Internal Revenue Code:Sec. 41. Credit for increasing research activities

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      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
        

Statute

    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.
    (b) Qualified research expenses
      For purposes of this section -
      (1) Qualified research expenses
        The term ''qualified research expenses'' means the sum of the
      following amounts which are paid or incurred by the taxpayer
      during the taxable year in carrying on any trade or business of
      the taxpayer -
          (A) in-house research expenses, and
          (B) contract research expenses.
      (2) In-house research expenses
        (A) In general
          The term ''in-house research expenses'' means -
            (i) any wages paid or incurred to an employee for qualified
          services performed by such employee,
            (ii) any amount paid or incurred for supplies used in the
          conduct of qualified research, and
            (iii) under regulations prescribed by the Secretary, any
          amount paid or incurred to another person for the right to
          use computers in the conduct of qualified research.
        Clause (iii) shall not apply to any amount to the extent that
        the taxpayer (or any person with whom the taxpayer must
        aggregate expenditures under subsection (f)(1)) receives or
        accrues any amount from any other person for the right to use
        substantially identical personal property.
        (B) Qualified services
          The term ''qualified services'' means services consisting of
        -
            (i) engaging in qualified research, or
            (ii) engaging in the direct supervision or direct support
          of research activities which constitute qualified research.
        If substantially all of the services performed by an individual
        for the taxpayer during the taxable year consists of services
        meeting the requirements of clause (i) or (ii), the term
        ''qualified services'' means all of the services performed by
        such individual for the taxpayer during the taxable year.
        (C) Supplies
          The term ''supplies'' means any tangible property other than
        -
            (i) land or improvements to land, and
            (ii) property of a character subject to the allowance for
          depreciation.
        (D) Wages
          (i) In general
            The term ''wages'' has the meaning given such term by
          section 3401(a).
          (ii) Self-employed individuals and owner-employees
            In the case of an employee (within the meaning of section
          401(c)(1)), the term ''wages'' includes the earned income (as
          defined in section 401(c)(2)) of such employee.
          (iii) Exclusion for wages to which work opportunity credit
              applies
            The term ''wages'' shall not include any amount taken into
          account in determining the work opportunity credit under
          section 51(a).
      (3) Contract research expenses
        (A) In general
          The term ''contract research expenses'' means 65 percent of
        any amount paid or incurred by the taxpayer to any person
        (other than an employee of the taxpayer) for qualified
        research.
        (B) Prepaid amounts
          If any contract research expenses paid or incurred during any
        taxable year are attributable to qualified research to be
        conducted after the close of such taxable year, such amount
        shall be treated as paid or incurred during the period during
        which the qualified research is conducted.
        (C) Amounts paid to certain research consortia
          (i) In general
            Subparagraph (A) shall be applied by substituting ''75
          percent'' for ''65 percent'' with respect to amounts paid or
          incurred by the taxpayer to a qualified research consortium
          for qualified research on behalf of the taxpayer and 1 or
          more unrelated taxpayers.  For purposes of the preceding
          sentence, all persons treated as a single employer under
          subsection (a) or (b) of section 52 shall be treated as
          related taxpayers.
          (ii) Qualified research consortium
            The term ''qualified research consortium'' means any
          organization which -
              (I) is described in section 501(c)(3) or 501(c)(6) and is
            exempt from tax under section 501(a),
              (II) is organized and operated primarily to conduct
            scientific research, and
              (III) is not a private foundation.
        (D) AMOUNTS PAID TO ELIGIBLE SMALL BUSINESSES, 
             UNIVERSITIES, AND FEDERAL LABORATORIES-
          (i) IN GENERAL- In the case of amounts paid by the
             taxpayer to--
            (I) an eligible small business,
           (II) an institution of higher education (as defined in
              section 3304(f)), or
          (III) an organization which is a Federal laboratory,
              for qualified research which is energy research,
              subparagraph (A) shall be applied by substituting
             `100 percent' for `65 percent'.
         (ii) ELIGIBLE SMALL BUSINESS- For purposes of this
             subparagraph, the term `eligible small business'
             means a small business with respect to which the 
             taxpayer does not own (within the meaning of section 
             318) 50 percent or more of--
             (I) in the case of a corporation, the outstanding
               stock of the corporation (either by vote or value),
               and
            (II) in the case of a small business which is not a
               corporation, the capital and profits interests of
               the small business.
        (iii) SMALL BUSINESS- For purposes of this subparagraph--
            (I) IN GENERAL- The term `small business' means, with
             respect to any calendar year, any person if the annual
             average number of employees employed by such person
             during either of the 2 preceding calendar years was
             500 or fewer. For purposes of the preceding sentence,
             a preceding calendar year may be taken into account 
             only if the person was in existence throughout the 
             year.
           (II) STARTUPS, CONTROLLED GROUPS, AND PREDECESSORS-
             Rules similar to the rules of subparagraphs (B) and
            (D) of section 220(c)(4) shall apply for purposes of
             this clause.
        (iv) FEDERAL LABORATORY- For purposes of this subparagraph,
            the term `Federal laboratory' has the meaning given
            such term by section 4(6) of the Stevenson-Wydler
            Technology Innovation Act of 1980 (15 U.S.C. 3703(6)),
            as in effect on the date of the enactment of the Energy
            Tax Incentives Act of 2005.'.
      (4) Trade or business requirement disregarded for in-house
          research expenses of certain startup ventures
        In the case of in-house research expenses, a taxpayer shall be
      treated as meeting the trade or business requirement of paragraph
      (1) if, at the time such in-house research expenses are paid or
      incurred, the principal purpose of the taxpayer in making such
      expenditures is to use the results of the research in the active
      conduct of a future trade or business -
          (A) of the taxpayer, or
          (B) of 1 or more other persons who with the taxpayer are
        treated as a single taxpayer under subsection (f)(1).
    (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 expenses
            The 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 12 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.
                    (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) <<NOTE: Applicability.>> 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.
    (d) Qualified research defined
      For purposes of this section -
      (1) In general
        The term ''qualified research'' means research -
          (A) with respect to which expenditures may be treated as
        expenses under section 174,
          (B) which is undertaken for the purpose of discovering
        information -
            (i) which is technological in nature, and
            (ii) the application of which is intended to be useful in
          the development of a new or improved business component of
          the taxpayer, and
          (C) substantially all of the activities of which constitute
        elements of a process of experimentation for a purpose
        described in paragraph (3).
      Such term does not include any activity described in paragraph
      (4).
      (2) Tests to be applied separately to each business component
        For purposes of this subsection -
        (A) In general
          Paragraph (1) shall be applied separately with respect to
        each business component of the taxpayer.
        (B) Business component defined
          The term ''business component'' means any product, process,
        computer software, technique, formula, or invention which is to
        be -
            (i) held for sale, lease, or license, or
            (ii) used by the taxpayer in a trade or business of the
          taxpayer.
        (C) Special rule for production processes
          Any plant process, machinery, or technique for commercial
        production of a business component shall be treated as a
        separate business component (and not as part of the business
        component being produced).
      (3) Purposes for which research may qualify for credit
        For purposes of paragraph (1)(C) -
        (A) In general
          Research shall be treated as conducted for a purpose
        described in this paragraph if it relates to -
            (i) a new or improved function,
            (ii) performance, or
            (iii) reliability or quality.
        (B) Certain purposes not qualified
          Research shall in no event be treated as conducted for a
        purpose described in this paragraph if it relates to style,
        taste, cosmetic, or seasonal design factors.
      (4) Activities for which credit not allowed
        The term ''qualified research'' shall not include any of the
      following:
        (A) Research after commercial production
          Any research conducted after the beginning of commercial
        production of the business component.
        (B) Adaptation of existing business components
          Any research related to the adaptation of an existing
        business component to a particular customer's requirement or
        need.
        (C) Duplication of existing business component
          Any research related to the reproduction of an existing
        business component (in whole or in part) from a physical
        examination of the business component itself or from plans,
        blueprints, detailed specifications, or publicly available
        information with respect to such business component.
        (D) Surveys, studies, etc.
          Any -
            (i) efficiency survey,
            (ii) activity relating to management function or technique,
            (iii) market research, testing, or development (including
          advertising or promotions),
            (iv) routine data collection, or
            (v) routine or ordinary testing or inspection for quality
          control.
        (E) Computer software
          Except to the extent provided in regulations, any research
        with respect to computer software which is developed by (or for
        the benefit of) the taxpayer primarily for internal use by the
        taxpayer, other than for use in -
            (i) an activity which constitutes qualified research
          (determined with regard to this subparagraph), or
            (ii) a production process with respect to which the
          requirements of paragraph (1) are met.
        (F) Foreign research
          Any research conducted outside the United States, the
        Commonwealth of Puerto Rico, or any possession of the United
        States.
        (G) Social sciences, etc.
          Any research in the social sciences, arts, or humanities.
        (H) Funded research
          Any research to the extent funded by any grant, contract, or
        otherwise by another person (or governmental entity).
    (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, for 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).
      (6) Qualified organization
        For purposes of this subsection, the term ''qualified
      organization'' means any of the following organizations:
        (A) Educational institutions
          Any educational organization which -
            (i) is an institution of higher education (within the
          meaning of section 3304(f)), and
            (ii) is described in section 170(b)(1)(A)(ii).
        (B) Certain scientific research organizations
          Any organization not described in subparagraph (A) which -
            (i) is described in section 501(c)(3) and is exempt from
          tax under section 501(a),
            (ii) is organized and operated primarily to conduct
          scientific research, and
            (iii) is not a private foundation.
        (C) Scientific tax-exempt organizations
          Any organization which -
            (i) is described in -
              (I) section 501(c)(3) (other than a private foundation),
            or
              (II) section 501(c)(6),
            (ii) is exempt from tax under section 501(a),
            (iii) is organized and operated primarily to promote
          scientific research by qualified organizations described in
          subparagraph (A) pursuant to written research agreements, and
            (iv) currently expends -
              (I) substantially all of its funds, or
              (II) substantially all of the basic research payments
            received by it,
         for grants to, or contracts for basic research with, an
          organization described in subparagraph (A).
        (D) Certain grant organizations
          Any organization not described in subparagraph (B) or (C)
        which -
            (i) is described in section 501(c)(3) and is exempt from
          tax under section 501(a) (other than a private foundation),
            (ii) is established and maintained by an organization
          established before July 10, 1981, which meets the
          requirements of clause (i),
            (iii) is organized and operated exclusively for the purpose
          of making grants to organizations described in subparagraph
          (A) pursuant to written research agreements for purposes of
          basic research, and
            (iv) makes an election, revocable only with the consent of
          the Secretary, to be treated as a private foundation for
          purposes of this title (other than section 4940, relating to
          excise tax based on investment income).
      (7) Definitions and special rules
        For purposes of this subsection -
        (A) Basic research
          The term ''basic research'' means any original investigation
        for the advancement of scientific knowledge not having a
        specific commercial objective, except that such term shall not
        include -
            (i) basic research conducted outside of the United States,
          and
            (ii) basic research in the social sciences, arts, or
          humanities.
        (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) 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) Certain corporations not eligible
          The term ''corporation'' shall not include -
            (i) an S corporation,
            (ii) a personal holding company (as defined in section
          542), or
            (iii) a service organization (as defined in section
          414(m)(3)).
    (f) Special rules

(1) Paragraph (6) of section 41(f) (relating to special 
        rules) is amended by adding at the end the following:
                    
      For purposes of this section -
      (1) Aggregation of expenditures
        (A) Controlled group of corporations
          In determining the amount of the credit under this section -
            (i) all members of the same controlled group of
          corporations shall be treated as a single taxpayer, and
            (ii) the credit (if any) allowable by this section to each
          such member shall be its proportionate shares of the
          qualified research expenses and basic research payments
          giving rise to the credit.
        (B) Common control
          Under regulations prescribed by the Secretary, in determining
        the amount of the credit under this section -
            (i) all trades or businesses (whether or not incorporated)
          which are under common control shall be treated as a single
          taxpayer, and
            (ii) the credit (if any) allowable by this section to each
          such person shall be its proportionate shares of the
          qualified research expenses and basic research payments
          giving rise to the credit.
        The regulations prescribed under this subparagraph shall be
        based on principles similar to the principles which apply in
        the case of subparagraph (A).
      (2) Allocations
        (A) Pass-thru in the case of estates and trusts
          Under regulations prescribed by the Secretary, rules similar
        to the rules of subsection (d) of section 52 shall apply.
        (B) Allocation in the case of partnerships
          In the case of partnerships, the credit shall be allocated
        among partners under regulations prescribed by the Secretary.
      (3) Adjustments for certain acquisitions, etc.
        Under regulations prescribed by the Secretary -
        (A) Acquisitions
          If, after December 31, 1983, a taxpayer acquires the major
        portion of a trade or business of another person (hereinafter
        in this paragraph referred to as the ''predecessor'') or the
        major portion of a separate unit of a trade or business of a
        predecessor, then, for purposes of applying this section for
        any taxable year ending after such acquisition, the amount of
        qualified research expenses paid or incurred by the taxpayer
        during periods before such acquisition shall be increased by so
        much of such expenses paid or incurred by the predecessor with
        respect to the acquired trade or business as is attributable to
        the portion of such trade or business or separate unit acquired
        by the taxpayer, and the gross receipts of the taxpayer for
        such periods shall be increased by so much of the gross
        receipts of such predecessor with respect to the acquired trade
        or business as is attributable to such portion.
        (B) Dispositions
          If, after December 31, 1983 -
            (i) a taxpayer disposes of the major portion of any trade
          or business or the major portion of a separate unit of a
          trade or business in a transaction to which subparagraph (A)
          applies, and
            (ii) the taxpayer furnished 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 the taxpayer during
        periods before such disposition shall be decreased by so much
        of such expenses as is attributable to the portion of such
        trade or business or separate unit disposed of by the taxpayer,
        and the gross receipts of the taxpayer for such periods shall
        be decreased by so much of the gross receipts as is
        attributable to such portion.
        (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.
      (4) Short taxable years
        In the case of any short taxable year, qualified research
      expenses and gross receipts shall be annualized in such
      circumstances and under such methods as the Secretary may
      prescribe by regulation.
      (5) Controlled group of corporations
        The term ''controlled group of corporations'' has the same
      meaning given to such term by section 1563(a), except that -
          (A) ''more than 50 percent'' shall be substituted for ''at
        least 80 percent'' each place it appears in section 1563(a)(1),
        and
          (B) the determination shall be made without regard to
        subsections (a)(4) and (e)(3)(C) of section 1563.
      (6) ENERGY RESEARCH CONSORTIUM-
         (A) IN GENERAL- The term `energy research consortium'
           means any organization--
          (i) which is--
             (I) described in section 501(c)(3) and is exempt
              from tax under section 501(a) and is organized 
              and operated primarily to conduct energy research,
              or
            (II) organized and operated primarily to conduct
              energy research in the public interest (within 
              the meaning of section 501(c)(3)),
         (ii) which is not a private foundation,
        (iii) to which at least 5 unrelated persons paid or
            incurred during the calendar year in which the taxable
            year of the organization begins amounts (including as
            contributions) to such organization for energy
            research, and
         (iv) to which no single person paid or incurred (including
            as contributions) during such calendar year an amount
            equal to more than 50 percent of the total amounts
            received by such organization during such calendar year
            for energy research.
       (B) TREATMENT OF PERSONS- All persons treated as a single
           employer under subsection (a) or (b) of section 52 shall
           be treated as related persons for purposes of 
           subparagraph (A)(iii) and as a single person for 
           purposes of subparagraph (A)(iv).
       (C) Foreign research.--For purposes of subsection 
                (a)(3), amounts paid or incurred for any energy research 
                conducted outside the United States, the Commonwealth of 
                Puerto Rico, or any possession of the United States 
                shall not be taken into account.
       (D) Denial of double benefit.--Any amount taken 
                into account under subsection (a)(3) shall not be taken 
                into account under paragraph (1) or (2) of subsection 
                (a).
       (E) Energy research.--The term `energy research' 
                does not include any research which is not qualified 
                research.
    (g) Special rule for pass-thru of credit
      In the case of an individual who -
        (1) owns an interest in an unincorporated trade or business,
        (2) is a partner in a partnership,
        (3) is a beneficiary of an estate or trust, or
        (4) is a shareholder in an S corporation,
    the amount determined under subsection (a) for any taxable year
    shall not exceed an amount (separately computed with respect to
    such person's interest in such trade or business or entity) equal
    to the amount of tax attributable to that portion of a person's
    taxable income which is allocable or apportionable to the person's
    interest in such trade or business or entity.  If the amount
    determined under subsection (a) for any taxable year exceeds the
    limitation of the preceding sentence, such amount may be carried to
    other taxable years under the rules of section 39; except that the
    limitation of the preceding sentence shall be taken into account in
    lieu of the limitation of section 38(c) in applying section 39.
    (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, 2007.
      (2) Computation of base amount
        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, the base amount with respect
      to such taxable year shall be the amount which bears the same
      ratio to the base amount for such year (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.
 

Sources

    (Added Pub. L. 97-34, title II, Sec. 221(a), Aug. 13, 1981, 95
    Stat. 241, Sec. 44F; amended Pub. L. 97-354, Sec. 5(a)(3), Oct. 19,
    1982, 96 Stat. 1692; Pub. L. 97-448, title I, Sec. 102(b)(2), Jan.
    12, 1983, 96 Stat. 2372; renumbered Sec. 30 and amended Pub. L.
    98-369, div.  A, title IV, Sec. 471(c), 474(i)(1), title VI, Sec.
    612(e)(1), July 18, 1984, 98 Stat. 826, 831, 912; renumbered Sec.
    41 and amended Pub. L. 99-514, title II, Sec. 231(a)(1), (b), (c),
    (d)(2), (3)(C)(ii), (e), title XVIII, Sec. 1847(b)(1), Oct. 22,
    1986, 100 Stat. 2173, 2175, 2178-2180, 2856; Pub. L. 100-647, title
    I, Sec. 1002(h)(1), title IV, Sec. 4007(a), 4008(b)(1), Nov. 10,
    1988, 102 Stat. 3370, 3652; Pub. L. 101-239, title VII, Sec.
    7110(a)(1), (b), (b)((c)), 7814(e)(2)(C), Dec. 19, 1989, 103 Stat.
    2322, 2323, 2325, 2414; Pub. L. 101-508, title XI, Sec.
    11101(d)(1)(C), 11402(a), Nov. 5, 1990, 104 Stat. 1388-405,
    1388-473; Pub. L. 102-227, title I, Sec. 102(a), Dec. 11, 1991, 105
    Stat. 1686; Pub. L. 103-66, title XIII, Sec. 13111(a)(1), 13112(a),
    (b), 13201(b)(3)(C), Aug. 10, 1993, 107 Stat. 420, 421, 459; Pub.
    L. 104-188, title I, Sec. 1201(e)(1), (4), 1204(a)-(d), Aug. 20,
    1996, 110 Stat. 1772-1774; Pub. L. 105-34, title VI, Sec. 601(a),
    (b)(1), Aug. 5, 1997, 111 Stat. 861; Pub. L. 105-277, div.  J,
    title I, Sec. 1001(a), Oct. 21, 1998, 112 Stat. 2681-888; Pub. L.
    106-170, title V, Sec. 502(a)(1), (b)(1), (c)(1), Dec. 17, 1999,
    113 Stat. 1919.)
 

Miscellaneous

                              PRIOR PROVISIONS
     
      A prior section 41, added Pub. L. 97-34, title III, Sec. 331(a),
    Aug. 13, 1981, 95 Stat. 289, Sec. 44G; amended Pub. L. 97-448,
    title I, Sec. 103(g)(1), Jan. 12, 1983, 96 Stat. 2379; renumbered
    Sec. 41 and amended Pub. L. 98-369, div.  A, title I, Sec. 14,
    title IV, Sec. 471(c), 474(l), 491(e)(2), (3), July 18, 1984, 98
    Stat. 505, 826, 833, 852, 853, related to employee stock ownership
    credit, prior to repeal by Pub. L. 99-514, title XI, Sec. 1171(a),
    Oct. 22, 1986, 100 Stat. 2513, applicable to compensation paid or
    accrued after Dec. 31, 1986, in taxable years ending after such
    date, except as otherwise provided, see section 1171(c) of Pub. L.
    99-514, set out as an Effective Date of 1986 Amendment note under
    section 38 of this title.  For transition rules relating to such
    repeal, see section 1177 of Pub. L. 99-514, set out as a Transition
    Rules note under section 38 of this title.
      Another prior section 41 was renumbered section 24 of this title.
                             
                               AMENDMENTS

2007 - P.L. 110-172
(c) Amendments Related to Section 1351 of the Act.--
            (1) Paragraph (3) of section 41(a) is amended by inserting 
        ``for energy research'' before the period at the end.
            (2) Paragraph (6) of <<NOTE: 26 USC 41.>> section 41(f) is 
        amended by adding at the end the following new subparagraph:
                    ``(E) Energy research.--The term `energy research' 
                does not include any research which is not qualified 
                research.''.

2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 123. <<NOTE: 26 USC 41 note.>> SPECIAL RULE FOR ELECTIONS UNDER 
            EXPIRED PROVISIONS.
    (a) <<NOTE: Deadline.>> Research Credit Elections.--In the case of 
any taxable year ending after December 31, 2005, and before the date of 
the enactment of this Act, any election under section 41(c)(4) or 
section 280C(c)(3)(C) of the Internal Revenue Code of 1986 shall be 
treated as having been timely made for such taxable year if such 
election is made not later than the later of April 15, 2007, or such 
time as the Secretary of the Treasury, or his designee, may specify. 
Such election shall be made in the manner prescribed by such Secretary 
or designee.
    (b) Other Elections.--Except as otherwise provided by such Secretary 
or designee, a rule similar to the rule of subsection (a) shall apply 
with respect to elections under any other expired provision of the 
Internal Revenue Code of 1986 the applicability of which is extended by 
reason of the amendments made by this title.

2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 104. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.
    (a) Extension.--
            (1) In general.--Section 41(h)(1)(B) is amended by striking 
        ``2005'' and inserting ``2007''.
            (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
        by striking ``2005'' and inserting ``2007''.
            (b) Increase in Rates of Alternative Incremental Credit.--
            (1) In general.--Subparagraph (A) of section 41(c)(4) 
        (relating to election of alternative incremental credit) is 
        amended--
                    (A) by striking ``2.65 percent'' and inserting ``3 
                percent'',
                    (B) by striking ``3.2 percent'' and inserting ``4 
                percent'', and
                    (C) by striking ``3.75 percent'' and inserting ``5 
                percent''.
                    (3) <<NOTE: 26 USC 41 note.>> Transition rule.--
                    (A) In general.--In the case of a specified 
                transitional taxable year for which an election under 
                section 41(c)(4) of the Internal Revenue Code of 1986 
                applies, the credit determined under section 41(a)(1) of 
                such Code shall be equal to the sum of--
                          (i) the applicable 2006 percentage multiplied 
                      by the amount determined under section 41(c)(4)(A) 
                      of such Code (as in effect for taxable years 
                      ending on December 31, 2006), plus
                          (ii) the applicable 2007 percentage multiplied 
                      by the amount determined under section 41(c)(4)(A) 
                      of such Code (as in effect for taxable years 
                      ending on January 1, 2007).
                    (B) Definitions.--For purposes of subparagraph (A)--
                          (i) Specified transitional taxable year.--The 
                      term ``specified transitional taxable year'' means 
                      any taxable year which ends after December 31, 
                      2006, and which includes such date.
                          (ii) Applicable 2006 percentage.--The term 
                      ``applicable 2006 percentage'' means the number of 
                      days in the specified transitional taxable year 
                      before January 1, 2007, divided by the number of 
                      days in such taxable year.
                          (iii) Applicable 2007 percentage.--The term 
                      ``applicable 2007 percentage'' means the number of 
                      days in the specified transitional taxable year 
                      after December 31, 2006, divided by the number of 
                      days in such taxable year.
    (c) Alternative Simplified Credit for Qualified Research Expenses.--
            (1) In general.--Subsection (c) of section 41 <<NOTE: 26 USC 
        41.>> (relating to base amount) is amended by redesignating 
        paragraphs (5) and (6) as paragraphs (6) and (7), respectively, 
        and by inserting after paragraph (4) the following new 
        paragraph:
            ``(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 12 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.
                    ``(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) <<NOTE: Applicability.>> 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.''.
            (2) <<NOTE: 26 USC 41 note.>> Transition rule for deemed 
        revocation of election of alternative incremental credit.--In 
        the case of an election under section 41(c)(4) of the Internal 
        Revenue Code of 1986 which applies to the taxable year which 
        includes January 1, 2007, such election shall be treated as 
        revoked with the consent of the Secretary of the Treasury if the 
        taxpayer makes an election under section 41(c)(5) of such Code 
        (as added by this subsection) for such year.
            (4) <<NOTE: 26 USC 41 note.>> Transition rule for 
        noncalendar taxable years.--
                    (A) In general.--In the case of a specified 
                transitional taxable year for which an election under 
                section 41(c)(5) of the Internal Revenue Code of 1986 
                (as added by this subsection) applies, the credit 
                determined under section 41(a)(1) of such Code shall be 
                equal to the sum of--
                          (i) the applicable 2006 percentage multiplied 
                      by the amount determined under section 41(a)(1) of 
                      such Code (as in effect for taxable years ending 
                      on December 31, 2006), plus
                          (ii) the applicable 2007 percentage multiplied 
                      by the amount determined under section 41(c)(5) of 
                      such Code (as in effect for taxable years ending 
                      on January 1, 2007).
                    (B) Definitions and special rules.--For purposes of 
                subparagraph (A)--
                          (i) Definitions.--Terms used in this paragraph 
                      which are also used in subsection (b)(3) shall 
                      have the respective meanings given such terms in 
                      such subsection.
                          (ii) Dual elections permitted.--Elections 
                      under paragraphs (4) and (5) of section 41(c) of 
                      such Code may both apply for the specified 
                      transitional taxable year.
                          (iii) Deferral of deemed election 
                      revocation.--Any election under section 41(c)(4) 
                      of the Internal Revenue Code of 1986 treated as 
                      revoked under paragraph (2) shall be treated as 
                      revoked for the taxable year after the specified 
                      transitional taxable year.

      2005 - P.L. 109-135
      (l) Amendments Related to Section 1351.--
            (1) Paragraph (6) of section 41(f) (relating to special 
        rules) is amended by adding at the end the following:
                    ``(C) Foreign research.--For purposes of subsection 
                (a)(3), amounts paid or incurred for any energy research 
                conducted outside the United States, the Commonwealth of 
                Puerto Rico, or any possession of the United States 
                shall not be taken into account.
                    ``(D) Denial of double benefit.--Any amount taken 
                into account under subsection (a)(3) shall not be taken 
                into account under paragraph (1) or (2) of subsection 
                (a).''.
            (2) Clause (ii) of section 41(b)(3)(C) is amended by 
        striking ``(other than an energy research consortium)''.

      2005 - Energy Policy Act of 2005, Sec.1351(b),
    amended Sec.41(b)(3) by adding a new subparagraph (D).
    The amendments made by this section shall apply to 
    amounts paid or incurred after the date of the enactment 
    of this Act, in taxable years ending after such date.
      2005 - Energy Policy Act of 2005, Sec.1351(a)(2),
    amended Sec.41(f) by adding a new paragraph (6).
    The amendments made by this section shall apply to 
    amounts paid or incurred after the date of the enactment
    of this Act, in taxable years ending after such date.
      2005 - Energy Policy Act of 2005, Sec.1351(a)(1), 
    amended Sec. 41(a) by adding a new paragraph (3).  The
    amendments made by this section shall apply to amounts
    paid or incurred after the date of the enactment of this
    Act, in taxable years ending after such date
      2004 - Subsec.301(a),Pub.L.108-311, amended Sec.41(h)(1)(B)
    to insert December 31, 2005 and strike June 30, 2004.  Effective  
    Date.--The amendments made by this section shall apply to amounts  
    paid or incurred after June 30, 2004.
      1999 - Subsec. (c)(4)(A)(i). Pub. L. 106-170, Sec. 502(b)(1)(A),
    substituted ''2.65 percent'' for ''1.65 percent''.
      Subsec. (c)(4)(A)(ii). Pub. L. 106-170, Sec. 502(b)(1)(B),
    substituted ''3.2 percent'' for ''2.2 percent''.
      Subsec. (c)(4)(A)(iii). Pub. L. 106-170, Sec. 502(b)(1)(C),
    substituted ''3.75 percent'' for ''2.75 percent''.
      Subsecs. (c)(6), (d)(4)(F). Pub. L. 106-170, Sec. 502(c)(1),
    inserted '', the Commonwealth of Puerto Rico, or any possession of
    the United States'' before period at end.
      Subsec. (h)(1). Pub. L. 106-170, Sec. 502(a)(1)(B), struck out
    concluding provisions which read as follows: ''Notwithstanding the
    preceding sentence, in the case of a taxpayer making an election
    under subsection (c)(4) for its first taxable year beginning after
    June 30, 1996, and before July 1, 1997, this section shall apply to
    amounts paid or incurred during the 36-month period beginning with
    the first month of such year.  The 36 months referred to in the
    preceding sentence shall be reduced by the number of full months
    after June 1996 (and before the first month of such first taxable
    year) during which the taxpayer paid or incurred any amount which
    is taken into account in determining the credit under this
    section.''
      Subsec. (h)(1)(B). Pub. L. 106-170, Sec. 502(a)(1)(A),
    substituted ''June 30, 2004'' for ''June 30, 1999''.
      1998 - Subsec. (h)(1). Pub. L. 105-277 substituted ''June 30,
    1999'' for ''June 30, 1998'' in subpar. (B) and substituted
    ''36-month'' for ''24-month'' and ''36 months'' for ''24 months''
    in concluding provisions.
      1997 - Subsec. (c)(4)(B). Pub. L. 105-34, Sec. 601(b)(1), amended
    heading and text of subpar. (B) generally.  Prior to amendment,
    text read as follows: ''An election under this paragraph may be
    made only for the first taxable year of the taxpayer beginning
    after June 30, 1996. Such an election shall apply to the taxable
    year for which made and all succeeding taxable years unless revoked
    with the consent of the Secretary.''
      Subsec. (h)(1). Pub. L. 105-34, Sec. 601(a), substituted ''June
    30, 1998'' for ''May 31, 1997'' in subpar. (B) and ''during the
    24-month period beginning with the first month of such year.  The
    24 months referred to in the preceding sentence shall be reduced by
    the number of full months after June 1996 (and before the first
    month of such first taxable year) during which the taxpayer paid or
    incurred any amount which is taken into account in determining the
    credit under this section.'' for ''during the first 11 months of
    such taxable year.'' in concluding provisions.
      1996 - Subsec. (b)(2)(D)(iii). Pub. L. 104-188, Sec. 1201(e)(1),
    (4), substituted ''work opportunity credit'' for ''targeted jobs
    credit'' in heading and text.
      Subsec. (b)(3)(C). Pub. L. 104-188, Sec. 1204(d), added subpar.
    (C).
      Subsec. (c)(3)(B)(i). Pub. L. 104-188, Sec. 1204(b), reenacted
    heading without change and amended text generally.  Prior to
    amendment, text read as follows: ''The fixed-base percentage shall
    be determined under this subparagraph if 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.''
      Subsec. (c)(4) to (6). Pub. L. 104-188, Sec. 1204(c), added par.
    (4) and redesignated former pars. (4) and (5) as (5) and (6),
    respectively.
      Subsec. (h). Pub. L. 104-188, Sec. 1204(a), reenacted heading
    without change and amended text generally.  Prior to amendment,
    text read as follows:
      ''(1) In general. - This section shall not apply to any amount
    paid or incurred after June 30, 1995.
      ''(2) Computation of base amount. - In the case of any taxable
    year which begins before July 1, 1995, and ends after June 30,
    1995, the base amount with respect to such taxable year shall be
    the amount which bears the same ratio to the base amount for such
    year (determined without regard to this paragraph) as the number of
    days in such taxable year before July 1, 1995, bears to the total
    number of days in such taxable year.''
      1993 - Subsec. (c)(3)(B)(ii). Pub. L. 103-66, Sec. 13112(a),
    amended heading and text of cl. (ii) generally.  Prior to
    amendment, text read as follows: ''In a case to which this
    subparagraph applies, the fixed-base percentage is 3 percent.''
      Subsec. (c)(3)(B)(iii). Pub. L. 103-66, Sec. 13112(b)(1),
    substituted ''clauses (i) and (ii)'' for ''clause (i)''.
      Subsec. (c)(3)(D). Pub. L. 103-66, Sec. 13112(b)(2), substituted
    ''subparagraphs (A) and (B)(ii)'' for ''subparagraph (A)''.
      Subsec. (e)(5)(C). Pub. L. 103-66, Sec. 13201(b)(3)(C),
    substituted ''1992'' for ''1989'' in cls. (i) and (ii).
      Subsec. (h). Pub. L. 103-66, Sec. 13111(a)(1), substituted ''June
    30, 1995'' for ''June 30, 1992'' in pars. (1) and (2) and ''July 1,
    1995'' for ''July 1, 1992'' in two places in par. (2).
      1991 - Subsec. (h). Pub. L. 102-227 substituted ''June 30, 1992''
    for ''December 31, 1991'' in pars. (1) and (2), and ''July 1,
    1992'' for ''January 1, 1992'' in two places in par. (2).
      1990 - Subsec. (e)(5)(C)(i). Pub. L. 101-508, Sec.
    11101(d)(1)(C)(i), inserted before period at end '', by
    substituting 'calendar year 1987' for 'calendar year 1989' in
    subparagraph (B) thereof''.
      Subsec. (e)(5)(C)(ii). Pub. L. 101-508, Sec. 11101(d)(1)(C)(ii),
    (iii), substituted ''1989'' for ''1987'' and inserted at end ''Such
    substitution shall be in lieu of the substitution under clause
    (i).''
      Subsec. (h). Pub. L. 101-508, Sec. 11402(a), substituted
    ''December 31, 1991'' for ''December 31, 1990'' wherever appearing
    and ''January 1, 1992'' for ''January 1, 1991'' wherever appearing.
      1989 - Subsec. (a)(1)(B). Pub. L. 101-239, Sec. 7110(b)(2)(A),
    amended subpar. (B) generally.  Prior to amendment, subpar. (B)
    read as follows: ''the base period research expenses, and''.
      Subsec. (b)(4). Pub. L. 101-239, Sec. 7110(b)((c)), added par.
    (4).
      Subsec. (c). Pub. L. 101-239, Sec. 7110(b)(1), substituted ''Base
    amount'' for ''Base period research expenses'' in heading and
    amended text generally, substituting pars. (1) to (5) for former
    pars. (1) to (3) which defined ''base period research expenses''
    and ''base period'' and prescribed minimum base period research
    expenses.
      Subsec. (e)(7)(C)(ii). Pub. L. 101-239, Sec. 7110(b)(2)(B),
    substituted ''base amount'' for ''base period research expenses''.
      Subsec. (f)(1). Pub. L. 101-239, Sec. 7110(b)(2)(C), substituted
    ''proportionate shares of the qualified research expenses and basic
    research payments'' for ''proportionate share of the increase in
    qualified research expenses'' in subpars. (A)(ii) and (B)(ii).
      Subsec. (f)(3)(A). Pub. L. 101-239, Sec. 7110(b)(2)(D),
    substituted ''December 31, 1983'' for ''June 30, 1980'' and
    inserted before period at end '', and the gross receipts of the
    taxpayer for such periods shall be increased by so much of the
    gross receipts of such predecessor with respect to the acquired
    trade or business as is attributable to such portion''.
      Subsec. (f)(3)(B). Pub. L. 101-239, Sec. 7110(b)(2)(E),
    substituted ''December 31, 1983'' for ''June 30, 1980'' in
    introductory provisions and inserted before period at end '', and
    the gross receipts of the taxpayer for such periods shall be
    decreased by so much of the gross receipts as is attributable to
    such portion''.
      Subsec. (f)(3)(C). Pub. L. 101-239, Sec. 7110(b)(2)(F),
    substituted ''Certain reimbursements taken into account in
    determining fixed-base percentage'' for ''Increase in base period''
    in heading, ''for the taxable years taken into account in computing
    the fixed-base percentage shall be increased by the lesser of'' for
    ''for the base period for such taxable year shall be increased by
    the lesser of'' in introductory provisions, and new cls. (i) and
    (ii) for former cls. (i) and (ii) which read as follows:
      ''(i) the amount of the decrease under subparagraph (B) which is
    allocable to such base period, or
      ''(ii) the product of the number of years in the base period,
    multiplied by the amount of the reimbursement described in this
    subparagraph.''
      Subsec. (f)(4). Pub. L. 101-239, Sec. 7110(b)(2)(G), inserted
    ''and gross receipts'' after ''qualified research expenses''.
      Subsec. (h). Pub. L. 101-239, Sec. 7814(e)(2)(C), redesignated
    subsec. (i) as (h) and struck out former subsec. (h) which related
    to election, time for election, and manner of election by taxpayer
    to have research credit not apply for a taxable year.
      Subsec. (h)(1). Pub. L. 101-239, Sec. 7110(a)(1)(A), substituted
    ''December 31, 1990'' for ''December 31, 1989''.
      Subsec. (h)(2). Pub. L. 101-239, Sec. 7110(a)(1), substituted
    ''January 1, 1991'' for ''January 1, 1990'' in two places and
    substituted ''December 31, 1990'' for ''December 31, 1989''.
      Pub. L. 101-239, Sec. 7110(b)(2)(H), substituted ''base amount''
    for ''base period expenses'' in heading and ''the base amount with
    respect to such taxable year shall be the amount which bears the
    same ratio to the base amount for such year (determined without
    regard to this paragraph)'' for ''any amount for any base period
    with respect to such taxable year shall be the amount which bears
    the same ratio to such amount for such base period'' in text.
      Subsec. (i). Pub. L. 101-239, Sec. 7814(e)(2)(C), redesignated
    subsec. (i) as (h).
      1988 - Subsec. (g). Pub. L. 100-647, Sec. 1002(h)(1), inserted at
    end ''If the amount determined under subsection (a) for any taxable
    year exceeds the limitation of the preceding sentence, such amount
    may be carried to other taxable years under the rules of section
    39; except that the limitation of the preceding sentence shall be
    taken into account in lieu of the limitation of section 38(c) in
    applying section 39.''
      Subsec. (h). Pub. L. 100-647, Sec. 4008(b)(1), added subsec. (h).
    Former subsec. (h) redesignated (i).
      Subsec. (i). Pub. L. 100-647, Sec. 4008(b)(1), redesignated
    former subsec. (h) as (i).
      Pub. L. 100-647, Sec. 4007(a), substituted ''1989'' and ''1990''
    for ''1988'' and ''1989'', respectively, wherever appearing in
    subsec. (h), prior to redesignation as subsec. (i) by Pub. L.
    100-647, Sec. 4008(b)(1).
      1986 - Pub. L. 99-514, Sec. 231(d)(2), renumbered section 30 of
    this title as this section.
      Subsec. (a). Pub. L. 99-514, Sec. 231(c)(1), amended subsec. (a)
    generally.  Prior to amendment, subsec. (a) read as follows:
    ''There shall be allowed as a credit against the tax imposed by
    this chapter for the taxable year an amount equal to 25 percent of
    the excess (if any) of -
        ''(1) the qualified research expenses for the taxable year,
      over
        ''(2) the base period research expenses.''
      Subsec. (b)(2)(A)(iii). Pub. L. 99-514, Sec. 231(e), amended cl.
    (iii) generally.  Prior to amendment, cl. (iii) read as follows:
    ''any amount paid or incurred to another person for the right to
    use personal property in the conduct of qualified research.''
      Subsec. (b)(2)(D)(iii). Pub. L. 99-514, Sec. 1847(b)(1),
    substituted ''targeted jobs credit'' for ''new jobs or WIN credit''
    in heading.
      Subsec. (d). Pub. L. 99-514, Sec. 231(b), inserted ''defined'' in
    heading and amended text generally.  Prior to amendment, text read
    as follows: ''For purposes of this section the term 'qualified
    research' has the same meaning as the term research or experimental
    has under section 174, except that such term shall not include -
        ''(1) qualified research conducted outside the United States,
        ''(2) qualified research in the social sciences or humanities,
      and
        ''(3) qualified research to the extent funded by any grant,
      contract, or otherwise by another person (or any governmental
      entity).''
      Subsec. (e). Pub. L. 99-514, Sec. 231(c)(2), amended subsec. (e)
    generally, substituting ''Credit allowable with respect to certain
    payments to qualified organizations for basic research'' for
    ''Credit available with respect to certain basic research by
    colleges, universities, and certain research organizations'' in
    heading, and restating and expanding provisions of former pars. (1)
    to (4) into new pars. (1) to (7).
      Subsec. (g). Pub. L. 99-514, Sec. 231(d)(3)(C)(ii), amended
    subsec. (g) generally, substituting provisions relating to special
    rule for pass-thru of credit for provisions relating to limitation
    on amount of credit for research based on amount of tax liability.
      Subsec. (h). Pub. L. 99-514, Sec. 231(a)(1), added subsec. (h).
      1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44F of
    this title as this section.
      Subsec. (b)(2)(D)(iii). Pub. L. 98-369, Sec. 474(i)(1)(A),
    substituted ''in determining the targeted jobs credit under section
    51(a)'' for ''in computing the credit under section 40 or 44B''.
      Subsec. (g)(1)(A). Pub. L. 98-369, Sec. 612(e)(1), substituted
    ''section 26(b)'' for ''section 25(b)''.
      Pub. L. 98-369, Sec. 474(i)(1)(B), amended subpar. (A) generally,
    substituting ''shall not exceed the taxpayer's tax liability for
    the taxable year (as defined in section 25(b)), reduced by the sum
    of the credits allowable under subpart A and sections 27, 28, and
    29'' for ''shall not exceed the amount of the tax imposed by this
    chapter reduced by the sum of the credits allowable under a section
    of this part having a lower number or letter designation than this
    section, other than the credits allowable by sections 31, 39, and
    43. For purposes of the preceding sentence, the term 'tax imposed
    by this chapter' shall not include any tax treated as not imposed
    by this chapter under the last sentence of section 53(a)''.
      1983 - Subsec. (b)(2)(A). Pub. L. 97-448 inserted provision that
    cl. (iii) would not apply to any amount to the extent that the
    taxpayer (or any person with whom the taxpayer must aggregate
    expenditures under subsection (f)(1)) received or accrued any
    amount from any other person for the right to use substantially
    identical personal property.
      1982 - Subsec. (f)(2)(A). Pub. L. 97-354, Sec. 5(a)(3)(A),
    substituted ''Pass-thru in the case of estates and trusts'' for
    ''Pass-through in the case of subchapter S corporations, etc.'' in
    subpar. heading, and substituted provisions relating to the
    applicability of rules similar to rules of subsec. (d) of section
    52 for provisions relating to the applicability of rules similar to
    rules of subsecs. (d) and (e) of section 52.
      Subsec. (g)(1)(B)(iv). Pub. L. 97-354, Sec. 5(a)(3)(B),
    substituted ''an S corporation'' for ''an electing small business
    corporation (within the meaning of section 1371(b))''.

                      EFFECTIVE DATE OF 2006 AMENDMENT
2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 104. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.
       (a)(3) <<NOTE: 26 USC 41 note.>> Effective date.--Except as 
        provided in paragraph (3), the amendments made by this 
        subsection shall apply to taxable years ending after December 
        31, 2006.
       (b)(2) <<NOTE: 26 USC 41 note.>> Effective date.--Except as 
        provided in paragraph (3), the amendments made by this 
        subsection shall apply to taxable years ending after December 
        31, 2006.
       (c)(3) <<NOTE: 26 USC 41 note.>> Effective date.--Except as 
        provided in paragraph (4), the amendments made by this 
        subsection shall apply to taxable years ending after December 
        31, 2006.
          
                      EFFECTIVE DATE OF 1999 AMENDMENT
      Pub. L. 106-170, title V, Sec. 502(a)(3), Dec. 17, 1999, 113
    Stat. 1919, provided that: ''The amendments made by this subsection
    (amending this section and section 45C of this title) shall apply
    to amounts paid or incurred after June 30, 1999.''
      Pub. L. 106-170, title V, Sec. 502(b)(2), Dec. 17, 1999, 113
    Stat. 1919, provided that: ''The amendments made by this subsection
    (amending this section) shall apply to taxable years beginning
    after June 30, 1999.''
      Pub. L. 106-170, title V, Sec. 502(c)(3), Dec. 17, 1999, 113
    Stat. 1920, provided that: ''The amendments made by this subsection
    (amending this section and section 280C of this title) shall apply
    to amounts paid or incurred after June 30, 1999.''
                      EFFECTIVE DATE OF 1998 AMENDMENT
      Pub. L. 105-277, div.  J, title I, Sec. 1001(c), Oct. 21, 1998,
    112 Stat. 2681-888, provided that: ''The amendments made by this
    section (amending this section and section 45C of this title) shall
    apply to amounts paid or incurred after June 30, 1998.''
                      EFFECTIVE DATE OF 1997 AMENDMENT
      Section 601(c) of Pub. L. 105-34 provided that: ''The amendments
    made by this section (amending this section and section 45C of this
    title) shall apply to amounts paid or incurred after May 31,
    1997.''
                      EFFECTIVE DATE OF 1996 AMENDMENT
      Amendment by section 1201(e)(1), (4) of Pub. L. 104-188
    applicable to individuals who begin work for the employer after
    Sept. 30, 1996, see section 1201(g) of Pub. L. 104-188, set out as
    a note under section 38 of this title.
      Section 1204(f) of Pub. L. 104-188 provided that:
      ''(1) In general. - Except as provided in paragraph (2), the
    amendments made by this section (amending this section and section
    28 (now 45C) of this title) shall apply to taxable years ending
    after June 30, 1996.
      ''(2) Subsections (c) and (d). - The amendments made by
    subsections (c) and (d) (amending this section) shall apply to
    taxable years beginning after June 30, 1996.
      ''(3) Estimated tax. - The amendments made by this section shall
    not be taken into account under section 6654 or 6655 of the
    Internal Revenue Code of 1986 (relating to failure to pay estimated
    tax) in determining the amount of any installment required to be
    paid for a taxable year beginning in 1997.''
                      EFFECTIVE DATE OF 1993 AMENDMENT
      Amendment by section 13111(a)(1) of Pub. L. 103-66 applicable to
    taxable years ending after June 30, 1992, see section 13111(c) of
    Pub. L. 103-66, set out as a note under section 45C of this title.
      Section 13112(c) of Pub. L. 103-66 provided that: ''The
    amendments made by this section (amending this section) shall apply
    to taxable years beginning after December 31, 1993.''
      Amendment by section 13201(b)(3)(C) of Pub. L. 103-66 applicable
    to taxable years beginning after Dec. 31, 1992, see section
    13201(c) of Pub. L. 103-66, set out as a note under section 1 of
    this title.
                      EFFECTIVE DATE OF 1991 AMENDMENT
      Amendment by Pub. L. 102-227 applicable to taxable years ending
    after Dec. 31, 1991, see section 102(c) of Pub. L. 102-227, set out
    as a note under section 45C of this title.
                      EFFECTIVE DATE OF 1990 AMENDMENT
      Amendment by section 11101(d)(1)(C) of Pub. L. 101-508 applicable
    to taxable years beginning after Dec. 31, 1990, see section
    11101(e) of Pub. L. 101-508, set out as a note under section 1 of
    this title.
      Amendment by section 11402(a) of Pub. L. 101-508 applicable to
    taxable years beginning after Dec. 31, 1989, see section 11402(c)
    of Pub. L. 101-508, set out as a note under section 45C of this
    title.
                      EFFECTIVE DATE OF 1989 AMENDMENT
      Section 7110(e) of Pub. L. 101-239 provided that: ''The
    amendments made by this section (amending this section and sections
    28, 174, 196, and 280C of this title) (other than subsection (a)
    (amending this section and section 28 of this title)) shall apply
    to taxable years beginning after December 31, 1989.''
      Amendment by section 7814(e)(2)(C) of Pub. L. 101-239 effective,
    except as otherwise provided, as if included in the provision of
    the Technical and Miscellaneous Revenue Act of 1988, Pub. L.
    100-647, to which such amendment relates, see section 7817 of Pub.
    L. 101-239, set out as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1988 AMENDMENT
      Amendment by section 1002(h)(1) of Pub. L. 100-647 effective,
    except as otherwise provided, as if included in the provision of
    the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
    relates, see section 1019(a) of Pub. L. 100-647, set out as a note
    under section 1 of this title.
      Section 4008(d) of Pub. L. 100-647 provided that: ''The
    amendments made by this section (amending this section and sections
    28, 196, 280C, and 6501 of this title) shall apply to taxable years
    beginning after December 31, 1988.''
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Section 231(g) of Pub. L. 99-514 provided that:
      ''(1) In general. - Except as provided in this subsection (2),
    the amendments made by this section (amending this section and
    sections 28, 38, 39, 108, 170, 280C, 381, 936, 6411, and 6511 of
    this title, renumbering former section 30 of this title as this
    section, and enacting and amending provisions set out as notes
    under this section) shall apply to taxable years beginning after
    December 31, 1985.
      ''(2) Subsection (a). - The amendments made by subsection (a)
    (amending this section and provisions set out as a note under this
    section) shall apply to taxable years ending after December 31,
    1985.
      ''(3) Basic research. - Section 41(a)(2) of the Internal Revenue
    Code of 1986 (as added by this section), and the amendments made by
    subsection (c)(2) (amending this section), shall apply to taxable
    years beginning after December 31, 1986.''
      Amendment by section 1847(b)(1) of Pub. L. 99-514 effective,
    except as otherwise provided, as if included in the provisions of
    the Tax Reform Act of 1984, Pub. L. 98-369, div.  A, to which such
    amendment relates, see section 1881 of Pub. L. 99-514, set out as a
    note under section 48 of this title.
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Amendment by section 474(i)(1) of Pub. L. 98-369 applicable to
    taxable years beginning after Dec. 31, 1983, and to carrybacks from
    such years, see section 475(a) of Pub. L. 98-369, set out as a note
    under section 21 of this title.
      Amendment by section 612(e)(1) of Pub. L. 98-369 applicable to
    interest paid or accrued after Dec. 31, 1984, on indebtedness
    incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
    set out as an Effective Date note under section 25 of this title.
                      EFFECTIVE DATE OF 1983 AMENDMENT
      Section 102(h)(2) of Pub. L. 97-448 provided that the amendment
    made by that section is effective only with respect to amounts paid
    or incurred after March 31, 1982.
                      EFFECTIVE DATE OF 1982 AMENDMENT
      Amendment by Pub. L. 97-354 applicable to taxable years beginning
    after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
    an Effective Date note under section 1361 of this title.
                               EFFECTIVE DATE
      Section 221(d) of Pub. L. 97-34, as amended by Pub. L. 99-514,
    Sec. 2, title II, Sec. 231(a)(2), Oct. 22, 1986, 100 Stat. 2095,
    2173, provided that:
      ''(1) In general. - The amendments made by this section (enacting
    this section of amending sections 55, 381, 383, 6096, 6411, and
    6511 of this title) shall apply to amounts paid or incurred after
    June 30, 1981.
      ''(2) Transitional rule. -
        ''(A) In general. - If, with respect to the first taxable year
      to which the amendments made by this section apply and which ends
      in 1981 or 1982, the taxpayer may only take into account
      qualified research expenses paid or incurred during a portion of
      such taxable year, the amount of the qualified research expenses
      taken into account for the base period of such taxable year shall
      be the amount which bears the same ratio to the total qualified
      research expenses for such base period as the number of months in
      such portion of such taxable year bears to the total number of
      months in such taxable year.
        ''(B) Definitions. - For purposes of the preceding sentence,
      the terms 'qualified research expenses' and 'base period' have
      the meanings given to such terms by section 44F (now 41) of the
      Internal Revenue Code of 1986 (formerly I.R.C. 1954) (as added by
      this section).''
         SPECIAL RULE FOR CREDIT ATTRIBUTABLE TO SUSPENSION PERIODS
      Pub. L. 106-170, title V, Sec. 502(d), Dec. 17, 1999, 113 Stat.
    1920, provided that:
      ''(1) In general. - For purposes of the Internal Revenue Code of
    1986, the credit determined under section 41 of such Code which is
    otherwise allowable under such Code -
        ''(A) shall not be taken into account prior to October 1, 2000,
      to the extent such credit is attributable to the first suspension
      period; and
        ''(B) shall not be taken into account prior to October 1, 2001,
      to the extent such credit is attributable to the second
      suspension period.
    On or after the earliest date that an amount of credit may be taken
    into account, such amount may be taken into account through the
    filing of an amended return, an application for expedited refund,
    an adjustment of estimated taxes, or other means allowed by such
    Code.
      ''(2) Suspension periods. - For purposes of this subsection -
        ''(A) the first suspension period is the period beginning on
      July 1, 1999, and ending on September 30, 2000; and
        ''(B) the second suspension period is the period beginning on
      October 1, 2000, and ending on September 30, 2001.
      ''(3) Expedited refunds. -
        ''(A) In general. - If there is an overpayment of tax with
      respect to a taxable year by reason of paragraph (1), the
      taxpayer may file an application for a tentative refund of such
      overpayment.  Such application shall be in such manner and form,
      and contain such information, as the Secretary may prescribe.
        ''(B) Deadline for applications. - Subparagraph (A) shall apply
      only to an application filed before the date which is 1 year
      after the close of the suspension period to which the application
      relates.
        ''(C) Allowance of adjustments. - Not later than 90 days after
      the date on which an application is filed under this paragraph,
      the Secretary shall -
          ''(i) review the application;
          ''(ii) determine the amount of the overpayment; and
          ''(iii) apply, credit, or refund such overpayment,
      in a manner similar to the manner provided in section 6411(b) of
      such Code.
        ''(D) Consolidated returns. - The provisions of section 6411(c)
      of such Code shall apply to an adjustment under this paragraph in
      such manner as the Secretary may provide.
      ''(4) Credit attributable to suspension period. -
        ''(A) In general. - For purposes of this subsection, in the
      case of a taxable year which includes a portion of the suspension
      period, the amount of credit determined under section 41 of such
      Code for such taxable year which is attributable to such period
      is the amount which bears the same ratio to the amount of credit
      determined under such section 41 for such taxable year as the
      number of months in the suspension period which are during such
      taxable year bears to the number of months in such taxable year.
        ''(B) Waiver of estimated tax penalties. - No addition to tax
      shall be made under section 6654 or 6655 of such Code for any
      period before July 1, 1999, with respect to any underpayment of
      tax imposed by such Code to the extent such underpayment was
      created or increased by reason of subparagraph (A).
      ''(5) Secretary. - For purposes of this subsection, the term
    'Secretary' means the Secretary of the Treasury (or such
    Secretary's delegate).''
     SPECIAL RULES FOR TAXABLE YEARS BEGINNING BEFORE OCT. 1, 1990, AND
                        ENDING AFTER SEPT. 30, 1990
      Section 7110(a)(2) of Pub. L. 101-239, which set forth the method
    of determining the amount treated as qualified research expenses
    for taxable years beginning before Oct. 1, 1990, and ending after
    Sept. 30, 1990, was repealed by Pub. L. 101-508, title XI, Sec.
    11402(b)(1), Nov. 5, 1990, 104 Stat. 1388-473.
      (Section 1702(d)(1) of Pub. L. 104-188 provided that:
    ''Notwithstanding section 11402(c) of the Revenue Reconciliation
    Act of 1990 (Pub. L. 101-508, set out as a note under section 45C
    of this title), the amendment made by section 11402(b)(1) of such
    Act (repealing section 7110(a)(2) of Pub. L. 101-239, formerly set
    out as a note above) shall apply to taxable years ending after
    December 31, 1989.'')
            STUDY AND REPORT ON CREDIT PROVIDED BY THIS SECTION
      Section 4007(b) of Pub. L. 100-647 directed Comptroller General
    of United States to conduct a study of credit provided by 26 U.S.C.
    41 and submit a report of the study not later than Dec. 31, 1989,
    to Committee on Ways and Means of House of Representatives and
    Committee on Finance of Senate.
             PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
      For provisions directing that if any amendments made by subtitle
    A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
    any plan, such plan amendment shall not be required to be made
    before the first plan year beginning on or after Jan. 1, 1989, see
    section 1140 of Pub. L. 99-514, as amended, set out as a note under
    section 401 of this title.
         NEW SECTION 41 TREATED AS CONTINUATION OF OLD SECTION 44F
      Section 474(i)(2) of Pub. L. 98-369 provided that: ''For purposes
    of determining -
        ''(A) whether any excess credit under old section 44F (now 41)
      for a taxable year beginning before January 1, 1984, is allowable
      as a carryover under new section 30 (now 41), and
        ''(B) the period during which new section 30 (now 41) is in
      effect,
    new section 30 (now 41) shall be treated as a continuation of old
    section 44F (and shall apply only to the extent old section 44F
    would have applied).''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 30A, 38, 45C, 144, 170,
    196, 197, 280C, 409, 936, 1202 of this title.
 

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