What This Bill Does
This bill changes the tax rules for startup and organizational costs so new businesses can deduct more of these expenses immediately. It also protects certain losses and tax credits when companies change ownership during their early years.
##
Who It Affects
Startup businesses and new business owners claiming startup or organizational expenses. Corporations and partnerships that experience ownership changes during early business years. Tax professionals and accountants calculating business deductions.
##
Key Provisions
- Businesses can deduct up to a certain amount of startup and organizational costs in the year their business begins, with leftover costs spread over a 15-year period (Sec. 2(a))
- The deductible amount is the smaller of all startup costs or a fixed threshold amount, reduced if total costs exceed a higher threshold amount (Sec. 2(a))
- These fixed threshold amounts increase each year after 2023 based on inflation (cost of living increases) (Sec. 2(a))
- Startup losses that occur during the first three years of business are protected from certain ownership change restrictions that would normally limit them (Sec. 3(a))
- Similar protections apply to certain tax credits (like the general business credit) arising during a startup period (Sec. 3(b))
##
What Changes
The law replaces an old tax rule (Section 248) with a simplified approach that lets businesses immediately deduct more early costs. New companies no longer have to wait 15 years to deduct all startup expenses. When a company changes ownership, losses and credits earned during the startup phase are no longer reduced by standard ownership change restrictions.
##
Important Definitions
- **Start-up expenditures**: Costs paid to begin a new business before it actively operates (Sec. 2(b))
- **Organizational expenditures**: Costs to create a new corporation or partnership that would normally be capitalized (spread over time) if the business had a measurable lifespan (Sec. 2(b))
- **Start-up period taxable year**: Any tax year occurring within the first three years of an active trade or business that also ends after January 31, 2023 (Sec. 3(a))
- **Active trade or business**: Not specified in bill text
##
Effective Date
Applies to startup and organizational costs paid for businesses beginning after December 31, 2022 (Sec. 2(e)). The preservation of startup losses and credits applies to tax years ending after January 31, 2023 (Sec. 3(c)).
I
118TH CONGRESS
1ST SESSION
H. R. 368
To amend the Internal Revenue Code of 1986 to promote new business
innovation, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 13, 2023
Mr. BUCHANAN introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to promote
new business innovation, and for other purposes.
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
Act of 2023’’.
5
SEC. 2. SIMPLIFICATION AND EXPANSION OF DEDUCTION
6
FOR START-UP AND ORGANIZATIONAL EX-
7
PENDITURES.
8
(a) IN GENERAL.—Section 195 of the Internal Rev-
9
enue Code of 1986 is amended by redesignating sub-
10
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•HR 368 IH
sections (c) and (d) as subsections (d) and (e), respec-
1
tively, and by striking all that precedes subsection (d) (as
2
so redesignated) and inserting the following:
3
‘‘SEC. 195. START-UP AND ORGANIZATIONAL EXPENDI-
4
TURES.
5
‘‘(a) CAPITALIZATION OF EXPENDITURES.—Except
6
as otherwise provided in this section, no deduction shall
7
be allowed for start-up or organizational expenditures.
8
‘‘(b) ELECTION TO DEDUCT.—
9
‘‘(1) IN GENERAL.—If a taxpayer elects the ap-
10
plication of this subsection with respect to any active
11
trade or business—
12
‘‘(A) the taxpayer shall be allowed a deduc-
13
tion for the taxable year in which such active
14
trade or business begins in an amount equal to
15
the lesser of—
16
‘‘(i) the aggregate amount of start-up
17
and organizational expenditures paid or in-
18
curred in connection with such active trade
19
or business, or
20
‘‘(ii) $20,000, reduced (but not below
21
zero) by the amount by which such aggre-
22
gate amount exceeds $120,000, and
23
‘‘(B) the remainder of such start-up and
24
organizational expenditures shall be charged to
25
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•HR 368 IH
capital account and allowed as an amortization
1
deduction determined by amortizing such ex-
2
penditures ratably over the 180-month period
3
beginning with the month in which the active
4
trade or business begins.
5
‘‘(2) APPLICATION
TO
ORGANIZATIONAL
EX-
6
PENDITURES.—In the case of organizational expend-
7
itures with respect to any corporation or partner-
8
ship, the active trade or business referred to in para-
9
graph (1) means the first active trade or business
10
carried on by such corporation or partnership.
11
‘‘(3) INFLATION ADJUSTMENT.—In the case of
12
any taxable year beginning after December 31,
13
2023, the $20,000 and $120,000 amounts in para-
14
graph (1)(A)(ii) shall each be increased by an
15
amount equal to—
16
‘‘(A) such dollar amount, multiplied by
17
‘‘(B) the cost-of-living adjustment deter-
18
mined under section 1(f)(3) for the calendar
19
year in which the taxable year begins, deter-
20
mined by substituting ‘calendar year 2022’ for
21
‘calendar year 2016’ in subparagraph (A)(ii)
22
thereof.
23
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•HR 368 IH
If any amount as increased under the preceding sen-
1
tence is not a multiple of $1,000, such amount shall
2
be rounded to the nearest multiple of $1,000.
3
‘‘(c) ALLOWANCE OF DEDUCTION UPON LIQUIDA-
4
TION OR DISPOSITION.—
5
‘‘(1) LIQUIDATION OF PARTNERSHIP OR COR-
6
PORATION.—If any partnership or corporation is
7
completely liquidated by the taxpayer, any start-up
8
or organizational expenditures paid or incurred in
9
connection with such partnership or corporation
10
which were not allowed as a deduction by reason of
11
this section may be deducted to the extent allowable
12
under section 165.
13
‘‘(2) DISPOSITION OF TRADE OR BUSINESS.—If
14
any trade or business is completely disposed of or
15
discontinued by the taxpayer, any start-up expendi-
16
tures paid or incurred in connection with such trade
17
or business which were not allowed as a deduction
18
by reason of this section (and not taken into account
19
in connection with a liquidation to which paragraph
20
(1) applies) may be deducted to the extent allowable
21
under section 165. For purposes of this paragraph,
22
in the case of any deduction allowed under sub-
23
section (b)(1) with respect to both start-up and or-
24
ganizational expenditures, the amount treated as so
25
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•HR 368 IH
allowed with respect to start-up expenditures shall
1
bear the same ratio to such deduction as the start-
2
up expenditures taken into account in determining
3
such deduction bears to the aggregate of the start-
4
up and organizational expenditures so taken into ac-
5
count.’’.
6
(b)
ORGANIZATIONAL
EXPENDITURES.—Section
7
195(d) of such Code, as redesignated by subsection (a),
8
is amended by adding at the end the following new para-
9
graphs:
10
‘‘(3) ORGANIZATIONAL
EXPENDITURES.—The
11
term ‘organizational expenditures’ means any ex-
12
penditure which—
13
‘‘(A) is incident to the creation of a cor-
14
poration or a partnership,
15
‘‘(B) is chargeable to capital account, and
16
‘‘(C) is of a character which, if expended
17
incident to the creation of a corporation or a
18
partnership having an ascertainable life, would
19
be amortizable over such life.
20
‘‘(4) APPLICATION TO CERTAIN DISREGARDED
21
ENTITIES.—In the case of any entity with a single
22
owner that is disregarded as an entity separate from
23
its owner, this section shall be applied in the same
24
manner as if such entity were a corporation.’’.
25
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•HR 368 IH
(c) ELECTION.—Section 195(e)(2) of such Code, as
1
redesignated by subsection (a), is amended to read as fol-
2
lows:
3
‘‘(2) PARTNERSHIPS AND S CORPORATIONS.—In
4
the case of any partnership or S corporation, the
5
election under subsection (b) shall be made (and this
6
section shall be applied) at the entity level.’’.
7
(d) CONFORMING AMENDMENTS.—
8
(1)(A) Part VIII of subchapter B of chapter 1
9
is amended by striking section 248 of such Code
10
(and by striking the item relating to such section in
11
the table of sections of such part).
12
(B) Section 170(b)(2)(D)(ii) of such Code is
13
amended by striking ‘‘(except section 248)’’.
14
(C) Section 312(n)(3) of such Code is amended
15
by striking ‘‘Sections 173 and 248’’ and inserting
16
‘‘Sections 173 and 195’’.
17
(D) Section 535(b)(3) of such Code is amended
18
by striking ‘‘(except section 248)’’.
19
(E) Section 545(b)(3) of such Code is amended
20
by striking ‘‘(except section 248)’’.
21
(F) Section 545(b)(4) of such Code is amended
22
by striking ‘‘(except section 248)’’.
23
(G) Section 834(c)(7) of such Code is amended
24
by striking ‘‘(except section 248)’’.
25
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•HR 368 IH
(H) Section 852(b)(2)(C) of such Code is
1
amended by striking ‘‘(except section 248)’’.
2
(I) Section 857(b)(2)(A) of such Code is
3
amended by striking ‘‘(except section 248)’’.
4
(J) Section 1363(b) of such Code is amended
5
by adding ‘‘and’’ at the end of paragraph (2), by
6
striking paragraph (3), and by redesignating para-
7
graph (4) as paragraph (3).
8
(K) Section 1375(b)(1)(B)(i) of such Code is
9
amended by striking ‘‘(other than the deduction al-
10
lowed by section 248, relating to organization ex-
11
penditures)’’.
12
(2)(A) Section 709 of such Code is amended to
13
read as follows:
14
‘‘SEC. 709. TREATMENT OF SYNDICATION FEES.
15
‘‘No deduction shall be allowed under this chapter to
16
a partnership or to any partner of the partnership for any
17
amounts paid or incurred to promote the sale of (or to
18
sell) an interest in the partnership.’’.
19
(B) The item relating to section 709 in the
20
table of sections for part I of subchapter K of chap-
21
ter 1 of such Code is amended to read as follows:
22
‘‘Sec. 709. Treatment of syndication fees.’’.
(3) Section 1202(e)(2)(A) of such Code is
23
amended by striking ‘‘section 195(c)(1)(A)’’ and in-
24
serting ‘‘section 195(d)(1)(A)’’.
25
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•HR 368 IH
(4) The item relating to section 195 in the table
1
of contents of part VI of subchapter B of chapter 1
2
of such Code is amended to read as follows:
3
‘‘Sec. 195. Start-up and organizational expenditures.’’.
(e) EFFECTIVE DATE.—The amendments made by
4
this section shall apply to expenditures paid or incurred
5
in connection with active trades or businesses which begin
6
in taxable years beginning after December 31, 2022.
7
SEC. 3. PRESERVATION OF START-UP NET OPERATING
8
LOSSES AND TAX CREDITS AFTER OWNER-
9
SHIP CHANGE.
10
(a) APPLICATION TO NET OPERATING LOSSES.—
11
Section 382(d) of the Internal Revenue Code of 1986 is
12
amended by adding at the end the following new para-
13
graph:
14
‘‘(4) EXCEPTION FOR START-UP LOSSES.—
15
‘‘(A) IN GENERAL.—In the case of any net
16
operating loss carryforward described in para-
17
graph (1)(A) which arose in a start-up period
18
taxable year, the amount of such net operating
19
loss carryforward otherwise taken into account
20
under such paragraph shall be reduced by the
21
net start-up loss determined with respect to the
22
trade or business referred to in subparagraph
23
(B)(i) for such start-up period taxable year.
24
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•HR 368 IH
‘‘(B) START-UP PERIOD TAXABLE YEAR.—
1
The term ‘start-up period taxable year’ means
2
any taxable year of the old loss corporation
3
which—
4
‘‘(i) begins before the close of the 3-
5
year period beginning on the date on which
6
any trade or business of such corporation
7
begins as an active trade or business (as
8
determined under section 195(d)(2) with-
9
out regard to subparagraph (B) thereof),
10
and
11
‘‘(ii) ends after January 31, 2023.
12
‘‘(C) NET START-UP LOSS.—
13
‘‘(i) IN
GENERAL.—The term ‘net
14
start-up loss’ means, with respect to any
15
trade or business referred to in subpara-
16
graph (B)(i) for any start-up period tax-
17
able year, the amount which bears the
18
same ratio (but not greater than 1) to the
19
net operating loss carryforward which
20
arose in such start-up period taxable year
21
as—
22
‘‘(I) the net operating loss (if
23
any) which would have been deter-
24
mined for such start-up period taxable
25
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•HR 368 IH
year if only items of income, gain, de-
1
duction, and loss properly allocable to
2
such trade or business were taken into
3
account, bears to
4
‘‘(II) the amount of the net oper-
5
ating loss determined for such start-
6
up period taxable year.
7
‘‘(ii) SPECIAL RULE FOR LAST TAX-
8
ABLE YEAR IN START-UP PERIOD.—In the
9
case of any start-up period taxable year
10
which ends after the close of the 3-year pe-
11
riod described in subparagraph (B)(i) with
12
respect to any trade or business, the net
13
start-up loss with respect to such trade or
14
business for such start-up period taxable
15
year shall be the same proportion of such
16
loss (determined without regard to this
17
clause) as the proportion of such start-up
18
period taxable year which is on or before
19
the last day of such period.
20
‘‘(D) APPLICATION
TO
NET
OPERATING
21
LOSS
ARISING
IN
YEAR
OF
OWNERSHIP
22
CHANGE.—Subparagraph (A) shall apply to any
23
net operating loss described in paragraph
24
(1)(B) in the same manner as such subpara-
25
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•HR 368 IH
graph
applies
to
net
operating
loss
1
carryforwards described in paragraph (1)(A),
2
but by only taking into account the amount of
3
such net operating loss (and the amount of the
4
net start-up loss) which is allocable under para-
5
graph (1)(B) to the period described in such
6
paragraph. Proper adjustment in the allocation
7
of the net start-up loss under the preceding
8
sentence shall be made in the case of a taxable
9
year to which subparagraph (C)(ii) applies.
10
‘‘(E) APPLICATION
TO
TAXABLE
YEARS
11
WHICH ARE START-UP PERIOD TAXABLE YEARS
12
WITH RESPECT TO MORE THAN 1 TRADE OR
13
BUSINESS.—In the case of any net operating
14
loss carryforward which arose in a taxable year
15
which is a start-up period taxable year with re-
16
spect to more than 1 trade or business—
17
‘‘(i) this paragraph shall be applied
18
separately with respect to each such trade
19
or business, and
20
‘‘(ii) the aggregate reductions under
21
subparagraph (A) shall not exceed such net
22
operating loss carryforward.
23
‘‘(F) CONTINUITY OF BUSINESS REQUIRE-
24
MENT.—If the new loss corporation does not
25
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•HR 368 IH
continue the trade or business referred to in
1
subparagraph (B)(i) at all times during the 2-
2
year period beginning on the change date, this
3
paragraph shall not apply with respect to such
4
trade or business.
5
‘‘(G) CERTAIN
TITLE
11
OR
SIMILAR
6
CASES.—
7
‘‘(i)
MULTIPLE
OWNERSHIP
8
CHANGES.—In the case of a 2nd ownership
9
change to which subsection (l)(5)(D) ap-
10
plies, this paragraph shall not apply for
11
purposes of determining the pre-change
12
loss with respect to such 2nd ownership
13
change.
14
‘‘(ii) CERTAIN
INSOLVENCY
TRANS-
15
ACTIONS.—If subsection (l)(6) applies for
16
purposes of determining the value of the
17
old loss corporation under subsection (e),
18
this paragraph shall not apply.
19
‘‘(H) NOT
APPLICABLE
TO
DISALLOWED
20
INTEREST.—This paragraph shall not apply for
21
purposes of applying the rules of paragraph (1)
22
to the carryover of disallowed interest under
23
paragraph (3).
24
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