONTROLLED GROUPS.—Paragraph (3) of 4 subsection (b) shall apply for purposes of this sub- 5 section.’’. 6 (d) EFFECTIVE DATE.—The amendments made by 7 this section shall apply to amounts paid or incurred in tax- 8 able years beginning after December 31, 2021. 9 SEC. 3. EXPANDING REFUNDABLE RESEARCH CREDIT FOR 10 NEW AND SMALL BUSINESSES. 11 (a) INCREASING CAP ON REFUNDABLE CREDIT.— 12 (1) IN GENERAL.—Clause (i) of section 13 41(h)(4)(B) of the Internal Revenue Code of 1986 14 is amended by striking ‘‘$250,000’’ and inserting 15 ‘‘the applicable amount’’. 16 (2) APPLICABLE AMOUNT.—Section 17 41(h)(4)(B) of such Code is amended by adding at 18 the end the following new clause: 19 ‘‘(iii) APPLICABLE AMOUNT.—For 20 purposes of clause (i), the applicable 21 amount is— 22 ‘‘(I) in the case of any taxable 23 year beginning after December 31, 24 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 749 IS 2021, and before January 1, 2023, 1 $500,000, 2 ‘‘(II) in the case of any taxable 3 year beginning after December 31, 4 2022, and before January 1, 2024, 5 $525,000, 6 ‘‘(III) in the case of any taxable 7 year beginning after December 31, 8 2023, and before January 1, 2025, 9 $550,000, 10 ‘‘(IV) in the case of any taxable 11 year beginning after December 31, 12 2024, and before January 1, 2026, 13 $575,000, 14 ‘‘(V) in the case of any taxable 15 year beginning after December 31, 16 2025, and before January 1, 2027, 17 $600,000, 18 ‘‘(VI) in the case of any taxable 19 year beginning after December 31, 20 2026, and before January 1, 2028, 21 $625,000, 22 ‘‘(VII) in the case of any taxable 23 year beginning after December 31, 24 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 749 IS 2027, and before January 1, 2029, 1 $650,000, 2 ‘‘(VIII) in the case of any taxable 3 year beginning after December 31, 4 2028, and before January 1, 2030, 5 $675,000, 6 ‘‘(IX) in the case of any taxable 7 year beginning after December 31, 8 2029, and before January 1, 2031, 9 $700,000, 10 ‘‘(X) in the case of any taxable 11 year beginning after December 31, 12 2030, and before January 1, 2032, 13 $725,000, and 14 ‘‘(XI) in the case of any taxable 15 year beginning after December 31, 16 2031, $750,000.’’. 17 (3) CONFORMING AMENDMENT.—Clause (ii) of 18 section 41(h)(5)(B) of such Code is amended by 19 striking ‘‘the $250,000 amount’’ and inserting ‘‘the 20 applicable amount’’. 21 (b) EXTENSION OF ELIGIBILITY AND APPLICABILITY 22 OF ELECTION.— 23 (1) STARTUP DATE.—Subclause (II) of section 24 41(h)(3)(A)(i) of the Internal Revenue Code of 1986 25 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 749 IS is amended by striking ‘‘5-taxable-year period’’ and 1 inserting ‘‘8-taxable-year period’’. 2 (2) EXTENSION OF LIMITATION ON ELEC- 3 TION.—Clause (ii) of section 41(h)(4)(B) of such 4 Code is amended by striking ‘‘5 or more’’ and in- 5 serting ‘‘8 or more’’. 6 (c) GROSS RECEIPTS TEST.—Clause (i) of section 7 41(h)(3)(A) of the Internal Revenue Code of 1986 is 8 amended— 9 (1) by striking ‘‘$5,000,000’’ in subclause (I) 10 and inserting ‘‘$15,000,000’’, and 11 (2) by striking ‘‘gross receipts’’ in subclause 12 (II) and inserting ‘‘gross receipts in excess of 13 $25,000’’. 14 (d) EFFECTIVE DATE.—The amendments made by 15 this section shall apply to taxable years beginning after 16 December 31, 2021. 17 SEC. 4. INCREASING ACCESS TO THE RESEARCH CREDIT 18 FOR STARTUPS. 19 (a) IN GENERAL.—Paragraph (4) of section 41(c) of 20 the Internal Revenue Code of 1986 is amended by adding 21 at the end the following new subparagraph: 22 ‘‘(D) SPECIAL RULES FOR QUALIFIED 23 SMALL BUSINESSES.—In the case of a qualified 24 VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 749 IS small business (as defined in subsection 1 (h)(3))— 2 ‘‘(i) subparagraph (A) shall be applied 3 by substituting ‘20 percent’ for ‘14 per- 4 cent’, and 5 ‘‘(ii) if subparagraph (B) applies to 6 such taxpayer, at the election of the tax- 7 payer— 8 ‘‘(I) subparagraph (B)(ii) shall 9 be applied by substituting ‘10 percent’ 10 for ‘6 percent’, or 11 ‘‘(II) in lieu of applying subpara- 12 graph (B), the average under sub- 13 paragraph (A) shall be determined by 14 disregarding any taxable year in the 15 3-year period described in such sub- 16 paragraph in which there were no 17 qualified research expenses.’’. 18 (b) EFFECTIVE DATE.—The amendment made by 19 this section shall apply to taxable years beginning after 20 the date of the enactment of this Act. 21 Æ VerDate Sep 11 2014 18:18 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6301 E:\BILLS\S749.IS S749 pamtmann on DSKBC07HB2PROD with BILLS