H. Rept. 113-431 - 113th Congress (2013-2014)

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House Report 113-431 - AMERICAN RESEARCH AND COMPETITIVENESS ACT OF 2014

[House Report 113-431]
[From the U.S. Government Publishing Office]


113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     113-431

======================================================================



 
           AMERICAN RESEARCH AND COMPETITIVENESS ACT OF 2014

                                _______
                                

  May 2, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Camp, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4438]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4438) to amend the Internal Revenue Code of 1986 to 
simplify and make permanent the research credit, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................3
          A. Purpose and Summary.................................     3
          B. Background and Need for Legislation.................     3
          C. Legislative History.................................     4
 II. EXPLANATION OF THE BILL..........................................4
          A. Research Credit Simplified and Made Permanent (sec. 
              41 of the Code)....................................     4
III. VOTES OF THE COMMITTEE...........................................7
 IV. BUDGET EFFECTS OF THE BILL.......................................8
          A. Committee Estimate of Budgetary Effects.............     8
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     8
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     8
          D. Macroeconomic Impact Analysis.......................    11
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......12
          A. Committee Oversight Findings and Recommendations....    12
          B. Statement of General Performance Goals and 
              Objectives.........................................    12
          C. Information Relating to Unfunded Mandates...........    12
          D. Applicability of House Rule XXI 5(b)................    12
          E. Tax Complexity Analysis.............................    12
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    13
          G. Duplication of Federal Programs.....................    13
          H. Disclosure of Directed Rule Makings.................    13
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........13
VII. DISSENTING VIEWS................................................24

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``American Research and Competitiveness 
Act of 2014''.

SEC. 2. RESEARCH CREDIT SIMPLIFIED AND MADE PERMANENT.

  (a) In General.--Subsection (a) of section 41 of the Internal Revenue 
Code of 1986 is amended to read as follows:
  ``(a) In General.--For purposes of section 38, the research credit 
determined under this section for the taxable year shall be an amount 
equal to the sum of--
          ``(1) 20 percent of so much of the qualified research 
        expenses for the taxable year as exceeds 50 percent of the 
        average qualified research expenses for the 3 taxable years 
        preceding the taxable year for which the credit is being 
        determined,
          ``(2) 20 percent of so much of the basic research payments 
        for the taxable year as exceeds 50 percent of the average basic 
        research payments for the 3 taxable years preceding the taxable 
        year for which the credit is being determined, plus
          ``(3) 20 percent of the amounts paid or incurred by the 
        taxpayer in carrying on any trade or business of the taxpayer 
        during the taxable year (including as contributions) to an 
        energy research consortium for energy research.''.
  (b) Repeal of Termination.--Section 41 of such Code is amended by 
striking subsection (h).
  (c) Conforming Amendments.--
          (1) Subsection (c) of section 41 of such Code is amended to 
        read as follows:
  ``(c) Determination of Average Research Expenses for Prior Years.--
          ``(1) Special rule in case of no qualified research 
        expenditures in any of 3 preceding taxable years.--In any case 
        in which the taxpayer has no qualified research expenses in any 
        one of the 3 taxable years preceding the taxable year for which 
        the credit is being determined, the amount determined under 
        subsection (a)(1) for such taxable year shall be equal to 10 
        percent of the qualified research expenses for the taxable 
        year.
          ``(2) Consistent treatment of expenses.--
                  ``(A) In general.--Notwithstanding whether the period 
                for filing a claim for credit or refund has expired for 
                any taxable year taken into account in determining the 
                average qualified research expenses, or average basic 
                research payments, taken into account under subsection 
                (a), the qualified research expenses and basic research 
                payments taken into account in determining such 
                averages shall be determined on a basis consistent with 
                the determination of qualified research expenses and 
                basic research payments, respectively, for the credit 
                year.
                  ``(B) Prevention of distortions.--The Secretary may 
                prescribe regulations to prevent distortions in 
                calculating a taxpayer's qualified research expenses or 
                basic research payments caused by a change in 
                accounting methods used by such taxpayer between the 
                current year and a year taken into account in 
                determining the average qualified research expenses or 
                average basic research payments taken into account 
                under subsection (a).''.
          (2) Section 41(e) of such Code is amended--
                  (A) by striking all that precedes paragraph (6) and 
                inserting the following:
  ``(e) Basic Research Payments.--For purposes of this section--
          ``(1) In general.--The term `basic research payment' means, 
        with respect to any taxable year, any amount paid in cash 
        during such taxable year by a corporation to any qualified 
        organization for basic research but only if--
                  ``(A) such payment is pursuant to a written agreement 
                between such corporation and such qualified 
                organization, and
                  ``(B) such basic research is to be performed by such 
                qualified organization.
          ``(2) Exception to requirement that research be performed by 
        the organization.--In the case of a qualified organization 
        described in subparagraph (C) or (D) of paragraph (3), 
        subparagraph (B) of paragraph (1) shall not apply.'',
                  (B) by redesignating paragraphs (6) and (7) as 
                paragraphs (3) and (4), respectively, and
                  (C) in paragraph (4) as so redesignated, by striking 
                subparagraphs (B) and (C) and by redesignating 
                subparagraphs (D) and (E) as subparagraphs (B) and (C), 
                respectively.
          (3) Section 41(f)(3) of such Code is amended--
                  (A)(i) by striking ``, and the gross receipts'' in 
                subparagraph (A)(i) and all that follows through 
                ``determined under clause (iii)'',
                  (ii) by striking clause (iii) of subparagraph (A) and 
                redesignating clauses (iv), (v), and (vi), thereof, as 
                clauses (iii), (iv), and (v), respectively,
                  (iii) by striking ``and (iv)'' each place it appears 
                in subparagraph (A)(iv) (as so redesignated) and 
                inserting ``and (iii)'',
                  (iv) by striking subclause (IV) of subparagraph 
                (A)(iv) (as so redesignated), by striking ``, and'' at 
                the end of subparagraph (A)(iv)(III) (as so 
                redesignated) and inserting a period, and by adding 
                ``and'' at the end of subparagraph (A)(iv)(II) (as so 
                redesignated),
                  (v) by striking ``(A)(vi)'' in subparagraph (B) and 
                inserting ``(A)(v)'', and
                  (vi) by striking ``(A)(iv)(II)'' in subparagraph 
                (B)(i)(II) and inserting ``(A)(iii)(II)'',
                  (B) by striking ``, and the gross receipts of the 
                predecessor,'' in subparagraph (A)(iv)(II) (as so 
                redesignated),
                  (C) by striking ``, and the gross receipts of,'' in 
                subparagraph (B),
                  (D) by striking ``, or gross receipts of,'' in 
                subparagraph (B)(i)(I), and
                  (E) by striking subparagraph (C).
  (d) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2013.
          (2) Subsection (b).--The amendment made by subsection (b) 
        shall apply to amounts paid or incurred after December 31, 
        2013.

                       I. SUMMARY AND BACKGROUND


                         A. PURPOSE AND SUMMARY

    Similar to a provision contained in the discussion draft of 
the ``Tax Reform Act of 2014'' released on February 26, 2014, 
the bill, H.R. 4438, reported by the Committee on Ways and 
Means, provides a permanent simplified method for calculating 
the research credit with a rate of 20 percent, replacing the 
traditional 20-percent research credit calculation method. H.R. 
4438 also provides a permanent basic research credit and energy 
research credit (both with credit rates of 20 percent), and 
changes the base period for the basic research credit from a 
fixed period to a three-year rolling average. A temporary 
research credit expired for qualified expenditures made after 
December 31, 2013.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth and job creation, the Committee also believes 
that it is important to provide American employers permanent, 
immediate tax relief to help encourage economic growth and job 
creation. By providing a permanent simplified research credit, 
instead of the temporary measures enacted over the past three 
decades, H.R. 4438 provides much-needed certainty for 
innovators, enhancing the effectiveness of the credit as an 
incentive for investments in research and development. Making 
the alternative simplified method the primary method for 
calculating the credit also eases administrative burdens for 
taxpayers and the IRS, eliminating substantial amounts of 
recordkeeping, documentation issues, and controversy connected 
with the historical base-period credit. By increasing the 
alternative simplified credit from 14 percent to 20 percent, 
H.R. 4438 further incentivizes critical research here in the 
United States.

                         C. LEGISLATIVE HISTORY

Background

    H.R. 4438 was introduced on April 9, 2014, and was referred 
to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 4438, the 
American Research and Competitiveness Act of 2014, on April 29, 
2014, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The need for a permanent simplified research credit was 
discussed at no fewer than eight hearings during the 112th and 
113th Congresses:
     Full Committee hearing on Fundamental Tax Reform 
(January 20, 2011);
     Select Revenue Measures Subcommittee Hearing on 
Small Businesses and Tax Reform (March 3, 2011);
     Full Committee hearing on the Need for 
Comprehensive Tax Reform to Help American Companies Compete in 
the Global Market and Create Jobs for American Workers (May 12, 
2011);
     Full Committee hearing on How Other Countries Have 
Used Tax Reform to Help Their Companies Compete in the Global 
Market and Create Jobs (May 24, 2011);
     Full Committee hearing on How Business Tax Reform 
Can Encourage Job Creation (June 2, 2011);
     Full Committee hearing on the Interaction of Tax 
and Financial Accounting on Tax Reform (February 8, 2012);
     Full Committee hearing on Tax Reform and the U.S. 
Manufacturing Sector (July 19, 2012); and
     Full Committee hearing on the Benefits of 
Permanent Tax Policy for America's Job Creators (April 8, 
2014).

                      II. EXPLANATION OF THE BILL


 A. Research Credit Simplified and Made Permanent (sec. 41 of the Code)


                              PRESENT LAW

General rule

    For general research expenditures, a taxpayer may claim a 
research credit equal to 20 percent of the amount by which the 
taxpayer's qualified research expenses for a taxable year 
exceed its base amount for that year.\1\ Thus, the research 
credit is generally available with respect to incremental 
increases in qualified research. An alternative simplified 
research credit (with a 14 percent rate and a different base 
amount) may be claimed in lieu of this credit.\2\
---------------------------------------------------------------------------
    \1\Sec. 41(a)(1).
    \2\Sec. 41(c)(5).
---------------------------------------------------------------------------
    A 20-percent research tax credit also is available with 
respect to the excess of (1) 100 percent of corporate cash 
expenses (including grants or contributions) paid for basic 
research conducted by universities (and certain nonprofit 
scientific research organizations) over (2) the sum of (a) the 
greater of two minimum basic research floors plus (b) an amount 
reflecting any decrease in nonresearch giving to universities 
by the corporation as compared to such giving during a fixed-
base period, as adjusted for inflation.\3\ This separate credit 
computation commonly is referred to as the basic research 
credit.
---------------------------------------------------------------------------
    \3\Secs. 41(a)(2) and 41(e). The base period for the basic research 
credit generally extends from 1981 through 1983.
---------------------------------------------------------------------------
    Finally, a research credit is available for a taxpayer's 
expenditures on research undertaken by an energy research 
consortium.\4\ This separate credit computation commonly is 
referred to as the energy research credit. Unlike the other 
research credits, the energy research credit applies to all 
qualified expenditures, not just those in excess of a base 
amount.
---------------------------------------------------------------------------
    \4\Sec. 41(a)(3).
---------------------------------------------------------------------------
    The research credit, including the basic research credit 
and the energy research credit, expires for amounts paid or 
incurred after December 31, 2013.\5\
---------------------------------------------------------------------------
    \5\Sec. 41(h).
---------------------------------------------------------------------------

Computation of general research credit

    The general research tax credit applies only to the extent 
that the taxpayer's qualified research expenses for the current 
taxable year exceed its base amount. The base amount for the 
current year generally is computed by multiplying the 
taxpayer's fixed-base percentage by the average amount of the 
taxpayer's gross receipts for the four preceding years. If a 
taxpayer both incurred qualified research expenses and had 
gross receipts during each of at least three years from 1984 
through 1988, then its fixed-base percentage is the ratio that 
its total qualified research expenses for the 1984-1988 period 
bears to its total gross receipts for that period (subject to a 
maximum fixed-base percentage of 16 percent). Special rules 
apply to all other taxpayers (so called start-up firms).\6\ In 
computing the research credit, a taxpayer's base amount cannot 
be less than 50 percent of its current-year qualified research 
expenses.
---------------------------------------------------------------------------
    \6\The Small Business Job Protection Act of 1996 expanded the 
definition of start-up firms under section 41(c)(3)(B)(i) to include 
any firm if the first taxable year in which such firm had both gross 
receipts and qualified research expenses began after 1983. A special 
rule (enacted in 1993) is designed to gradually recompute a start-up 
firm's fixed-base percentage based on its actual research experience. 
Under this special rule, a start-up firm is assigned a fixed-base 
percentage of three percent for each of its first five taxable years 
after 1993 in which it incurs qualified research expenses. A start-up 
firm's fixed-base percentage for its sixth through tenth taxable years 
after 1993 in which it incurs qualified research expenses is a phased-
in ratio based on the firm's actual research experience. For all 
subsequent taxable years, the taxpayer's fixed-base percentage is its 
actual ratio of qualified research expenses to gross receipts for any 
five years selected by the taxpayer from its fifth through tenth 
taxable years after 1993. Sec. 41(c)(3)(B).
---------------------------------------------------------------------------

Alternative simplified credit

    The alternative simplified research credit is equal to 14 
percent of qualified research expenses that exceed 50 percent 
of the average qualified research expenses for the three 
preceding taxable years.\7\ The rate is reduced to six percent 
if a taxpayer has no qualified research expenses in any one of 
the three preceding taxable years.\8\ An election to use the 
alternative simplified credit applies to all succeeding taxable 
years unless revoked with the consent of the Secretary.\9\
---------------------------------------------------------------------------
    \7\Sec. 41(c)(5)(A).
    \8\Sec. 41(c)(5)(B).
    \9\Sec. 41(c)(5)(C).
---------------------------------------------------------------------------

Eligible expenses

    Qualified research expenses eligible for the research tax 
credit consist of: (1) in-house expenses of the taxpayer for 
wages and supplies attributable to qualified research; (2) 
certain time-sharing costs for computer use in qualified 
research; and (3) 65 percent of amounts paid or incurred by the 
taxpayer to certain other persons for qualified research 
conducted on the taxpayer's behalf (so-called contract research 
expenses).\10\ Notwithstanding the limitation for contract 
research expenses, qualified research expenses include 100 
percent of amounts paid or incurred by the taxpayer to an 
eligible small business, university, or Federal laboratory for 
qualified energy research.
---------------------------------------------------------------------------
    \10\Under a special rule, 75 percent of amounts paid to a research 
consortium for qualified research are treated as qualified research 
expenses eligible for the research credit (rather than 65 percent under 
the general rule under section 41(b)(3) governing contract research 
expenses) if (1) such research consortium is a tax-exempt organization 
that is described in section 501(c)(3) (other than a private 
foundation) or section 501(c)(6) and is organized and operated 
primarily to conduct scientific research, and (2) such qualified 
research is conducted by the consortium on behalf of the taxpayer and 
one or more persons not related to the taxpayer. Sec. 41(b)(3)(C).
---------------------------------------------------------------------------
    To be eligible for the credit, the research not only has to 
satisfy the requirements of section 174, but also must be 
undertaken for the purpose of discovering information that is 
technological in nature, the application of which is intended 
to be useful in the development of a new or improved business 
component of the taxpayer, and substantially all of the 
activities of which constitute elements of a process of 
experimentation for functional aspects, performance, 
reliability, or quality of a business component. Research does 
not qualify for the credit if substantially all of the 
activities relate to style, taste, cosmetic, or seasonal design 
factors.\11\ In addition, research does not qualify for the 
credit if: (1) conducted after the beginning of commercial 
production of the business component; (2) related to the 
adaptation of an existing business component to a particular 
customer's requirements; (3) related to the duplication of an 
existing business component from a physical examination of the 
component itself or certain other information; (4) related to 
certain efficiency surveys, management function or technique, 
market research, market testing, or market development, routine 
data collection or routine quality control; (5) related to 
software developed primarily for internal use by the taxpayer; 
(6) conducted outside the United States, Puerto Rico, or any 
U.S. possession; (7) in the social sciences, arts, or 
humanities; or (8) funded by any grant, contract, or otherwise 
by another person (or government entity).\12\
---------------------------------------------------------------------------
    \11\Sec. 41(d)(3).
    \12\Sec. 41(d)(4).
---------------------------------------------------------------------------

Relation to deduction

    Deductions allowed to a taxpayer under section 174 (or any 
other section) are reduced by an amount equal to 100 percent of 
the taxpayer's research tax credit determined for the taxable 
year.\13\ Taxpayers may alternatively elect to claim a reduced 
research tax credit amount under section 41 in lieu of reducing 
deductions otherwise allowed.\14\
---------------------------------------------------------------------------
    \13\Sec. 280C(c).
    \14\Sec. 280C(c)(3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee acknowledges that research is vital to 
creating jobs and economic growth. Research is the basis of new 
products, new services, new industries, and new jobs for the 
domestic economy. The Committee believes that the temporary 
nature of the now-expired research credit limits its 
effectiveness, preventing businesses from making long-term 
investments in U.S.-based research and related business 
operations. Additionally, many taxpayers report that the 
general research credit can be complicated to calculate and 
that the base period is difficult to determine. The Committee 
believes that the alternative simplified credit is a more 
straightforward approach for calculating the research credit 
and that replacing the general credit with the simplified 
method would make the research credit more efficient and better 
achieve its intended purpose of fostering domestic research and 
development. Therefore, the Committee believes it is 
appropriate to simplify and make permanent the present-law 
research credit.

                        EXPLANATION OF PROVISION

    The provision makes permanent the alternative simplified 
method for calculating the research credit and increases the 
rate to 20 percent. That is, the research credit is equal to 20 
percent of qualified research expenses that exceed 50 percent 
of the average qualified research expenses for the three 
preceding taxable years. The rate is reduced to 10 percent if a 
taxpayer has no qualified research expenses in any one of the 
three preceding taxable years. The provision repeals the 
traditional 20-percent research credit calculation method.
    The provision also makes permanent the basic research 
credit and the energy research credit (both with credit rates 
of 20-percent), and changes the base period for the basic 
research credit from a fixed period to a three-year rolling 
average.

                             EFFECTIVE DATE

    The provision to make various components of the research 
credit permanent is effective for amounts paid or incurred 
after December 31, 2013. The other elements of the provision 
are effective for taxable years beginning after December 31, 
2013.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 4438, the American Research and 
Competitiveness Act of 2014, on April 29, 2014.
    The bill, H.R. 4438, was ordered favorably reported as 
amended by a roll call vote of 22 yeas to 12 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp.......................     ........  .........  Mr. Levin........  ........     .........
Mr. Johnson....................     ........  .........  Mr. Rangel.......  ........     .........
Mr. Brady......................     ........  .........  Mr. McDermott....  ........     .........
Mr. Ryan.......................     ........  .........  Mr. Lewis........  ........     .........
Mr. Nunes......................     ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Tiberi.....................     ........  .........  Mr. Becerra......  ........     .........
Mr. Reichert...................     ........  .........  Mr. Doggett......  ........     .........
Mr. Boustany...................     ........  .........  Mr. Thompson.....  ........     .........
Mr. Roskam.....................     ........  .........  Mr. Larson.......  ........     .........
Mr. Gerlach....................  ........  ........  .........  Mr. Blumenauer...     ........  .........
Mr. Price......................     ........  .........  Mr. Kind.........  ........     .........
Mr. Buchanan...................     ........  .........  Mr. Pascrell.....  ........     .........
Mr. Smith......................     ........  .........  Mr. Crowley......  ........     .........
Mr. Schock.....................     ........  .........  Ms. Schwartz.....  ........  ........  .........
Ms. Jenkins....................     ........  .........  Mr. Davis........  ........     .........
Mr. Paulsen....................     ........  .........  Ms. Sanchez......  ........     .........
Mr. Marchant...................     ........  .........
Ms. Black......................     ........  .........
Mr. Reed.......................     ........  .........
Mr. Young......................     ........  .........
Mr. Kelly......................     ........  .........
Mr. Griffin....................  ........  ........  .........
Mr. Renacci....................     ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 4438, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal budget receipts for fiscal years 2014-2024:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Fiscal years in billions of dollars--
---------------------------------------------------------------------------------------------------------------------------------------------------------
   2014       2015       2016        2017        2018        2019        2020        2021        2022        2023        2024       2014-19     2014-24
--------------------------------------------------------------------------------------------------------------------------------------------------------
   -4.9       -8.6       -10.2       -11.7       -13.1       -14.4       -15.8       -17.0       -18.5       -19.9       -21.3       -62.9      -155.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4438, the American 
Research and Competitiveness Act of 2014.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                          Director.
    Enclosure.

H.R. 4438--American Research and Competitiveness Act of 2014

    H.R. 4438 would amend the Internal Revenue Code to modify 
the calculation method and the rate for the tax credit for 
qualified research expenses that expired at the end of 2013. 
The modified credit would be made permanent. The bill would not 
extend the traditional calculation method and its associated 20 
percent credit. It would, however, make permanent the 
``alternative simplified method'' for calculating the tax 
credit for qualified research expenses and generally increase 
the associated credit to 20 percent of those expenses that 
exceed 50 percent of the average qualified research expenses 
for the three preceding taxable years. It also makes permanent 
a tax credit for basic research and energy research and changes 
the base period for the basic research credit from a fixed 
period to a three-year rolling average.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 4438 would reduce revenues, thus 
increasing federal deficits, by about $156 billion over the 
2014-2024 period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Enacting H.R. 4438 would result 
in revenue losses in each year beginning in 2014. The estimated 
increases in the deficit are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

                               CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4438, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON APRIL 29, 2014
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in millions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2014       2015       2016       2017       2018       2019       2020       2021       2022       2023       2024    2014-2019  2014-2024
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects..................      4,964      8,648     10,188     11,673     13,083     14,439     15,764     17,100     18,471     19,879     21,296     62,994   155,504
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.
    The bill simplifies and makes permanent a 20 percent tax 
credit for qualified research expenses that exceed 50 percent 
of the average qualified research expenses for the three 
preceding years, thus lowering the cost of research and 
development for businesses. Economic theory suggests that 
increased research expenditures would promote an increase in 
economic output by promoting technological development, and 
hence increasing the productivity of labor and capital. Theory 
is less clear on the extent to which increasing research 
intensity is subject to diminishing returns.\15\
---------------------------------------------------------------------------
    \15\Charles Jones discusses the role of research in growth theory 
in ``R&D-Based Models of Economic Growth,'' The Journal of Political 
Economy, 103(4), August 1995, pp. 759-794, and speculates on future 
trends in productivity growth in the context of this theory in Fernald, 
John G. and Charles I. Jones, ``The Future of U.S. Economic Growth,'' 
AEA Papers and Proceedings, forthcoming.
---------------------------------------------------------------------------
    To the extent that research activities are responsive to 
changes in their cost, the tax credit should increase such 
expenditures. Economic research that has attempted to measure 
how responsive firms' research expenditures are to tax and 
other incentives has yielded a wide range of estimates.\16\ JCT 
staff estimates this bill could increase research expenditures 
by up to 10 percent.
---------------------------------------------------------------------------
    \16\A description of several of these studies, along with 
additional economic analysis of tax subsidies for research 
expenditures, may be found in Joint Committee on Taxation, Description 
of Revenue Provisions Contained in the President's Fiscal Year 2013 
Budget Proposal, (JCS-2-12), June 2012, pp. 100-116.
---------------------------------------------------------------------------
    Studies that have attempted to quantify the effect of 
research expenditures on factor productivity are also subject 
to a significant amount of uncertainty. It is difficult to find 
objective measures of productivity, and of the stock of 
knowledge created by research expenditures, that can be used in 
econometric analyses. It is also difficult to establish links 
between research expenditures within certain firms, or within 
industries, or even within specific countries, because other 
firms or industries may also benefit from technological 
development produced by those expenditures. And it is difficult 
to separate out the effects of research expenditures from other 
possible influences on productivity.\17\ Notwithstanding the 
methodological challenges in estimating the magnitude of this 
effect, these studies generally find positive returns to 
research expenditures, providing support for the hypothesized 
link between research spending and increased productivity and 
growth.
---------------------------------------------------------------------------
    \17\Bronwyn H. Hall, Jackques Mairesse, and Pierre Mohnen discuss 
these issues in a survey of studies that have attempted to measure the 
effects of research expenditures on factor productivity and the rate of 
return on investment in Measuring the Returns to R&D, National Bureau 
of Economic Research Working Paper 15622, December 2009.
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    Finally, in the short-run, the net reduction in tax 
receipts resulting from the bill could provide for a small 
increase in overall demand, thus resulting in some economic 
growth. In the longer term, the resulting increase in deficits 
would result in higher interest rates, reducing the positive 
investment incentive effects.
    Overall, we estimate that the effects of the bill on 
economic activity are so small and uncertain relative to the 
size of the economy as to be incalculable within the context of 
a model of the aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 4438 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code and has widespread applicability to 
individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Code and that 
have ``widespread applicability'' to individuals or small 
businesses, within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(j)(2) of H. Res. 5 (113th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169). The Committee also states that the Government 
Accountability Office has included the research tax credit in a 
report to Congress pursuant to section 21 of Public Law 111-
139.

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(k) of H. Res. 5 (113th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart D--Business Related Credits

           *       *       *       *       *       *       *



SEC. 41. CREDIT FOR INCREASING RESEARCH ACTIVITIES.

  [(a) General Rule.--For purposes of section 38, the research 
credit determined under this section for the taxable year shall 
be an amount equal to the sum of--
          [(1) 20 percent of the excess (if any) of--
                  [(A) the qualified research expenses for the 
                taxable year, over
                  [(B) the base amount,
          [(2) 20 percent of the basic research payments 
        determined under subsection (e)(1)(A), and
          [(3) 20 percent of the amounts paid or incurred by 
        the taxpayer in carrying on any trade or business of 
        the taxpayer during the taxable year (including as 
        contributions) to an energy research consortium for 
        energy research.]
  (a) In General.--For purposes of section 38, the research 
credit determined under this section for the taxable year shall 
be an amount equal to the sum of--
          (1) 20 percent of so much of the qualified research 
        expenses for the taxable year as exceeds 50 percent of 
        the average qualified research expenses for the 3 
        taxable years preceding the taxable year for which the 
        credit is being determined,
          (2) 20 percent of so much of the basic research 
        payments for the taxable year as exceeds 50 percent of 
        the average basic research payments for the 3 taxable 
        years preceding the taxable year for which the credit 
        is being determined, plus
          (3) 20 percent of the amounts paid or incurred by the 
        taxpayer in carrying on any trade or business of the 
        taxpayer during the taxable year (including as 
        contributions) to an energy research consortium for 
        energy research.

           *       *       *       *       *       *       *

  [(c) Base Amount.--
          [(1) In general.--The term ``base amount'' means the 
        product of--
                  [(A) the fixed-base percentage, and
                  [(B) the average annual gross receipts of the 
                taxpayer for the 4 taxable years preceding the 
                taxable year for which the credit is being 
                determined (hereinafter in this subsection 
                referred to as the ``credit year'').
          [(2) Minimum base amount.--In no event shall the base 
        amount be less than 50 percent of the qualified 
        research expenses for the credit year.
          [(3) Fixed-base percentage.--
                  [(A) In general.--Except as otherwise 
                provided in this paragraph, the fixed-base 
                percentage is the percentage which the 
                aggregate qualified research expenses of the 
                taxpayer for taxable years beginning after 
                December 31, 1983, and before January 1, 1989, 
                is of the aggregate gross receipts of the 
                taxpayer for such taxable years.
                  [(B) Start-up companies.--
                          [(i) Taxpayers to which subparagraph 
                        applies.--The fixed-base percentage 
                        shall be determined under this 
                        subparagraph if--
                                  [(I) the first taxable year 
                                in which a taxpayer had both 
                                gross receipts and qualified 
                                research expenses begins after 
                                December 31, 1983, or
                                  [(II) there are fewer than 3 
                                taxable years beginning after 
                                December 31, 1983, and before 
                                January 1, 1989, in which the 
                                taxpayer had both gross 
                                receipts and qualified research 
                                expenses.
                          [(ii) Fixed-base percentage.--In a 
                        case to which this subparagraph 
                        applies, the fixed-base percentage is--
                                  [(I) 3 percent for each of 
                                the taxpayer's 1st 5 taxable 
                                years beginning after December 
                                31, 1993, for which the 
                                taxpayer has qualified research 
                                expenses,
                                  [(II) in the case of the 
                                taxpayer's 6th such taxable 
                                year, 1/6 of the percentage 
                                which the aggregate qualified 
                                research expenses of the 
                                taxpayer for the 4th and 5th 
                                such taxable years is of the 
                                aggregate gross receipts of the 
                                taxpayer for such years,
                                  [(III) in the case of the 
                                taxpayer's 7th such taxable 
                                year, 1/3 of the percentage 
                                which the aggregate qualified 
                                research expenses of the 
                                taxpayer for the 5th and 6th 
                                such taxable years is of the 
                                aggregate gross receipts of the 
                                taxpayer for such years,
                                  [(IV) in the case of the 
                                taxpayer's 8th such taxable 
                                year, 1/2 of the percentage 
                                which the aggregate qualified 
                                research expenses of the 
                                taxpayer for the 5th, 6th, and 
                                7th such taxable years is of 
                                the aggregate gross receipts of 
                                the taxpayer for such years,
                                  [(V) in the case of the 
                                taxpayer's 9th such taxable 
                                year, 2/3 of the percentage 
                                which the aggregate qualified 
                                research expenses of the 
                                taxpayer for the 5th, 6th, 7th, 
                                and 8th such taxable years is 
                                of the aggregate gross receipts 
                                of the taxpayer for such years,
                                  [(VI) in the case of the 
                                taxpayer's 10th such taxable 
                                year, 5/6 of the percentage 
                                which the aggregate qualified 
                                research expenses of the 
                                taxpayer for the 5th, 6th, 7th, 
                                8th, and 9th such taxable years 
                                is of the aggregate gross 
                                receipts of the taxpayer for 
                                such years, and
                                  [(VII) for taxable years 
                                thereafter, the percentage 
                                which the aggregate qualified 
                                research expenses for any 5 
                                taxable years selected by the 
                                taxpayer from among the 5th 
                                through the 10th such taxable 
                                years is of the aggregate gross 
                                receipts of the taxpayer for 
                                such selected years.
                          [(iii) Treatment of de minimis 
                        amounts of gross receipts and qualified 
                        research expensesThe Secretary may 
                        prescribe regulations providing that de 
                        minimis amounts of gross receipts and 
                        qualified research expenses shall be 
                        disregarded under clauses (i) and (ii).
                  [(C) Maximum fixed-base percentage.--In no 
                event shall the fixed-base percentage exceed 16 
                percent.
                  [(D) Rounding.--The percentages determined 
                under subparagraphs (A) and (B)(ii) shall be 
                rounded to the nearest 1/100th of 1 percent.
          [(4) Election of alternative incremental credit.--
                  [(A) In general.--At the election of the 
                taxpayer, the credit determined under 
                subsection (a)(1) shall be equal to the sum 
                of--
                          [(i) 3 percent of so much of the 
                        qualified research expenses for the 
                        taxable year as exceeds 1 percent of 
                        the average described in subsection 
                        (c)(1)(B) but does not exceed 1.5 
                        percent of such average,
                          [(ii) 4 percent of so much of such 
                        expenses as exceeds 1.5 percent of such 
                        average but does not exceed 2 percent 
                        of such average, and
                          [(iii) 5 percent of so much of such 
                        expenses as exceeds 2 percent of such 
                        average.
                  [(B) Election.--An election under this 
                paragraph shall apply to the taxable year for 
                which made and all succeeding taxable years 
                unless revoked with the consent of the 
                Secretary.
          [(5) Election of alternative simplified credit.--
                  [(A) In general.--At the election of the 
                taxpayer, the credit determined under 
                subsection (a)(1) shall be equal to 14 percent 
                (12 percent in the case of taxable years ending 
                before January 1, 2009) of so much of the 
                qualified research expenses for the taxable 
                year as exceeds 50 percent of the average 
                qualified research expenses for the 3 taxable 
                years preceding the taxable year for which the 
                credit is being determined.
                  [(B) Special rule in case of no qualified 
                research expenses in any of 3 preceding taxable 
                years.--
                          [(i) Taxpayers to which subparagraph 
                        applies.--The credit under this 
                        paragraph shall be determined under 
                        this subparagraph if the taxpayer has 
                        no qualified research expenses in any 
                        one of the 3 taxable years preceding 
                        the taxable year for which the credit 
                        is being determined.
                          [(ii) Credit rate.--The credit 
                        determined under this subparagraph 
                        shall be equal to 6 percent of the 
                        qualified research expenses for the 
                        taxable year.
                  [(C) Election.--An election under this 
                paragraph shall apply to the taxable year for 
                which made and all succeeding taxable years 
                unless revoked with the consent of the 
                Secretary. An election under this paragraph may 
                not be made for any taxable year to which an 
                election under paragraph (4) applies.
          [(6) Consistent treatment of expenses required.--
                  [(A) In general.--Notwithstanding whether the 
                period for filing a claim for credit or refund 
                has expired for any taxable year taken into 
                account in determining the fixed-base 
                percentage, the qualified research expenses 
                taken into account in computing such percentage 
                shall be determined on a basis consistent with 
                the determination of qualified research 
                expenses for the credit year.
                  [(B) Prevention of distortions.--The 
                Secretary may prescribe regulations to prevent 
                distortions in calculating a taxpayer's 
                qualified research expenses or gross receipts 
                caused by a change in accounting methods used 
                by such taxpayer between the current year and a 
                year taken into account in computing such 
                taxpayer's fixed-base percentage.
          [(7) Gross receipts.--For purposes of this 
        subsection, gross receipts for any taxable year shall 
        be reduced by returns and allowances made during the 
        taxable year. In the case of a foreign corporation, 
        there shall be taken into account only gross receipts 
        which are effectively connected with the conduct of a 
        trade or business within the United States, the 
        Commonwealth of Puerto Rico, or any possession of the 
        United States.]
  (c) Determination of Average Research Expenses for Prior 
Years.--
          (1) Special rule in case of no qualified research 
        expenditures in any of 3 preceding taxable years.--In 
        any case in which the taxpayer has no qualified 
        research expenses in any one of the 3 taxable years 
        preceding the taxable year for which the credit is 
        being determined, the amount determined under 
        subsection (a)(1) for such taxable year shall be equal 
        to 10 percent of the qualified research expenses for 
        the taxable year.
          (2) Consistent treatment of expenses.--
                  (A) In general.--Notwithstanding whether the 
                period for filing a claim for credit or refund 
                has expired for any taxable year taken into 
                account in determining the average qualified 
                research expenses, or average basic research 
                payments, taken into account under subsection 
                (a), the qualified research expenses and basic 
                research payments taken into account in 
                determining such averages shall be determined 
                on a basis consistent with the determination of 
                qualified research expenses and basic research 
                payments, respectively, for the credit year.
                  (B) Prevention of distortions.--The Secretary 
                may prescribe regulations to prevent 
                distortions in calculating a taxpayer's 
                qualified research expenses or basic research 
                payments caused by a change in accounting 
                methods used by such taxpayer between the 
                current year and a year taken into account in 
                determining the average qualified research 
                expenses or average basic research payments 
                taken into account under subsection (a).

           *       *       *       *       *       *       *

  [(e) Credit Allowable With Respect to Certain Payments to 
Qualified Organizations for Basic Research.--For purposes of 
this section--
          [(1) In general.--In the case of any taxpayer who 
        makes basic research payments for any taxable year--
                  [(A) the amount of basic research payments 
                taken into account under subsection (a)(2) 
                shall be equal to the excess of--
                          [(i) such basic research payments, 
                        over
                          [(ii) the qualified organization base 
                        period amount, and
                  [(B) that portion of such basic research 
                payments which does not exceed the qualified 
                organization base period amount shall be 
                treated as contract research expenses for 
                purposes of subsection (a)(1).
          [(2) Basic research payments defined.--For purposes 
        of this subsection--
                  [(A) In general.--The term ``basic research 
                payment'' means, with respect to any taxable 
                year, any amount paid in cash during such 
                taxable year by a corporation to any qualified 
                organization for basic research but only if--
                          [(i) such payment is pursuant to a 
                        written agreement between such 
                        corporation and such qualified 
                        organization, and
                          [(ii) such basic research is to be 
                        performed by such qualified 
                        organization.
                  [(B) Exception to requirement that research 
                be performed by the organization.--In the case 
                of a qualified organization described in 
                subparagraph (C) or (D) of paragraph (6), 
                clause (ii) of subparagraph (A) shall not 
                apply.
          [(3) Qualified organization base period amount.--For 
        purposes of this subsection, the term ``qualified 
        organization base period amount'' means an amount equal 
        to the sum of--
                  [(A) the minimum basic research amount, plus
                  [(B) the maintenance-of-effort amount.
          [(4) Minimum basic research amount.--For purposes of 
        this subsection--
                  [(A) In general.--The term ``minimum basic 
                research amount'' means an amount equal to the 
                greater of--
                          [(i) 1 percent of the average of the 
                        sum of amounts paid or incurred during 
                        the base period for--
                                  [(I) any in-house research 
                                expenses, and
                                  [(II) any contract research 
                                expenses, or
                          [(ii) the amounts treated as contract 
                        research expenses during the base 
                        period by reason of this subsection (as 
                        in effect during the base period).
                  [(B) Floor amount.--Except in the case of a 
                taxpayer which was in existence during a 
                taxable year (other than a short taxable year) 
                in the base period, the minimum basic research 
                amount for any base period shall not be less 
                than 50 percent of the basic research payments 
                for the taxable year for which a determination 
                is being made under this subsection.
          [(5) Maintenance-of-effort amount.--For purposes of 
        this subsection--
                  [(A) In general.--The term ``maintenance-of-
                effort amount'' means, with respect to any 
                taxable year, an amount equal to the excess (if 
                any) of--
                          [(i) an amount equal to--
                                  [(I) the average of the 
                                nondesignated university 
                                contributions paid by the 
                                taxpayer during the base 
                                period, multiplied by
                                  [(II) the cost-of-living 
                                adjustment for the calendar 
                                year in which such taxable year 
                                begins, over (ii) the amount of 
                                nondesignated university 
                                contributions paid by the 
                                taxpayer during such taxable 
                                year.
                  [(B) Nondesignated university 
                contributions.--For purposes of this paragraph, 
                the term ``nondesignated university 
                contribution'' means any amount paid by a 
                taxpayer to any qualified organization 
                described in paragraph (6)(A)--
                          [(i) for which a deduction was 
                        allowable under section 170, and
                          [(ii) which was not taken into 
                        account--
                                  [(I) in computing the amount 
                                of the credit under this 
                                section (as in effect during 
                                the base period) during any 
                                taxable year in the base 
                                period, or
                                  [(II) as a basic research 
                                payment for purposes of this 
                                section.
                  [(C) Cost-of-living adjustment defined.--
                          [(i) In general.--The cost-of-living 
                        adjustment for any calendar year is the 
                        cost-of-living adjustment for such 
                        calendar year determined under section 
                        1(f)(3), by substituting ``calendar 
                        year 1987'' for ``calendar year 1992'' 
                        in subparagraph (B) thereof.
                          [(ii) Special rule where base period 
                        ends in a calendar year other than 1983 
                        or 1984.--If the base period of any 
                        taxpayer does not end in 1983 or 1984, 
                        section 1(f)(3)(B) shall, or purposes 
                        of this paragraph, be applied by 
                        substituting the calendar year in which 
                        such base period ends for 1992. Such 
                        substitution shall be in lieu of the 
                        substitution under clause (i).]
  (e) Basic Research Payments.-- For purposes of this section--
          (1) In general.--The term ``basic research payment'' 
        means, with respect to any taxable year, any amount 
        paid in cash during such taxable year by a corporation 
        to any qualified organization for basic research but 
        only if--
                  (A) such payment is pursuant to a written 
                agreement between such corporation and such 
                qualified organization, and
                  (B) such basic research is to be performed by 
                such qualified organization.
          (2) Exception to requirement that research be 
        performed by the organization.--In the case of a 
        qualified organization described in subparagraph (C) or 
        (D) of paragraph (3), subparagraph (B) of paragraph (1) 
        shall not apply.
          [(6)] (3) Qualified organization.--For purposes of 
        this subsection, the term ``qualified organization'' 
        means any of the following organizations:
                  (A) * * *

           *       *       *       *       *       *       *

          [(7)] (4) Definitions and special rules.--For 
        purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(B) Base period.--The term ``base period'' 
                means the 3-taxable-year period ending with the 
                taxable year immediately preceding the 1st 
                taxable year of the taxpayer beginning after 
                December 31, 1983.
                  [(C) Exclusion from incremental credit 
                calculation.--For purposes of determining the 
                amount of credit allowable under subsection 
                (a)(1) for any taxable year, the amount of the 
                basic research payments taken into account 
                under subsection (a)(2)--
                          [(i) shall not be treated as 
                        qualified research expenses under 
                        subsection (a)(1)(A), and
                          [(ii) shall not be included in the 
                        computation of base amount under 
                        subsection (a)(1)(B).]
                  [(D)] (B) Trade or business qualification.--
                For purposes of applying subsection (b)(1) to 
                this subsection, any basic research payments 
                shall be treated as an amount paid in carrying 
                on a trade or business of the taxpayer in the 
                taxable year in which it is paid (without 
                regard to the provisions of subsection 
                (b)(3)(B)).
                  [(E)] (C) Certain corporations not 
                eligible.--The term ``corporation'' shall not 
                include--
                          (i) * * *

           *       *       *       *       *       *       *

  (f) Special Rules.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Adjustments for certain acquisitions, etc..--
        Under regulations prescribed by the Secretary--
                  (A) Acquisitions.--
                          (i) In general.--If a person acquires 
                        the major portion of either a trade or 
                        business or a separate unit of a trade 
                        or business (hereinafter in this 
                        paragraph referred to as the ``acquired 
                        business'') of another person 
                        (hereinafter in this paragraph referred 
                        to as the ``predecessor''), then the 
                        amount of qualified research expenses 
                        paid or incurred by the acquiring 
                        person during the measurement period 
                        shall be increased by the amount 
                        determined under clause (ii)[, and the 
                        gross receipts of the acquiring person 
                        for such period shall be increased by 
                        the amount determined under clause 
                        (iii)].

           *       *       *       *       *       *       *

                          [(iii) Amount determined with respect 
                        to gross receipts.--The amount 
                        determined under this clause is the 
                        amount which would be determined under 
                        clause (ii) if ``the gross receipts 
                        of'' were substituted for ``the 
                        qualified research expenses paid or 
                        incurred by'' each place it appears in 
                        clauses (ii) and (iv).]
                          [(iv)] (iii)  Acquisition year 
                        amount.--For purposes of clause (ii), 
                        the acquisition year amount is the 
                        amount equal to the product of--
                                  (I) * * *
                                  (II) the number of days in 
                                the period beginning on the 
                                date of the acquisition and 
                                ending on the last day of the 
                                taxable year in which the 
                                acquisition is made,
                        divided by the number of days in the 
                        acquiring person's taxable year.
                          [(v)] (iv) Special rules for 
                        coordinating taxable years.--In the 
                        case of an acquiring person and a 
                        predecessor whose taxable years do not 
                        begin on the same date--
                                  (I) each reference to a 
                                taxable year in clauses (ii) 
                                [and (iv)] and (iii) shall 
                                refer to the appropriate 
                                taxable year of the acquiring 
                                person,
                                  (II) the qualified research 
                                expenses paid or incurred by 
                                the predecessor[, and the gross 
                                receipts of the predecessor,] 
                                during each taxable year of the 
                                predecessor any portion of 
                                which is part of the 
                                measurement period shall be 
                                allocated equally among the 
                                days of such taxable year, and
                                  (III) the amount of such 
                                qualified research expenses 
                                taken into account under 
                                clauses (ii) [and (iv)] and 
                                (iii) with respect to a taxable 
                                year of the acquiring person 
                                shall be equal to the total of 
                                the expenses attributable under 
                                subclause (II) to the days 
                                occurring during such taxable 
                                year[, and].
                                  [(IV) the amount of such 
                                gross receipts taken into 
                                account under clause (iii) with 
                                respect to a taxable year of 
                                the acquiring person shall be 
                                equal to the total of the gross 
                                receipts attributable under 
                                subclause (II) to the days 
                                occurring during such taxable 
                                year.]
                          [(vi)] (v) Measurement period.--For 
                        purposes of this subparagraph, the term 
                        ``measurement period'' means, with 
                        respect to the taxable year of the 
                        acquiring person for which the credit 
                        is determined, any period of the 
                        acquiring person preceding such taxable 
                        year which is taken into account for 
                        purposes of determining the credit for 
                        such year.
                  (B) Dispositions.--If the predecessor 
                furnished to the acquiring person such 
                information as is necessary for the application 
                of subparagraph (A), then, for purposes of 
                applying this section for any taxable year 
                ending after such disposition, the amount of 
                qualified research expenses paid or incurred 
                by[, and the gross receipts of,] the 
                predecessor during the measurement period (as 
                defined in subparagraph [(A)(vi)] (A)(v), 
                determined by substituting ``predecessor'' for 
                ``acquiring person'' each place it appears) 
                shall be reduced by--
                          (i) in the case of the taxable year 
                        in which such disposition is made, an 
                        amount equal to the product of--
                                  (I) the qualified research 
                                expenses paid or incurred by[, 
                                or gross receipts of,] the 
                                predecessor with respect to the 
                                acquired business during the 
                                measurement period (as so 
                                defined and so determined), and
                                  (II) the number of days in 
                                the period beginning on the 
                                date of acquisition (as 
                                determined for purposes of 
                                subparagraph [(A)(iv)(II)] 
                                (A)(iii)(II)) and ending on the 
                                last day of the taxable year of 
                                the predecessor in which the 
                                disposition is made,

           *       *       *       *       *       *       *

                  [(C) Certain reimbursements taken into 
                account in determining fixed-base percentage.--
                If during any of the 3 taxable years following 
                the taxable year in which a disposition to 
                which subparagraph (B) applies occurs, the 
                disposing taxpayer (or a person with whom the 
                taxpayer is required to aggregate expenditures 
                under paragraph (1)) reimburses the acquiring 
                person (or a person required to so aggregate 
                expenditures with such person) for research on 
                behalf of the taxpayer, then the amount of 
                qualified research expenses of the taxpayer for 
                the taxable years taken into account in 
                computing the fixed-base percentage shall be 
                increased by the lesser of--
                          [(i) the amount of the decrease under 
                        subparagraph (B) which is allocable to 
                        taxable years so taken into account, or
                          [(ii) the product of the number of 
                        taxable years so taken into account, 
                        multiplied by the amount of the 
                        reimbursement described in this 
                        subparagraph.]

           *       *       *       *       *       *       *

  [(h) Termination.--
          [(1) In general.--This section shall not apply to any 
        amount paid or incurred--
                  [(A) after June 30, 1995, and before July 1, 
                1996, or
                  [(B) after December 31, 2013.
          [(2) Termination of alternative incremental credit.--
        No election under subsection (c)(4) shall apply to 
        taxable years beginning after December 31, 2008.
          [(2) Computation for taxable year in which credit 
        terminates.--In the case of any taxable year with 
        respect to which this section applies to a number of 
        days which is less than the total number of days in 
        such taxable year--
                  [(A) the amount determined under subsection 
                (c)(1)(B) with respect to such taxable year 
                shall be the amount which bears the same ratio 
                to such amount (determined without regard to 
                this paragraph) as the number of days in such 
                taxable year to which this section applies 
                bears to the total number of days in such 
                taxable year, and
                  [(B) for purposes of subsection (c)(5), the 
                average qualified research expenses for the 
                preceding 3 taxable years shall be the amount 
                which bears the same ratio to such average 
                qualified research expenses (determined without 
                regard to this paragraph) as the number of days 
                in such taxable year to which this section 
                applies bears to the total number of days in 
                such taxable year.]

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    These bills would add a combined $310 billion to the 
deficit. Even though these bills were introduced individually 
with some bipartisan support, the opposition to these bills was 
based on the position that these tax provisions should not be 
made permanent by adding to the deficit without any revenue 
offset.
    To put the combined cost ($310 billion) into context, this 
total represents more than one-half of the entire federal 
deficit this year--the lowest it has been since President Obama 
took office. It represents nearly two-thirds of all non-defense 
domestic discretionary spending in 2014. It is more than three 
times what we spend annually on education, job training, and 
social services. It is five times more than we spend on 
veterans. And, it is five times more than we spend on medical 
research and public health.
    We also opposed the manner in which Republicans were 
proceeding--selecting six to make permanent without any offset 
from the approximately 60 tax provisions that expired last 
year. This approach was both fiscally irresponsible and 
fundamentally hypocritical.
    We found it hypocritical that, four months ago, Republicans 
let emergency unemployment insurance expire for more than 1.3 
million Americans by arguing that an adequate offset had yet to 
be proposed. In early April, the Senate came to a bipartisan 
agreement on an offset after months of painstaking 
negotiations. Yet House Republicans still refuse to act.
    Further, we found it also hypocritical that the Republicans 
were in favor of passing these six tax bills at a cost of $310 
billion without an offset at the same time that they were 
requiring an offset for a provision stripped from another bill 
under consideration at the markup that helped foster children 
at a cost of $12 million.
    The consideration of these six tax bills should have been 
part of the consideration of all the expired tax provisions 
commonly referred to as ``tax extenders.'' The Republicans did 
not take up other tax extenders that also are important to 
Democratic Committee Members. Left to an uncertain fate are 
provisions like the Work Opportunity Tax Credit, the New 
Markets Tax Credit, and the renewable energy tax credits, as 
well as the long-term status of the Earned Income Tax Credit, 
the Child Tax Credit, and the American Opportunity Tax Credit.
            Sincerely,
                                           Sander M. Levin,
                                                    Ranking Member.