FORWARD Act

II 116TH CONGRESS 2D SESSION S. 3593 To amend the Internal Revenue Code of 1986 to expand and modify the credit for increasing research activities, and for other purposes. IN THE SENATE OF THE UNITED STATES MAY 4, 2020 Mr. COONS (for himself, Mr. ROBERTS, Ms. CORTEZ MASTO, Mr. YOUNG, Ms. HASSAN, and Mr. DAINES) 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 expand and modify the credit for increasing research activities, 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 ‘‘Furthering Our Recov- 4 ery With American Research & Development Act’’ or the 5 ‘‘FORWARD Act’’. 6 SEC. 2. TREATMENT OF CREDIT FOR QUALIFIED SMALL 7 BUSINESSES. 8 (a) GROSS RECEIPTS TEST.— 9 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 3593 IS (1) IN GENERAL.—Clause (i) of section 1 41(h)(3)(A) of the Internal Revenue Code of 1986 2 is amended— 3 (A) by striking ‘‘$5,000,000’’ in subclause 4 (I) and inserting ‘‘$20,000,000’’, and 5 (B) by striking ‘‘gross receipts’’ in sub- 6 clause (II) and inserting ‘‘gross receipts in ex- 7 cess of $25,000’’. 8 (2) DEFINITION OF GROSS RECEIPTS.— 9 (A) IN GENERAL.—Clause (i) of section 10 41(h)(3)(A)(i) of such Code, as amended by 11 paragraph (1), is further amended— 12 (i) by striking ‘‘(as determined under 13 the rules of section 448(c)(3), without re- 14 gard to subparagraph (A) thereof)’’ in sub- 15 clause (I), and 16 (ii) by striking ‘‘(as so determined)’’ 17 in subclause (II). 18 (B) DEFINITION.—Subparagraph (A) of 19 section 41(h)(3) of such Code, as so amended, 20 is further amended by adding at the end the 21 following flush sentence: 22 ‘‘For purposes of the preceding sentence, gross 23 receipts shall be determined under the rules of 24 section 448(c)(3) without regard to subpara- 25 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 3593 IS graph (A) thereof, except that such term shall 1 not include any contributions to the capital of 2 a corporation (other than contributions by a 3 shareholder) or any amount described in section 4 118(b) (other than receipts from customers in 5 exchange for goods or services).’’. 6 (b) STARTUP DATE.—Subclause (II) of section 7 41(h)(3)(A)(i) of the Internal Revenue Code of 1986 is 8 amended by striking ‘‘5-taxable-year period’’ and inserting 9 ‘‘8-taxable-year period’’. 10 (c) LIMITATION ON ELECTION AMOUNT.—Clause (i) 11 of section 41(h)(4)(B) of the Internal Revenue Code of 12 1986 is amended by striking ‘‘$250,000’’ and inserting 13 ‘‘$1,000,000’’. 14 (d) LIMITATION ON ELECTION.—Clause (ii) of sec- 15 tion 41(h)(4)(B) of the Internal Revenue Code of 1986 16 is amended by striking ‘‘5 or more’’ and inserting ‘‘8 or 17 more’’. 18 (e) PAYROLL TAX CREDIT PORTION.—Paragraph (2) 19 of section 41(h) of the Internal Revenue Code of 1986 20 is amended— 21 (1) by striking subparagraph (C), 22 (2) by adding ‘‘or’’ at the end of subparagraph 23 (A), and 24 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 3593 IS (3) by striking ‘‘, or’’ at the end of subpara- 1 graph (B) and inserting a period. 2 (f) EFFECTIVE DATE.—The amendments made by 3 this section shall apply to taxable years beginning after 4 December 31, 2019. 5 SEC. 3. INCLUSION OF EMPLOYEE TRAINING EXPENSES. 6 (a) IN GENERAL.—Paragraph (1) of section 41(b) of 7 the Internal Revenue Code of 1986 is amended— 8 (1) by striking ‘‘and’’ at the end of subpara- 9 graph (A), 10 (2) by striking the period at the end of sub- 11 paragraph (B) and inserting ‘‘, and’’, and 12 (3) by adding at the end the following new sub- 13 paragraph: 14 ‘‘(C) employee training expenses.’’. 15 (b) EMPLOYEE TRAINING EXPENSES.—Subsection 16 (b) of section 41 of the Internal Revenue Code of 1986 17 is amended— 18 (1) by redesignating paragraph (4) as para- 19 graph (5), and 20 (2) by inserting after paragraph (3) the fol- 21 lowing new paragraph: 22 ‘‘(4) EMPLOYEE TRAINING EXPENSES.— 23 ‘‘(A) IN GENERAL.—The term ‘employee 24 training expenses’ means any wages paid or in- 25 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 3593 IS curred to an employee in connection with train- 1 ing for the employee to perform qualified serv- 2 ices described in clause (i) or (ii) of paragraph 3 (2)(B). Such term does not include wages paid 4 or incurred in connection with general employer 5 training which does not specifically pertain to 6 such qualified services. 7 ‘‘(B) WAGES, ETC.—For purposes of this 8 paragraph— 9 ‘‘(i) IN GENERAL.—The term ‘wages’ 10 shall not include any amount taken into 11 account under paragraph (2)(A)(i). 12 ‘‘(ii) RULES.—The rules of paragraph 13 (2)(D) shall apply.’’. 14 (c) EFFECTIVE DATE.—The amendments made by 15 this section shall apply to expenses paid or incurred in 16 taxable years beginning after December 31, 2019. 17 SEC. 4. INCREASED CREDIT RATE FOR CERTAIN RESEARCH 18 ACTIVITIES. 19 (a) IN GENERAL.—Section 41 of the Internal Rev- 20 enue Code of 1986 is amended by adding at the end the 21 following new subsection: 22 ‘‘(i) SPECIAL RULES FOR CERTAIN HIGH-BENEFIT 23 RESEARCH ACTIVITIES.— 24 ‘‘(1) CERTAIN COLLABORATIVE RESEARCH.— 25 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 3593 IS ‘‘(A) IN GENERAL.—In the case of any 1 qualified research expenses described in sub- 2 paragraph (B), as applicable— 3 ‘‘(i) subsection (a)(1) shall be applied 4 by substituting ‘25 percent’ for ‘20 per- 5 cent’, 6 ‘‘(ii) subsection (c)(4)(A) shall be ap- 7 plied by substituting ‘17.5 percent’ for ‘14 8 percent’, and 9 ‘‘(iii) subsection (c)(4)(B)(ii) shall be 10 applied by substituting ‘7.5 percent’ for ‘6 11 percent’. 12 ‘‘(B) EXPENSES DESCRIBED.— 13 ‘‘(i) IN GENERAL.—Qualified research 14 expenses described in this subparagraph 15 are qualified research expenses incurred by 16 the taxpayer with respect to qualified re- 17 search in collaboration with 1 or more 18 other entities, which may include a quali- 19 fied organization described in subpara- 20 graph (A), (B), or (C) of subsection (e)(6), 21 an organization which is a Federal labora- 22 tory (within the meaning of subsection 23 (b)(3)(D)(i)(III)), or a qualified research 24 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 3593 IS consortium (as defined in subsection 1 (b)(3)(C)(ii)). 2 ‘‘(ii) CONTRIBUTION REQUIRE- 3 MENT.—A collaboration shall be taken into 4 account under clause (i) only if each entity 5 involved in the collaboration provides or 6 performs more than 1⁄2 of its pro rata 7 share of the work hours for the research. 8 ‘‘(2) RESEARCH BY UNITED STATES MANUFAC- 9 TURERS.— 10 ‘‘(A) IN GENERAL.—In the case of a quali- 11 fied domestic manufacturer, this section shall 12 be applied— 13 ‘‘(i) by increasing the 20 percent 14 amount in subsection (a)(1) by the bonus 15 amount, 16 ‘‘(ii) by increasing the 14 percent 17 amount under subsection (c)(4)(A) by the 18 alternative simplified bonus amount, and 19 ‘‘(iii) by increasing the 6 percent 20 amount under subsection (c)(4)(B)(ii) by 21 the subsection (c)(4)(B) bonus amount. 22 ‘‘(B) QUALIFIED DOMESTIC MANUFAC- 23 TURER.—For purposes of this subsection— 24 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 3593 IS ‘‘(i) IN GENERAL.—The term ‘quali- 1 fied domestic manufacturer’ means a tax- 2 payer who has domestic production gross 3 receipts which are more than 50 percent of 4 total gross receipts. 5 ‘‘(ii) DOMESTIC PRODUCTION GROSS 6 RECEIPTS.—The term ‘domestic production 7 gross receipts’ has the meaning given to 8 such term under section 199(c)(4) (as in 9 effect on December 31, 2017). 10 ‘‘(C) BONUS AMOUNT; ALTERNATIVE SIM- 11 PLIFIED BONUS AMOUNT; SUBSECTION 12 (c)(4)(B) AMOUNT.—For purposes of subpara- 13 graph (A): 14 ‘‘If the percentage of total gross receipts which are domestic production gross re- ceipts is: The bonus amount is the fol- lowing number of per- centage points: The alter- native sim- plified bonus amount is the fol- lowing number of percentage points: The sub- section (c)(4)(B) bonus amount is the following number of percentage points: More than 50% but not more than 60% ................ 1 0.7 0.3 More than 60% but not more than 70% ................ 2 1.4 0.6 More than 70% but not more than 80% ................ 3 2.1 0.9 More than 80% but not more than 90% ................ 4 2.8 1.2 More than 90% ................... 5 3.5 1.5.’’. VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 3593 IS (b) EFFECTIVE DATE.—The amendments made by 1 this section shall apply to taxable years beginning after 2 December 31, 2020. 3 SEC. 5. TRANSFERS TO FEDERAL OLD-AGE AND SURVIVORS 4 INSURANCE TRUST FUND. 5 There are hereby appropriated to the Federal Old- 6 Age and Survivors Trust Fund and the Federal Disability 7 Insurance Trust Fund established under section 201 of 8 the Social Security Act (42 U.S.C. 401) amounts equal 9 to the reduction in revenues to the Treasury from the 10 taxes under section 3111(a) of the Internal Revenue Code 11 of 1986 by reason of the amendments made by sections 12 2, 3, and 4. Amounts appropriated by the preceding sen- 13 tence shall be transferred from the general fund at such 14 times and in such manner as to replicate to the extent 15 possible the transfers which would have occurred to such 16 Trust Fund had such amendments not been enacted. 17 SEC. 6. SUPPORT FOR SMALL BUSINESS RESEARCH AND 18 DEVELOPMENT. 19 (a) DEFINITIONS.—In this section— 20 (1) the term ‘‘Administrator’’ means the Ad- 21 ministrator of the Small Business Administration; 22 (2) the term ‘‘Commissioner’’ means the Com- 23 missioner of Internal Revenue; 24 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 3593 IS (3) the term ‘‘small business concern’’ has the 1 meaning given the term in section 3(a) of the Small 2 Business Act (15 U.S.C. 632(a)); and 3 (4) the term ‘‘small business development cen- 4 ter’’ means a small business development center de- 5 scribed in section 21 of the Small Business Act (15 6 U.S.C. 648). 7 (b) IRS AND SBA PARTNERSHIPS.—Beginning not 8 later than 180 days after the date of enactment of this 9 Act, the Commissioner, in consultation with the Adminis- 10 trator, shall develop partnership agreements that— 11 (1) provide for the development of— 12 (A) basic training, including in-person or 13 modular training sessions, relating to Federal 14 income tax credits that benefit small business 15 concerns and startups, especially credits for re- 16 search and experimentation; and 17 (B) informational materials relating to 18 such credits, including Internal Revenue Service 19 guidance documents; 20 (2) provide the basic training and informational 21 materials developed under paragraph (1)— 22 (A) through electronic resources, including 23 internet-based webinars; and 24 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 3593 IS (B) at physical locations, including small 1 business development centers; and 2 (3) make such materials available to— 3 (A) business development programs admin- 4 istered by the Small Business Administration, 5 including women’s business centers, Veteran 6 Business Outreach Centers, and U.S. Export 7 Assistance Centers, and nonprofit research 8 partners such as the Service Corps of Retired 9 Executives authorized under section 8(b)(1)(B) 10 of the Small Business Act (15 U.S.C. 11 637(b)(1)(B)); and 12 (B) business development entities that 13 partner with Small Business Administration 14 programs, including universities, nonprofits, 15 business incubators, and business accelerators. 16 (c) REPORTING REQUIREMENT.—Not later than 180 17 days after the date of enactment of this Act, the Commis- 18 sioner, in consultation with the Administrator, shall sub- 19 mit to Congress a report describing how the Internal Rev- 20 enue Service in partnership with the Small Business Ad- 21 ministration will provide outreach and educational mate- 22 rials to small business concerns, businesses of medium 23 size, and startups regarding section 41(h) of the Internal 24 Revenue Code of 1986. 25 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 3593 IS (d) SMALL BUSINESS DEVELOPMENT CENTERS.— 1 Section 21(c)(3) of the Small Business Act (15 U.S.C. 2 648(c)(3)) is amended— 3 (1) in subparagraph (T), by striking ‘‘and’’ at 4 the end; 5 (2) in the first subparagraph (U) (relating to 6 encouraging and assisting the provision of succession 7 planning), by striking the period at the end of clause 8 (v) and inserting a semicolon; 9 (3) in the second subparagraph (U) (relating to 10 providing training in conjunction with the United 11 States Patent and Trademark Office)— 12 (A) by redesignating that subparagraph as 13 subparagraph (V); and 14 (B) in clause (ii)(II), by striking the period 15 at the end and inserting ‘‘; and’’; and 16 (4) by adding at the end the following: 17 ‘‘(W) in conjunction with the Internal Rev- 18 enue Service, providing informational materials, 19 education, and basic training— 20 ‘‘(i) to small business concerns relat- 21 ing to Federal income tax credits available 22 under the Internal Revenue Code of 1986, 23 including— 24 VerDate Sep 11 2014 02:04 May 05, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S3593.IS S3593 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 3593 IS ‘‘(I) credits available to busi- 1 nesses generally; and 2 ‘‘(II) credits available to small 3 business concerns and startups spe- 4 cifically, especially credits for research 5 and experimentat [Text truncated for display. 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