[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1778 Introduced in House (IH)]
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119th CONGRESS
1st Session
H. R. 1778
To amend the Internal Revenue Code of 1986 to promote new business
innovation, and for other purposes.
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IN THE HOUSE OF REPRESENTATIVES
March 3, 2025
Mr. Buchanan (for himself, Mr. Kelly of Pennsylvania, Mr. Smith of
Nebraska, Mr. Estes, Mrs. Miller of West Virginia, and Mr. Miller of
Ohio) introduced the following bill; which was referred to the
Committee on Ways and Means
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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 Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``American Innovation Act of 2025''.
SEC. 2. SIMPLIFICATION AND EXPANSION OF DEDUCTION FOR START-UP AND
ORGANIZATIONAL EXPENDITURES.
(a) In General.--Section 195 of the Internal Revenue Code of 1986
is amended by redesignating subsections (c) and (d) as subsections (d)
and (e), respectively, and by striking all that precedes subsection (d)
(as so redesignated) and inserting the following:
``SEC. 195. START-UP AND ORGANIZATIONAL EXPENDITURES.
``(a) Capitalization of Expenditures.--Except as otherwise provided
in this section, no deduction shall be allowed for start-up or
organizational expenditures.
``(b) Election To Deduct.--
``(1) In general.--If a taxpayer elects the application of
this subsection with respect to any active trade or business--
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which such active trade or business
begins in an amount equal to the lesser of--
``(i) the aggregate amount of start-up and
organizational expenditures paid or incurred in
connection with such active trade or business,
or
``(ii) $20,000, reduced (but not below
zero) by the amount by which such aggregate
amount exceeds $120,000, and
``(B) the remainder of such start-up and
organizational expenditures shall be charged to capital
account and allowed as an amortization deduction
determined by amortizing such expenditures ratably over
the 180-month period beginning with the month in which
the active trade or business begins.
``(2) Application to organizational expenditures.--In the
case of organizational expenditures with respect to any
corporation or partnership, the active trade or business
referred to in paragraph (1) means the first active trade or
business carried on by such corporation or partnership.
``(3) Inflation adjustment.--In the case of any taxable
year beginning after December 31, 2026, the $20,000 and
$120,000 amounts in paragraph (1)(A)(ii) shall each be
increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
`calendar year 2025' for `calendar year 2016' in
subparagraph (A)(ii) thereof.
If any amount as increased under the preceding sentence is not
a multiple of $1,000, such amount shall be rounded to the
nearest multiple of $1,000.
``(c) Allowance of Deduction Upon Liquidation or Disposition.--
``(1) Liquidation of partnership or corporation.--If any
partnership or corporation is completely liquidated by the
taxpayer, any start-up or organizational expenditures paid or
incurred in connection with such partnership or corporation
which were not allowed as a deduction by reason of this section
may be deducted to the extent allowable under section 165.
``(2) Disposition of trade or business.--If any trade or
business is completely disposed of or discontinued by the
taxpayer, any start-up expenditures paid or incurred in
connection with such trade or business which were not allowed
as a deduction by reason of this section (and not taken into
account in connection with a liquidation to which paragraph (1)
applies) may be deducted to the extent allowable under section
165. For purposes of this paragraph, in the case of any
deduction allowed under subsection (b)(1) with respect to both
start-up and organizational expenditures, the amount treated as
so allowed with respect to start-up expenditures shall bear the
same ratio to such deduction as the start-up expenditures taken
into account in determining such deduction bears to the
aggregate of the start-up and organizational expenditures so
taken into account.''.
(b) Organizational Expenditures.--Section 195(d) of such Code, as
redesignated by subsection (a), is amended by adding at the end the
following new paragraphs:
``(3) Organizational expenditures.--The term
`organizational expenditures' means any expenditure which--
``(A) is incident to the creation of a corporation
or a partnership,
``(B) is chargeable to capital account, and
``(C) is of a character which, if expended incident
to the creation of a corporation or a partnership
having an ascertainable life, would be amortizable over
such life.
``(4) Application to certain disregarded entities.--In the
case of any entity with a single owner that is disregarded as
an entity separate from its owner, this section shall be
applied in the same manner as if such entity were a
corporation.''.
(c) Election.--Section 195(e)(2) of such Code, as redesignated by
subsection (a), is amended to read as follows:
``(2) Partnerships and s corporations.--In the case of any
partnership or S corporation, the election under subsection (b)
shall be made (and this section shall be applied) at the entity
level.''.
(d) Conforming Amendments.--
(1)(A) Part VIII of subchapter B of chapter 1 is amended by
striking section 248 of such Code (and by striking the item
relating to such section in the table of sections of such
part).
(B) Section 170(b)(2)(D)(ii) of such Code is amended by
striking ``(except section 248)''.
(C) Section 312(n)(3) of such Code is amended by striking
``Sections 173 and 248'' and inserting ``Sections 173 and
195''.
(D) Section 535(b)(3) of such Code is amended by striking
``(except section 248)''.
(E) Section 545(b)(3) of such Code is amended by striking
``(except section 248)''.
(F) Section 545(b)(4) of such Code is amended by striking
``(except section 248)''.
(G) Section 834(c)(7) of such Code is amended by striking
``(except section 248)''.
(H) Section 852(b)(2)(C) of such Code is amended by
striking ``(except section 248)''.
(I) Section 857(b)(2)(A) of such Code is amended by
striking ``(except section 248)''.
(J) Section 1363(b) of such Code is amended by adding
``and'' at the end of paragraph (2), by striking paragraph (3),
and by redesignating paragraph (4) as paragraph (3).
(K) Section 1375(b)(1)(B)(i) of such Code is amended by
striking ``(other than the deduction allowed by section 248,
relating to organization expenditures)''.
(2)(A) Section 709 of such Code is amended to read as
follows:
``SEC. 709. TREATMENT OF SYNDICATION FEES.
``No deduction shall be allowed under this chapter to a partnership
or to any partner of the partnership for any amounts paid or incurred
to promote the sale of (or to sell) an interest in the partnership.''.
(B) The item relating to section 709 in the table of
sections for part I of subchapter K of chapter 1 of such Code
is amended to read as follows:
``Sec. 709. Treatment of syndication fees.''.
(3) Section 1202(e)(2)(A) of such Code is amended by
striking ``section 195(c)(1)(A)'' and inserting ``section
195(d)(1)(A)''.
(4) The item relating to section 195 in the table of
contents of part VI of subchapter B of chapter 1 of such Code
is amended to read as follows:
``Sec. 195. Start-up and organizational expenditures.''.
(e) Effective Date.--The amendments made by this section shall
apply to expenditures paid or incurred in connection with active trades
or businesses which begin in taxable years beginning after December 31,
2025.
SEC. 3. PRESERVATION OF START-UP NET OPERATING LOSSES AND TAX CREDITS
AFTER OWNERSHIP CHANGE.
(a) Application to Net Operating Losses.--Section 382(d) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new paragraph:
``(4) Exception for start-up losses.--
``(A) In general.--In the case of any net operating
loss carryforward described in paragraph (1)(A) which
arose in a start-up period taxable year, the amount of
such net operating loss carryforward otherwise taken
into account under such paragraph shall be reduced by
the net start-up loss determined with respect to the
trade or business referred to in subparagraph (B)(i)
for such start-up period taxable year.
``(B) Start-up period taxable year.--The term
`start-up period taxable year' means any taxable year
of the old loss corporation which--
``(i) begins before the close of the 3-year
period beginning on the date on which any trade
or business of such corporation begins as an
active trade or business (as determined under
section 195(d)(2) without regard to
subparagraph (B) thereof), and
``(ii) ends after January 31, 2026.
``(C) Net start-up loss.--
``(i) In general.--The term `net start-up
loss' means, with respect to any trade or
business referred to in subparagraph (B)(i) for
any start-up period taxable year, the amount
which bears the same ratio (but not greater
than 1) to the net operating loss carryforward
which arose in such start-up period taxable
year as--
``(I) the net operating loss (if
any) which would have been determined
for such start-up period taxable year
if only items of income, gain,
deduction, and loss properly allocable
to such trade or business were taken
into account, bears to
``(II) the amount of the net
operating loss determined for such
start-up period taxable year.
``(ii) Special rule for last taxable year
in start-up period.--In the case of any start-
up period taxable year which ends after the
close of the 3-year period described in
subparagraph (B)(i) with respect to any trade
or business, the net start-up loss with respect
to such trade or business for such start-up
period taxable year shall be the same
proportion of such loss (determined without
regard to this clause) as the proportion of
such start-up period taxable year which is on
or before the last day of such period.
``(D) Application to net operating loss arising in
year of ownership change.--Subparagraph (A) shall apply
to any net operating loss described in paragraph (1)(B)
in the same manner as such subparagraph applies to net
operating loss carryforwards described in paragraph
(1)(A), but by only taking into account the amount of
such net operating loss (and the amount of the net
start-up loss) which is allocable under paragraph
(1)(B) to the period described in such paragraph.
Proper adjustment in the allocation of the net start-up
loss under the preceding sentence shall be made in the
case of a taxable year to which subparagraph (C)(ii)
applies.
``(E) Application to taxable years which are start-
up period taxable years with respect to more than 1
trade or business.--In the case of any net operating
loss carryforward which arose in a taxable year which
is a start-up period taxable year with respect to more
than 1 trade or business--
``(i) this paragraph shall be applied
separately with respect to each such trade or
business, and
``(ii) the aggregate reductions under
subparagraph (A) shall not exceed such net
operating loss carryforward.
``(F) Continuity of business requirement.--If the
new loss corporation does not continue the trade or
business referred to in subparagraph (B)(i) at all
times during the 2-year period beginning on the change
date, this paragraph shall not apply with respect to
such trade or business.
``(G) Certain title 11 or similar cases.--
``(i) Multiple ownership changes.--In the
case of a 2nd ownership change to which
subsection (l)(5)(D) applies, this paragraph
shall not apply for purposes of determining the
pre-change loss with respect to such 2nd
ownership change.
``(ii) Certain insolvency transactions.--If
subsection (l)(6) applies for purposes of
determining the value of the old loss
corporation under subsection (e), this
paragraph shall not apply.
``(H) Not applicable to disallowed interest.--This
paragraph shall not apply for purposes of applying the
rules of paragraph (1) to the carryover of disallowed
interest under paragraph (3).
``(I) Transition rule.--This paragraph shall not
apply with respect to any trade or business if the date
on which such trade or business begins as an active
trade or business (as determined under section
195(d)(2) without regard to subparagraph (B) thereof)
is on or before January 31, 2026.''.
(b) Application To Excess Credits.--Section 383 of such Code is
amended by redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new subsection:
``(e) Exception for Start-Up Excess Credits.--
``(1) In general.--In the case of any unused general
business credit of the corporation under section 39 which arose
in a start-up period taxable year, the amount of such unused
general business credit otherwise taken into account under
subsection (a)(2)(A) shall be reduced by the start-up excess
credit determined with respect to any trade or business
referred to in section 382(d)(4)(B)(i) for such start-up period
taxable year.
``(2) Start-up period taxable year.--For purposes of this
subsection, the term `start-up period taxable year' has the
meaning given such term in section 382(d)(4)(B).
``(3) Start-up excess credit.--For purposes of this
subsection, the term `start-up excess credit' means, with
respect to any trade or business referred to in section
382(d)(4)(B)(i) for any start-up period taxable year, the
amount which bears the same ratio to the unused general
business credit which arose in such start-up period taxable
year as--
``(A) the amount of the general business credit
which would have been determined for such start-up
period taxable year if only credits properly allocable
to such trade or business were taken into account,
bears to
``(B) the amount of the general business credit
determined for such start-up period taxable year.
``(4) Application of certain rules.--Rules similar to the
rules of subparagraphs (C)(ii), (D), (E), and (F) of section
382(d)(4) shall apply for purposes of this subsection.
``(5) Transition rule.--This subsection shall not apply
with respect to any trade or business if the date on which such
trade or business begins as an active trade or business (as
determined under section 195(d)(2) without regard to
subparagraph (B) thereof) is on or before January 31, 2026.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years ending after January 31, 2025.
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