American Innovation Act of 2020

I 116TH CONGRESS 2D SESSION H. R. 7505 To amend the Internal Revenue Code of 1986 to promote new business innovation, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JULY 9, 2020 Mr. BUCHANAN introduced the following bill; which was referred to the Com- mittee on Ways and Means, and in addition to the Committee on the Budget, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdic- tion of the committee concerned 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 2020’’. 5 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 7505 IH SEC. 2. SIMPLIFICATION AND EXPANSION OF DEDUCTION 1 FOR START-UP AND ORGANIZATIONAL EX- 2 PENDITURES. 3 (a) IN GENERAL.—Section 195 of the Internal Rev- 4 enue Code of 1986 is amended by redesignating sub- 5 sections (c) and (d) as subsections (d) and (e), respec- 6 tively, and by striking all that precedes subsection (d) (as 7 so redesignated) and inserting the following: 8 ‘‘SEC. 195. START-UP AND ORGANIZATIONAL EXPENDI- 9 TURES. 10 ‘‘(a) CAPITALIZATION OF EXPENDITURES.—Except 11 as otherwise provided in this section, no deduction shall 12 be allowed for start-up or organizational expenditures. 13 ‘‘(b) ELECTION TO DEDUCT.— 14 ‘‘(1) IN GENERAL.—If a taxpayer elects the ap- 15 plication of this subsection with respect to any active 16 trade or business— 17 ‘‘(A) the taxpayer shall be allowed a deduc- 18 tion for the taxable year in which such active 19 trade or business begins in an amount equal to 20 the lesser of— 21 ‘‘(i) the aggregate amount of start-up 22 and organizational expenditures paid or in- 23 curred in connection with such active trade 24 or business, or 25 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 7505 IH ‘‘(ii) $20,000, reduced (but not below 1 zero) by the amount by which such aggre- 2 gate amount exceeds $120,000, and 3 ‘‘(B) the remainder of such start-up and 4 organizational expenditures shall be charged to 5 capital account and allowed as an amortization 6 deduction determined by amortizing such ex- 7 penditures ratably over the 180-month period 8 beginning with the month in which the active 9 trade or business begins. 10 ‘‘(2) APPLICATION TO ORGANIZATIONAL EX- 11 PENDITURES.—In the case of organizational expend- 12 itures with respect to any corporation or partner- 13 ship, the active trade or business referred to in para- 14 graph (1) means the first active trade or business 15 carried on by such corporation or partnership. 16 ‘‘(3) INFLATION ADJUSTMENT.—In the case of 17 any taxable year beginning after December 31, 18 2020, the $20,000 and $120,000 amounts in para- 19 graph (1)(A)(ii) shall each be increased by an 20 amount equal to— 21 ‘‘(A) such dollar amount, multiplied by 22 ‘‘(B) the cost-of-living adjustment deter- 23 mined under section 1(f)(3) for the calendar 24 year in which the taxable year begins, deter- 25 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 7505 IH mined by substituting ‘calendar year 2019’ for 1 ‘calendar year 2016’ in subparagraph (A)(ii) 2 thereof. 3 If any amount as increased under the preceding sen- 4 tence is not a multiple of $1,000, such amount shall 5 be rounded to the nearest multiple of $1,000. 6 ‘‘(c) ALLOWANCE OF DEDUCTION UPON LIQUIDA- 7 TION OR DISPOSITION.— 8 ‘‘(1) LIQUIDATION OF PARTNERSHIP OR COR- 9 PORATION.—If any partnership or corporation is 10 completely liquidated by the taxpayer, any start-up 11 or organizational expenditures paid or incurred in 12 connection with such partnership or corporation 13 which were not allowed as a deduction by reason of 14 this section may be deducted to the extent allowable 15 under section 165. 16 ‘‘(2) DISPOSITION OF TRADE OR BUSINESS.—If 17 any trade or business is completely disposed of or 18 discontinued by the taxpayer, any start-up expendi- 19 tures paid or incurred in connection with such trade 20 or business which were not allowed as a deduction 21 by reason of this section (and not taken into account 22 in connection with a liquidation to which paragraph 23 (1) applies) may be deducted to the extent allowable 24 under section 165. For purposes of this paragraph, 25 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 7505 IH in the case of any deduction allowed under sub- 1 section (b)(1) with respect to both start-up and or- 2 ganizational expenditures, the amount treated as so 3 allowed with respect to start-up expenditures shall 4 bear the same ratio to such deduction as the start- 5 up expenditures taken into account in determining 6 such deduction bears to the aggregate of the start- 7 up and organizational expenditures so taken into ac- 8 count.’’. 9 (b) ORGANIZATIONAL EXPENDITURES.—Section 10 195(d) of such Code, as redesignated by subsection (a), 11 is amended by adding at the end the following new para- 12 graphs: 13 ‘‘(3) ORGANIZATIONAL EXPENDITURES.—The 14 term ‘organizational expenditures’ means any ex- 15 penditure which— 16 ‘‘(A) is incident to the creation of a cor- 17 poration or a partnership, 18 ‘‘(B) is chargeable to capital account, and 19 ‘‘(C) is of a character which, if expended 20 incident to the creation of a corporation or a 21 partnership having an ascertainable life, would 22 be amortizable over such life. 23 ‘‘(4) APPLICATION TO CERTAIN DISREGARDED 24 ENTITIES.—In the case of any entity with a single 25 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 7505 IH owner that is disregarded as an entity separate from 1 its owner, this section shall be applied in the same 2 manner as if such entity were a corporation.’’. 3 (c) ELECTION.—Section 195(e)(2) of such Code, as 4 redesignated by subsection (a), is amended to read as fol- 5 lows: 6 ‘‘(2) PARTNERSHIPS AND S CORPORATIONS.—In 7 the case of any partnership or S corporation, the 8 election under subsection (b) shall be made (and this 9 section shall be applied) at the entity level.’’. 10 (d) CONFORMING AMENDMENTS.— 11 (1)(A) Part VIII of subchapter B of chapter 1 12 is amended by striking section 248 of such Code 13 (and by striking the item relating to such section in 14 the table of sections of such part). 15 (B) Section 170(b)(2)(D)(ii) of such Code is 16 amended by striking ‘‘(except section 248)’’. 17 (C) Section 312(n)(3) of such Code is amended 18 by striking ‘‘Sections 173 and 248’’ and inserting 19 ‘‘Sections 173 and 195’’. 20 (D) Section 535(b)(3) of such Code is amended 21 by striking ‘‘(except section 248)’’. 22 (E) Section 545(b)(3) of such Code is amended 23 by striking ‘‘(except section 248)’’. 24 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 7505 IH (F) Section 545(b)(4) of such Code is amended 1 by striking ‘‘(except section 248)’’. 2 (G) Section 834(c)(7) of such Code is amended 3 by striking ‘‘(except section 248)’’. 4 (H) Section 852(b)(2)(C) of such Code is 5 amended by striking ‘‘(except section 248)’’. 6 (I) Section 857(b)(2)(A) of such Code is 7 amended by striking ‘‘(except section 248)’’. 8 (J) Section 1363(b) of such Code is amended 9 by adding ‘‘and’’ at the end of paragraph (2), by 10 striking paragraph (3), and by redesignating para- 11 graph (4) as paragraph (3). 12 (K) Section 1375(b)(1)(B)(i) of such Code is 13 amended by striking ‘‘(other than the deduction al- 14 lowed by section 248, relating to organization ex- 15 penditures)’’. 16 (2)(A) Section 709 of such Code is amended to 17 read as follows: 18 ‘‘SEC. 709. TREATMENT OF SYNDICATION FEES. 19 ‘‘No deduction shall be allowed under this chapter to 20 a partnership or to any partner of the partnership for any 21 amounts paid or incurred to promote the sale of (or to 22 sell) an interest in the partnership.’’. 23 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 7505 IH (B) The item relating to section 709 in the 1 table of sections for part I of subchapter K of chap- 2 ter 1 of such Code is amended to read as follows: 3 ‘‘Sec. 709. Treatment of syndication fees.’’. (3) Section 1202(e)(2)(A) of such Code is 4 amended by striking ‘‘section 195(c)(1)(A)’’ and in- 5 serting ‘‘section 195(d)(1)(A)’’. 6 (4) The item relating to section 195 in the table 7 of contents of part VI of subchapter B of chapter 1 8 of such Code is amended to read as follows: 9 ‘‘Sec. 195. Start-up and organizational expenditures.’’. (e) EFFECTIVE DATE.—The amendments made by 10 this section shall apply to expenditures paid or incurred 11 in connection with active trades or businesses which begin 12 in taxable years beginning after December 31, 2019. 13 SEC. 3. PRESERVATION OF START-UP NET OPERATING 14 LOSSES AND TAX CREDITS AFTER OWNER- 15 SHIP CHANGE. 16 (a) APPLICATION TO NET OPERATING LOSSES.— 17 Section 382(d) of the Internal Revenue Code of 1986 is 18 amended by adding at the end the following new para- 19 graph: 20 ‘‘(4) EXCEPTION FOR START-UP LOSSES.— 21 ‘‘(A) IN GENERAL.—In the case of any net 22 operating loss carryforward described in para- 23 graph (1)(A) which arose in a start-up period 24 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 7505 IH taxable year, the amount of such net operating 1 loss carryforward otherwise taken into account 2 under such paragraph shall be reduced by the 3 net start-up loss determined with respect to the 4 trade or business referred to in subparagraph 5 (B)(i) for such start-up period taxable year. 6 ‘‘(B) START-UP PERIOD TAXABLE YEAR.— 7 The term ‘start-up period taxable year’ means 8 any taxable year of the old loss corporation 9 which— 10 ‘‘(i) begins before the close of the 3- 11 year period beginning on the date on which 12 any trade or business of such corporation 13 begins as an active trade or business (as 14 determined under section 195(d)(2) with- 15 out regard to subparagraph (B) thereof), 16 and 17 ‘‘(ii) ends after May 31, 2020. 18 ‘‘(C) NET START-UP LOSS.— 19 ‘‘(i) IN GENERAL.—The term ‘net 20 start-up loss’ means, with respect to any 21 trade or business referred to in subpara- 22 graph (B)(i) for any start-up period tax- 23 able year, the amount which bears the 24 same ratio (but not greater than 1) to the 25 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 10 •HR 7505 IH net operating loss carryforward which 1 arose in such start-up period taxable year 2 as— 3 ‘‘(I) the net operating loss (if 4 any) which would have been deter- 5 mined for such start-up period taxable 6 year if only items of income, gain, de- 7 duction, and loss properly allocable to 8 such trade or business were taken into 9 account, bears to 10 ‘‘(II) the amount of the net oper- 11 ating loss determined for such start- 12 up period taxable year. 13 ‘‘(ii) SPECIAL RULE FOR LAST TAX- 14 ABLE YEAR IN START-UP PERIOD.—In the 15 case of any start-up period taxable year 16 which ends after the close of the 3-year pe- 17 riod described in subparagraph (B)(i) with 18 respect to any trade or business, the net 19 start-up loss with respect to such trade or 20 business for such start-up period taxable 21 year shall be the same proportion of such 22 loss (determined without regard to this 23 clause) as the proportion of such start-up 24 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 11 •HR 7505 IH period taxable year which is on or before 1 the last day of such period. 2 ‘‘(D) APPLICATION TO NET OPERATING 3 LOSS ARISING IN YEAR OF OWNERSHIP 4 CHANGE.—Subparagraph (A) shall apply to any 5 net operating loss described in paragraph 6 (1)(B) in the same manner as such subpara- 7 graph applies to net operating loss 8 carryforwards described in paragraph (1)(A), 9 but by only taking into account the amount of 10 such net operating loss (and the amount of the 11 net start-up loss) which is allocable under para- 12 graph (1)(B) to the period described in such 13 paragraph. Proper adjustment in the allocation 14 of the net start-up loss under the preceding 15 sentence shall be made in the case of a taxable 16 year to which subparagraph (C)(ii) applies. 17 ‘‘(E) APPLICATION TO TAXABLE YEARS 18 WHICH ARE START-UP PERIOD TAXABLE YEARS 19 WITH RESPECT TO MORE THAN 1 TRADE OR 20 BUSINESS.—In the case of any net operating 21 loss carryforward which arose in a taxable year 22 which is a start-up period taxable year with re- 23 spect to more than 1 trade or business— 24 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann on DSKBC07HB2PROD with BILLS 12 •HR 7505 IH ‘‘(i) this paragraph shall be applied 1 separately with respect to each such trade 2 or business, and 3 ‘‘(ii) the aggregate reductions under 4 subparagraph (A) shall not exceed such net 5 operating loss carryforward. 6 ‘‘(F) CONTINUITY OF BUSINESS REQUIRE- 7 MENT.—If the new loss corporation does not 8 continue the trade or business referred to in 9 subparagraph (B)(i) at all times during the 2- 10 year period beginning on the change date, this 11 paragraph shall not apply with respect to such 12 trade or business. 13 ‘‘(G) CERTAIN TITLE 11 OR SIMILAR 14 CASES.— 15 ‘‘(i) MULTIPLE OWNERSHIP 16 CHANGES.—In the case of a 2nd ownership 17 change to which subsection (l)(5)(D) ap- 18 plies, this paragraph shall not apply for 19 purposes of determining the pre-change 20 loss with respect to such 2nd ownership 21 change. 22 ‘‘(ii) CERTAIN INSOLVENCY TRANS- 23 ACTIONS.—If subsection (l)(6) applies for 24 purposes of determining the value of the 25 VerDate Sep 11 2014 18:59 Jul 28, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H7505.IH H7505 pamtmann o [Text truncated for display. 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