Federal

American Innovation and Jobs Act

Source: Congress.gov · 2,678 words in original text

What This Bill Does

This bill modifies federal tax rules to give businesses better tax treatment when they spend money on research and development. It makes research expenses easier to deduct from taxes immediately rather than spread over time, and it increases tax credits for small businesses and startups that do research.

Who It Affects

Taxpayers who conduct research or experimental work connected to their trade or business, particularly new businesses and small companies.

Key Provisions

• Businesses can immediately deduct research and experimental expenses as regular business expenses in the year they spend the money, rather than being required to spread the deduction over multiple years (Sec. 2(a)). • Businesses can choose instead to spread research expenses as deductions over a period of not less than 60 months if they prefer (Sec. 2(b)). • The refundable research credit cap increases from its previous amount, growing yearly from one level to another through specific years (Sec. 3(a)). • Small businesses with less than a certain amount of gross receipts can claim a refundable research credit even if they have no tax liability, and the period they remain eligible expands (Sec. 3(b)). • Qualified small businesses can use a higher percentage rate when calculating their research credit (Sec. 4(a)).

What Changes

If this bill becomes law, businesses can claim research expenses as immediate tax deductions rather than having to capitalize them (add them to the cost basis of assets). The refundable research credit available to qualifying small businesses increases in set increments over multiple years. Small businesses remain eligible for these credits for a longer period after starting their business.

Important Definitions

• Research or experimental expenditures: spending paid or incurred in connection with a taxpayer's trade or business related to research or experimentation (Sec. 2). • Qualified small business: a business meeting criteria defined in Section 41(h)(3) (Sec. 4(a)).

Effective Date

The amendments to research expense rules apply to amounts paid or incurred in taxable years beginning after December 31, 2021 (Sec. 2(d)). The amendments to the refundable research credit cap apply to taxable years beginning after December 31, 2022 (Sec. 3(d)). The amendments for startup access apply to taxable years beginning after the date of enactment (Sec. 4(b)).

II 118TH CONGRESS 1ST SESSION S. 866 To amend the Internal Revenue Code of 1986 to enhance tax benefits for research activities. IN THE SENATE OF THE UNITED STATES MARCH 16, 2023 Ms. HASSAN (for herself, Mr. YOUNG, Ms. CORTEZ MASTO, Mr. BARRASSO, Ms. SINEMA, Mr. TILLIS, Mrs. FEINSTEIN, Mr. DAINES, Mr. KELLY, Mr. HAGERTY, Mrs. MURRAY, Mr. MORAN, Mr. PETERS, and Mr. WICKER) 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 2 •S 866 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 3 •S 866 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 4 •S 866 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 5 •S 866 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 6 •S 866 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 7 •S 866 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 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 8 •S 866 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.—Subclause (I) of section 13 41(h)(4)(B)(i) of the Internal Revenue Code of 1986 14 is amended by striking ‘‘$250,000’’ and inserting 15 ‘‘the applicable amount’’. 16 (2) APPLICABLE AMOUNT.—Subclause (II) of 17 section 41(h)(4)(B)(i) of such Code is amended to 18 read as follows: 19 ‘‘(II) APPLICABLE AMOUNT.— 20 For purposes of subclause (I), the ap- 21 plicable amount is— 22 ‘‘(aa) in the case of any tax- 23 able year beginning after Decem- 24 VerDate Sep 11 2014 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 9 •S 866 IS ber 31, 2022, and before Janu- 1 ary 1, 2024, $500,000, 2 ‘‘(bb) in the case of any tax- 3 able year beginning after Decem- 4 ber 31, 2023, and before Janu- 5 ary 1, 2025, $525,000, 6 ‘‘(cc) in the case of any tax- 7 able year beginning after Decem- 8 ber 31, 2024, and before Janu- 9 ary 1, 2026, $550,000, 10 ‘‘(dd) in the case of any tax- 11 able year beginning after Decem- 12 ber 31, 2025, and before Janu- 13 ary 1, 2027, $575,000, 14 ‘‘(ee) in the case of any tax- 15 able year beginning after Decem- 16 ber 31, 2026, and before Janu- 17 ary 1, 2028, $600,000, 18 ‘‘(ff) in the case of any tax- 19 able year beginning after Decem- 20 ber 31, 2027, and before Janu- 21 ary 1, 2029, $625,000, 22 ‘‘(gg) in the case of any tax- 23 able year beginning after Decem- 24 VerDate Sep 11 2014 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 10 •S 866 IS ber 31, 2028, and before Janu- 1 ary 1, 2030, $650,000, 2 ‘‘(hh) in the case of any tax- 3 able year beginning after Decem- 4 ber 31, 2029, and before Janu- 5 ary 1, 2031, $675,000, 6 ‘‘(ii) in the case of any tax- 7 able year beginning after Decem- 8 ber 31, 2030, and before Janu- 9 ary 1, 2032, $700,000, 10 ‘‘(jj) in the case of any tax- 11 able year beginning after Decem- 12 ber 31, 2031, and before Janu- 13 ary 1, 2033, $725,000, and 14 ‘‘(kk) in the case of any tax- 15 able year beginning after Decem- 16 ber 31, 2032, $750,000.’’. 17 (3) CONFORMING AMENDMENTS.— 18 (A) Clause (ii) of section 41(h)(5)(B) of 19 such Code is amended by striking ‘‘each of the 20 $250,000 amounts’’ and inserting ‘‘the applica- 21 ble amount’’. 22 (B) Section 3111(f) of such Code is 23 amended— 24 (i) in paragraph (1)— 25 VerDate Sep 11 2014 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 11 •S 866 IS (I) by striking ‘‘(applied without 1 regard to subclause (II) thereof), 2 and’’ and inserting a period, 3 (II) by striking subparagraph 4 (B), and 5 (III) by striking ‘‘for a taxable 6 year’’ and all that follows through ‘‘al- 7 lowed as a credit’’ and inserting ‘‘for 8 a taxable year, there shall be allowed 9 as a credit’’, 10 (ii) in paragraph (2)— 11 (I) by striking ‘‘paragraph 12 (1)(A)’’ and inserting ‘‘paragraph 13 (1)’’, and 14 (II) by striking ‘‘, and the credit 15 allowed by paragraph (1)(B) shall not 16 exceed the tax imposed by subsection 17 (b) for any calendar quarter,’’, and 18 (iii) in paragraph (4)— 19 (I) by striking ‘‘credits’’ and in- 20 serting ‘‘credit’’, and 21 (II) by striking ‘‘or (b)’’. 22 (b) EXTENSION OF ELIGIBILITY AND APPLICABILITY 23 OF ELECTION.— 24 VerDate Sep 11 2014 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 12 •S 866 IS (1) STARTUP DATE.—Subclause (II) of section 1 41(h)(3)(A)(i) of the Internal Revenue Code of 1986 2 is amended by striking ‘‘5-taxable-year period’’ and 3 inserting ‘‘8-taxable-year period’’. 4 (2) EXTENSION OF LIMITATION ON ELEC- 5 TION.—Clause (ii) of section 41(h)(4)(B) of such 6 Code is amended by striking ‘‘5 or more’’ and in- 7 serting ‘‘8 or more’’. 8 (c) GROSS RECEIPTS TEST.—Clause (i) of section 9 41(h)(3)(A) of the Internal Revenue Code of 1986 is 10 amended— 11 (1) by striking ‘‘$5,000,000’’ in subclause (I) 12 and inserting ‘‘$15,000,000’’, and 13 (2) by striking ‘‘gross receipts’’ in subclause 14 (II) and inserting ‘‘gross receipts in excess of 15 $25,000’’. 16 (d) EFFECTIVE DATE.—The amendments made by 17 this section shall apply to taxable years beginning after 18 December 31, 2022. 19 SEC. 4. INCREASING ACCESS TO THE RESEARCH CREDIT 20 FOR STARTUPS. 21 (a) IN GENERAL.—Paragraph (4) of section 41(c) of 22 the Internal Revenue Code of 1986 is amended by adding 23 at the end the following new subparagraph: 24 VerDate Sep 11 2014 07:20 Mar 28, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S866.IS S866 kjohnson on DSK79L0C42PROD with BILLS 13 •S 866 IS ‘‘(D) SPECIAL RULES FOR QUALIFIED 1 SMALL BUSINESSES.—In the case of a qualified 2 small business (as defined in subsection 3 (h)(3))— 4 ‘‘(i) subparagraph (A) shall be applied 5 by substituting ‘20 percent’ for ‘14 per- 6 cent’, and 7 ‘‘(ii) if subparagraph (B) applies to 8 such taxpayer, at the election of the tax- 9 payer— 10 ‘‘(I) subparagraph (B)(ii) shall 11 be applied by substituting ‘10 percent’ 12 for ‘6 percent’, or 13 ‘‘(II) in lieu of applying subpara- 14 graph (B), the average under sub- 15 paragraph (A) s [Text truncated for display. Full text available on Congress.gov.]

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