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S. 2197 (115th): A bill to amend the Internal Revenue Code of 1986 to reform the credit for increasing research activities, and for other purposes.

The text of the bill below is as of Dec 6, 2017 (Introduced).


II

115th CONGRESS

1st Session

S. 2197

IN THE SENATE OF THE UNITED STATES

December 6, 2017

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 reform the credit for increasing research activities, and for other purposes.

1.

Increase of alternative simplified credit

(a)

In general

Subparagraph (A) of section 41(c)(5) of the Internal Revenue Code of 1986 is amended by striking 14 percent (12 percent in the case of taxable years ending before January 1, 2009) and inserting 20 percent.

(b)

Conforming amendment

Clause (ii) of section 41(c)(5)(B) of the Internal Revenue Code of 1986 is amended by striking 6 percent and inserting 10 percent.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2017.

2.

Allocation of research expenses among business components

(a)

In general

Subparagraph (A) of section 41(d)(2) of the Internal Revenue Code of 1986 is amended by inserting , and may be applied using a method that relies on reasonable estimation techniques in lieu of contemporaneous accounting to measure employee hours per business component before the period.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2017.

3.

Inclusion of qualified upper-level employees in research expense calculation

(a)

In general

Clause (ii) of section 41(b)(2)(B) of the Internal Revenue Code of 1986 is amended by inserting , without regard to the employee's position or management level before the period.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2017.

4.

Repeal of exclusion of adaptive research

(a)

In general

Paragraph (4) of section 41(d) of the Internal Revenue Code of 1986 is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), (E), (F), (G), and (H) as subparagraphs (B), (C), (D), (E), (F), and (G), respectively.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2017.

5.

Inclusion of cost reduction research

(a)

In general

Subparagraph (A) of section 41(d)(3) of the Internal Revenue Code of 1986 is amended—

(1)

by striking or at the end of clause (ii);

(2)

by striking the period at the end of clause (iii) and inserting , or; and

(3)

by adding at the end the following new clause:

(iv)

reduction of costs associated with—

(I)

a business component of the taxpayer, or

(II)

research relating to a purpose described in clause (i), (ii), or (iii).

.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2017.

6.

Inclusion of obsolescence mitigation

(a)

In general

Clause (iv) of section 41(d)(3)(A) of the Internal Revenue Code of 1986, as added by section 5, is amended by inserting or obsolescence mitigation after reduction of costs.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2017.

7.

Election of reduced credit may be made on amended return

(a)

In general

Subparagraph (C) of section 280C(c)(3) of the Internal Revenue Code of 1986 is amended to read as follows:

(C)

Election

An election under this paragraph shall made in such manner as the Secretary may prescribe and, once made with respect to a taxable year, shall be irrevocable. Such election may be made on the return of tax for the taxable year to which it applies or on an amended return.

.

(b)

Effective date

The amendment made by this section shall apply to amended returns which are permitted to be filed under the applicable provisions of the Internal Revenue Code of 1986 after the date of the enactment of this Act.

8.

Investment in connected manufacturing equipment

(a)

In general

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

45S.

Connected manufacturing equipment

(a)

Amount of credit

For purposes of section 38, the connected manufacturing equipment credit for any taxable year is an amount equal to 10 percent of the qualified connected manufacturing equipment expenditures made by the taxpayer during such year.

(b)

Qualified connected manufacturing equipment expenditures

(1)

In general

Subject to paragraph (2), for purposes of this section, the term qualified connected manufacturing equipment expenditures means an expenditure relating to the purchase or installation of—

(A)

industrial equipment components which contain a microprocessor and can be connected to an electronic communication network, and

(B)

any software, routing, or local area network components necessary to connect components described in subparagraph (A) to an electronic communication network.

(2)

Eligibility

The Secretary, in consultation with the Secretary of Commerce, shall identify the types of components described in paragraph (1) which are eligible for the credit under this section.

(c)

Basis adjustment

For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.

.

(b)

Conforming amendments

(1)

Section 38(b) of the Internal Revenue Code of 1986 is amended—

(A)

by striking plus at the end of paragraph (35);

(B)

by striking the period at the end of paragraph (36) and inserting , plus; and

(C)

by adding at the end the following new paragraph:

(37)

the connected manufacturing equipment credit determined under section 45S(a).

.

(2)

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 45S. Connected manufacturing equipment credit.

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2018.

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