Infectious Disease Therapies Research and Innovation Act of 2020

I 116TH CONGRESS 2D SESSION H. R. 7537 To amend the Internal Revenue Code of 1986 to provide an exception from the passive loss rules for investments in specified medical research small business pass-thru entities. IN THE HOUSE OF REPRESENTATIVES JULY 9, 2020 Mr. KELLY of Pennsylvania 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 provide an exception from the passive loss rules for investments in specified medical research small business pass-thru entities. 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 ‘‘Infectious Disease 4 Therapies Research and Innovation Act of 2020’’. 5 VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 7537 IH SEC. 2. EXCEPTION FROM PASSIVE LOSS RULES FOR IN- 1 VESTMENTS IN SPECIFIED MEDICAL RE- 2 SEARCH SMALL BUSINESS PASS-THRU ENTI- 3 TIES. 4 (a) IN GENERAL.—Subsection (c) of section 469 of 5 the Internal Revenue Code of 1986 is amended by redesig- 6 nating paragraphs (4) through (7) as paragraphs (5) 7 through (8), respectively, and by inserting after paragraph 8 (3) the following new paragraph: 9 ‘‘(4) SPECIFIED MEDICAL RESEARCH ACTIVI- 10 TIES.— 11 ‘‘(A) IN GENERAL.—The term ‘passive ac- 12 tivity’ shall not include any qualified medical re- 13 search activity of the taxpayer carried on by a 14 specified medical research small business pass- 15 thru entity. 16 ‘‘(B) TREATMENT OF LOSSES AND DEDUC- 17 TIONS.— 18 ‘‘(i) IN GENERAL.—Losses or deduc- 19 tions of a taxpayer in connection with 20 qualified medical research activities carried 21 on by a specified medical research small 22 business pass-thru entity shall not be 23 treated as losses or deductions, respec- 24 tively, from a passive activity except as 25 VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 7537 IH provided in clause (ii) and subparagraph 1 (C). 2 ‘‘(ii) LIMITATION.—Clause (i) shall 3 apply to losses and deductions of a tax- 4 payer in connection with a specified med- 5 ical small business pass-thru entity for a 6 taxable year only to the extent that the ag- 7 gregate losses and deductions of the tax- 8 payer in connection with qualified medical 9 research activities of such entity for such 10 taxable year do not exceed the portion of 11 the taxpayer’s adjusted basis in the tax- 12 payer’s ownership interest in such entity 13 that is attributable to money or other 14 property contributed— 15 ‘‘(I) in exchange for such owner- 16 ship interest, and 17 ‘‘(II) specifically for use in con- 18 nection with qualified medical re- 19 search activities. 20 For purposes of the preceding sentence, 21 the taxpayer’s basis shall not include any 22 portion of such basis which is attributable 23 to an increase in a partner’s share of the 24 liabilities of a partnership that is consid- 25 VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 7537 IH ered under section 752(a) as a contribution 1 of money. 2 ‘‘(C) TREATMENT OF CARRYOVERS.—Sub- 3 paragraph (B)(i) shall not apply to the portion 4 of any loss or deduction that is carried over 5 under subsection (b) into a taxable year other 6 than the taxable year in which such loss or de- 7 duction arose. 8 ‘‘(D) QUALIFIED MEDICAL RESEARCH AC- 9 TIVITY.—For purposes of this paragraph, the 10 term ‘qualified medical research activity’ means 11 any qualified research (within the meaning of 12 section 41(d)) with respect to qualified counter- 13 measures (as defined in section 319F–1(a)(2) 14 of the Public Health Service Act (42 U.S.C. 15 247d–6a(a)(2))). 16 ‘‘(E) SPECIFIED MEDICAL RESEARCH 17 SMALL BUSINESS PASS-THRU ENTITY.—For 18 purposes of this paragraph, the term ‘specified 19 medical research small business pass-thru enti- 20 ty’ means any domestic pass-thru entity for any 21 taxable year if— 22 ‘‘(i) more than 80 percent of such en- 23 tity’s expenditures on qualified research for 24 such taxable year are paid or incurred in 25 VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 7537 IH connection with qualified medical research 1 activities, and 2 ‘‘(ii) the gross receipts (as determined 3 under the rules of section 41(h)(3)) of 4 such entity for the taxable year (and each 5 preceding taxable year) is less than 6 $1,000,000. 7 ‘‘(F) CAPITAL EXPENDITURES TAKEN INTO 8 ACCOUNT FOR EXPENDITURES TEST.—An ex- 9 penditure shall not fail to be taken into account 10 under subparagraph (E)(i) merely because such 11 expenditure is chargeable to capital account. 12 ‘‘(G) PASS-THRU ENTITY.—For purposes 13 of this paragraph, the term ‘pass-thru entity’ 14 means any partnership, S corporation, or other 15 entity identified by the Secretary as a pass-thru 16 entity for purposes of this paragraph. 17 ‘‘(H) AGGREGATION RULES.— 18 ‘‘(i) IN GENERAL.—All persons treat- 19 ed as a single employer under subsection 20 (a) or (b) of section 52, or subsection (m) 21 or (o) of section 414, shall be treated as a 22 single entity for purposes of subparagraphs 23 (E) and (F)(iii). 24 VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 7537 IH ‘‘(ii) LIMITATION WHERE ENTITY 1 WOULD NOT QUALIFY.—No entity shall be 2 treated as a specified medical research 3 small business pass-thru entity unless such 4 entity qualifies as such both with and with- 5 out the application of clause (i).’’. 6 (b) MATERIAL PARTICIPATION NOT REQUIRED.— 7 Paragraph (5) of section 469(c) of the Internal Revenue 8 Code of 1986, as redesignated by subsection (a), is amend- 9 ed by striking ‘‘and (3)’’ in the heading and text and in- 10 serting ‘‘, (3), and (4)’’. 11 (c) CERTAIN RESEARCH-RELATED DEDUCTIONS AND 12 CREDITS OF SPECIFIED MEDICAL RESEARCH SMALL 13 BUSINESS PASS-THRU ENTITIES ALLOWED FOR PUR- 14 POSES OF DETERMINING ALTERNATIVE MINIMUM TAX.— 15 (1) DEDUCTION FOR RESEARCH AND EXPERI- 16 MENTAL EXPENDITURES.—Paragraph (2) of section 17 56(b) of the Internal Revenue Code of 1986 is 18 amended by adding at the end the following new 19 subparagraph: 20 ‘‘(E) EXCEPTION FOR SPECIFIED MEDICAL 21 RESEARCH SMALL BUSINESS PASS-THRU ENTI- 22 TIES.—In the case of a specified medical re- 23 search small business pass-thru entity (as de- 24 fined in section 469(c)(4)), this paragraph shall 25 VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 7537 IH not apply to any amount allowable as a deduc- 1 tion under section 174(a).’’. 2 (2) ALLOWANCE OF CERTAIN RESEARCH-RE- 3 LATED CREDITS.—Subparagraph (B) of section 4 38(c)(4) of such Code is amended by redesignating 5 clauses (ii) through (ix) as clauses (iii) through (x), 6 respectively, and by inserting after clause (i) the fol- 7 lowing new clause: 8 ‘‘(ii) the credit of an individual tax- 9 payer determined under section 41 to the 10 extent attributable to a specified medical 11 research small business pass-thru entity 12 (as defined in section 469(c)(4)),’’. 13 (d) EXCEPTION TO LIMITATION ON PASS-THRU OF 14 RESEARCH CREDIT.—Subsection (g) of section 41 of such 15 Code is amended by adding at the end the following: 16 ‘‘Paragraphs (2) and (4) shall not apply with respect to 17 any specified medical research small business pass-thru 18 entity (as defined in section 469(c)(4)).’’. 19 (e) EFFECTIVE DATE.—The amendments made by 20 this section shall apply to losses and credits arising in tax- 21 able years beginning after December 31, 2020. 22 Æ VerDate Sep 11 2014 01:33 Jul 29, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6301 E:\BILLS\H7537.IH H7537 pamtmann on DSKBC07HB2PROD with BILLS