,i #aacth ,,congress #ast ,session ,h4 ,r4 #bfje ,,in ,,the ,,house ,,of ,,representatives ,june #bh1 #bjac ,ms4 ,schwartz introduced the following bill2 which was referred to the ,committee on ,ways and ,means ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to allow a deduction for patent box profit from the use of ,united ,states patents4 #a4 ,short title ,this ,act may be cited as the ,manufacturing ,innovation in ,america ,act of #bjac4 #b4 ,deduction for patent box profits 7a7 ,in general ,part ,,vi of subchapter ,b of chapter #a of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new section3 #bjj4 ,patent box profits 7a7 ,allowance of deduction ,if the taxpayer elects the application of this section1 there shall be allowed as a deduction an amount equal to #ga percent of the lesser of-- 7#a7 the patent box profit of the taxpayer for the taxable year1 or 7#b7 taxable income 7determined without regard to this section7 for the taxable year4 7b7 ,patent box profit ,for purposes of this section-- 7#a7 ,in general ,except as provided by paragraph 7#i71 the term patent box profit means1 with respect to a taxable year1 ,,ip profit multiplied by the ratio-- 7,a7 the numerator of which is the #e-year research and development expenditures of the taxpayer with respect to the taxable year1 and 7,b7 the denominator of which is the #e-year total costs of the taxpayer with respect to the taxable year4 7#b7 ,,ip profit ,the term ,,ip profit means the excess 7if any7 of-- 7,a7 patent gross receipts1 over 7,b7 the sum of-- 7i7 the taxpayer's cost of goods sold for the taxable year that are properly allocable to patent gross receipts1 7ii7 other expenses1 losses1 or deductions 7other than the deduction allowed under this section71 which are properly allocable to patent gross receipts1 plus 7iii7 routine profit4 7#c7 ,routine profit ,the term routine profit means-- 7,a7 the taxpayer's cost of goods sold for the taxable year properly allocable to patent gross receipts reduced by the portion of cost of goods sold related to the sum of cost of raw materials1 cost of items purchased for resale1 and amounts incurred for intangible property rights 7including royalties and amortization71 multiplied by 7,b7 #ae percent4 7#d7 ,allocation method ,the ,secretary shall prescribe rules for the proper allocation of items described in this paragraph for purposes of determining patent box profit4 ,such rules shall provide for the proper allocation of items whether or not such items are directly allocable to patent gross receipts4 7#e7 ,special rules 7,a7 ,determination of costs 7i7 ,in general ,cost shall be determined in accordance with the principles of sections #bfc;,a and #dga1 as provided for by the ,secretary under regulations or other guidance4 7ii7 ,items brought into the ,united ,states ,for purposes of determining cost of goods sold1 any item or service brought into the ,united ,states shall be treated as acquired by purchase1 and its cost shall be treated as not less than its value immediately after it entered the ,united ,states4 ,a similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to patent gross receipts4 7iii7 ,exports for further manufacture ,in the case of any property described in clause 7ii7 that had been exported by the taxpayer for further manufacture1 the increase in cost or adjusted basis under subparagraph 7,a7 shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the ,united ,states after the further manufacture4 7,b7 #e-year research and development expenditures ,the term #e-year research and development expenditures means with respect to a taxable year the research and development expenditures paid or incurred by the taxpayer for the performance of research and development in the ,united ,states for which a deduction is allowed under subsection 7a7 or 7b7 of section #agd 7determined without regard to section #da7 for the #e-taxable-year period ending with the taxable year4 7,c7 #e-year total costs ,the term #e-year total costs means with respect to a taxable year the excess of-- 7i7 all costs paid or incurred by the taxpayer for the #e-taxable year period ending with such taxable year1 over 7ii7 the sum of-- 7,i7 the taxpayer's cost of goods sold for such #e-taxable year period1 7,,ii7 interest paid or accrued for such #e-taxable year period1 7,,iii7 taxes paid or accrued for such #e-taxable year period1 and 7,,iv7 the net gain or loss for such #e-taxable year period from the sale or exchange of capital assets4 7,d7 ,rules relating to #e-year period ,for purposes of this paragraph-- 7i7 ,not in existence for entire #e-year period ,if the taxpayer was not in existence for the entire #e-year period referred to in subparagraphs 7,b7 and 7,c71 such subparagraphs shall be applied on the basis of the period during which such taxpayer was in existence4 7ii7 ,treatment of predecessors ,any reference in this paragraph to a taxpayer shall include a reference to any predecessor of such taxpayer4 7#f7 ,patent gross receipts 7,a7 ,in general ,the term patent gross receipts means gross receipts of the taxpayer for the taxable year which are derived from the sale1 lease1 license1 or other disposition of qualified patent property4 7,b7 ,related persons 7i7 ,in general ,the term patent gross receipts shall not include any gross receipts of the taxpayer derived from property leased1 licensed1 or rented by the taxpayer for use by any related person4 7ii7 ,related person ,for purposes of clause 7i71 a person shall be treated as related to another person if such persons are treated as a single employer under subsection 7a7 or 7b7 of section #eb or subsection 7m7 or 7o7 of section #dad1 except that determinations under subsections 7a7 and 7b7 of section #eb shall be made without regard to section #aefc7;b74 7#g7 ,qualified patent property 7,a7 ,in general ,the term qualified patent property means property which is a product which incorporates a qualified patent or patents-- 7i7 if more than a substantial percentage of the value of the product is derived from the direct or indirect use of one or more qualified patents1 and 7ii7 the gross receipts of the taxpayer from the sale1 lease1 license1 or other disposition of the product are domestic production gross receipts under section #aii7;c77#d74 7,b7 ,special rule relating to contract manufacturing ,for purposes of subparagraph 7,a77ii71 if the product was produced to the taxpayer's specifications within the ,united ,states under a contract1 the taxpayer's gross receipts from the sale1 lease1 license or other disposition of the product shall be treated as domestic production gross receipts if the contract manufacturer certifies to the taxpayer that the contract manufacturer's sale of such product to the taxpayer resulted in domestic production gross receipts of the contract manufacturer4 7,c7 ,domestic production gross receipts ,for purposes of this paragraph1 the term domestic production gross receipts has the meaning given such term by section #aii7;c77#d71 except that the term ,united ,states as defined in subsection 7d77#g7 of this section shall be substituted for the term ,united ,states as used in such section4 7#h7 ,qualified patent 7,a7 ,in general ,the term qualified patent means a patent-- 7i7 issued or extended by1 or for which an application is pending before1 the ,united ,states ,patent and ,trademark ,office under title #ce1 ,united ,states ,code1 7ii7 with respect to which-- 7,i7 the taxpayer is the patent owner or the holder of an exclusive license to exploit the patent within a specified territory or for a specific purpose1 7,,ii7 the taxpayer is actively involved in the decisionmaking connected with exploiting the patent1 and 7,,iii7 either the taxpayer or a member of the affiliated group of which the taxpayer is a member performed substantial activity to develop the patented invention1 its application1 or a product incorporating the patented invention1 and 7iii7 for any taxable year beginning after the third taxable year beginning after the date of the enactment of this section1 more than a substantial percentage of the activity to develop the patented invention or its application occurs in the ,united ,states4 ,clause 7iii7 shall not apply to a patent if a member of the taxpayer's affiliated group performed more than a substantial percentage of the activity to develop the patent outside the ,united ,states prior to the end of such third taxable year1 and the taxpayer owns the patent in the ,united ,states at the end of such third taxable year4 7,b7 ,special rule for certain foreign patents ,if the taxpayer-- 7i7 is the patent owner or the holder of an exclusive license to exploit a patent which meets the requirements of subparagraph 7,a71 7ii7 is issued or extended by a foreign country a patent for the same or substantially similar invention or application as the patent described in clause 7i71 and 7iii7 is the owner of1 or the holder of an exclusive license to exploit1 the foreign patent described in clause 7ii71 then the foreign patent described in clause 7ii7 shall be treated as a qualified patent for purposes of this section4 7,c7 ,special rules relating to licensing 7i7 ,licensee ,taxpayer ,in the case of a license of a patent to the licensee taxpayer1 the patent shall not be treated as a qualified patent in the hands of the licensee taxpayer unless the licensee satisfies the requirements of subparagraph 7,a77ii7 and the licensor-- 7,i7 certifies to the licensee 7in such form and manner as the ,secretary may prescribe7 that the patent satisfies the requirements of clauses 7i7 and 7iii7 of subparagraph 7,a71 and 7,,ii7 provides to the licensee such information as the ,secretary may require to determine whether the patent is a qualified patent4 7ii7 ,licensor taxpayer ,in the case of a license of a qualified patent by the licensor taxpayer1 the amount of royalties1 profit shares1 and similar amounts received from the license that directly relate to the production of qualified patent property by the licensee taxpayer shall be treated as patent gross receipts if-- 7,i7 the licensor meets the requirements of clause 7i71 7,,ii7 the licensor developed or acquired and added substantial value to the qualified patent1 but only so long as the licensor is regularly engaged in the development and addition of substantial value to property of such kind1 and 7,,iii7 the licensee certifies to the licensor 7in such form and manner as the ,secretary may prescribe7 that the royalty relates to the production of qualified patent property by the licensee taxpayer4 7,d7 ,special rules relating to patent claims denied or ruled invalid 7i7 ,recapture ,if-- 7,i7 there is a recapture event with respect to any claim contained in a qualified patent1 and 7,,ii7 a deduction was allowed under subsection 7a7 for any taxable year with respect to such claim1 the tax imposed by this chapter for the taxable year in which such recapture event occurs shall be increased by the recapture amount4 7ii7 ,recapture event ,for purposes of clause 7i71 the term recapture event means1 with respect to a claim that-- 7,i7 the patent does not issue on the basis 7in whole or in part7 of such claim1 or 7,,ii7 such claim is determined by the ,united ,states ,patent and ,trademark ,office or a court of competent jurisdiction not to be valid4 7iii7 ,recapture amount ,for purposes of clause 7i71 the recapture amount with respect to a claim is the sum of-- 7,i7 the excess of the amount by which-- 7aa7 the total tax 7determined without regard to subsection 7a77 that would be shown on returns of tax of the taxpayer for all taxable years for which a deduction was allowed under subsection 7a7 with respect to such claim1 exceeds 7bb7 the total tax shown on all returns of tax of the taxpayer for all taxable years for which a deduction was allowed under subsection 7a7 with respect to such claim1 determined with regard to subsection 7a71 plus 7,,ii7 in the case of a recapture event described in clause 7ii77,i71 interest at the underpayment rate established under section #ffba on the amount determined under subclause 7,i7 for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved4 7#i7 ,alternative determination of patent box profit 7,a7 ,in general ,in accordance with regulations or other guidance provided by the ,secretary1 the taxpayer may elect to determine patent box profit as the amount equal to the net income derived from patent gross receipts related to exploitation of the qualified patent that would be received for the taxable year if all transactions of the taxpayer for the taxable year were conducted at arm's length under the principles of section #dhb4 7,b7 ,election ,an election under subparagraph 7,a7 for a taxable year shall apply with respect to all qualified patents4 ,such election1 once made1 may be revoked only with the consent of the ,secretary4 7c7 ,alternative method for certain taxpayers ,in the case of a taxpayer which meets the #e1jjj1jjj gross receipts test of section #ddh7;c7 for the taxable year1 patent box profit shall be the greater of the amount determined under subsection 7b7 or #ej percent of ,,ip profit4 7d7 ,definitions and special rules ,for purposes of this section-- 7#a7 ,application of section to pass-thru entities 7,a7 ,partnerships and ,s corporations ,in the case of a partnership or ,s corporation-- 7i7 the deduction under subsection 7a7 shall be determined at the partner or shareholder level1 7ii7 except as provided in clause 7i71 all determinations relating to receipts1 expenses1 and whether a patent is a qualified patent shall be made at the entity level1 and 7iii7 each partner or shareholder shall take into account such person's allocable share of each item described in clause 7i7 or 7ii7 of subsection 7b77#b77;,a7 7determined without regard to whether the items described in such clause 7i7 exceed the items described in such clause 7ii774 7,b7 ,trusts and estates ,in the case of a trust or estate-- 7i7 the items referred to in subparagraph 7,a77ii7 7as determined therein7 shall be apportioned between the beneficiaries and the fiduciary 7and among the beneficiaries7 under regulations prescribed by the ,secretary1 and 7ii7 for purposes of paragraph 7#b71 adjusted gross income of the trust or estate shall be determined as provided in section #fg7;e7 with the adjustments described in such paragraph4 7,c7 ,application to individuals ,in the case of an individual1 subsection 7a77#b7 shall be applied by substituting adjusted gross income for taxable income4 ,for purposes of the preceding sentence1 adjusted gross income shall be determined-- 7i7 after application of sections #hf1 #ace1 #acg1 #aii1 #bai1 #bba1 #bbb1 and #dfi1 and 7ii7 without regard to this section4 7,d7 ,agricultural and horticultural cooperatives 7i7 ,deduction allowed to patrons ,any person who receives a qualified payment from a specified agricultural or horticultural cooperative shall be allowed for the taxable year in which such payment is received a deduction under subsection 7a7 equal to the portion of the deduction allowed under subsection 7a7 to such cooperative which is-- 7,i7 allowed with respect to the portion of the patent box profit to which such payment is attributable1 and 7,,ii7 identified by such cooperative in a written notice mailed to such person during the payment period described in section #achb7;d74 7ii7 ,cooperative denied deduction for portion of qualified payments ,the taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section #achb by reason of that portion of any qualified payment as does not exceed the deduction allowable under clause 7i7 with respect to such payment4 7iii7 ,taxable income of cooperatives determined without regard to certain deductions ,for purposes of this section1 the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection 7b7 or 7c7 of section #achb 7relating to patronage dividends1 per-unit retain allocations1 and nonpatronage distributions74 7iv7 ,special rule for marketing cooperatives ,for purposes of this section1 a specified agricultural or horticultural cooperative described in clause 7vi77,,ii7 shall be treated as having manufactured1 produced1 grown1 or extracted in whole or significant part any qualifying production property marketed by the organization which its patrons have so manufactured1 produced1 grown1 or extracted4 7v7 ,qualified payment ,for purposes of this paragraph1 the term qualified payment means1 with respect to any person1 any amount which-- 7,i7 is described in paragraph 7#a7 or 7#c7 of section #ache7;a71 7,,ii7 is received by such person from a specified agricultural or horticultural cooperative1 and 7,,iii7 is attributable to patent box profits with respect to which a deduction is allowed to such cooperative under subsection 7a74 7vi7 ,specified agricultural or horticultural cooperative ,for purposes of this paragraph1 the term specified agricultural or horticultural cooperative means an organization to which part ,i of subchapter ,t applies which is the owner of1 or the holder of an exclusive license to exploit1 a qualified patent4 7,e7 ,regulations ,the ,secretary may prescribe rules requiring or restricting the allocation of items under this paragraph and may prescribe such reporting requirements as the ,secretary determines appropriate4 7#b7 ,special rule for affiliated groups 7,a7 ,in general ,all members of an expanded affiliated group shall be treated as a single corporation for purposes of this section4 7,b7 ,expanded affiliated group ,for purposes of this section1 the term expanded affiliated group means an affiliated group as defined in section #aejd7;a71 determined-- 7i7 by substituting more than #ej percent for at least #hj percent each place it appears1 and 7ii7 without regard to paragraphs 7#b7 and 7#d7 of section #aejd7;b74 7,c7 ,allocation of deduction ,except as provided in regulations1 the deduction under subsection 7a7 shall be allocated among the members of the expanded affiliated group in proportion to each member's respective amount 7if any7 of patent box profit4 7#c7 ,coordination with minimum tax ,for purposes of determining alternative minimum taxable income under section #ee-- 7,a7 patent box profit shall be determined without regard to any adjustments under sections #ef through #ei1 and 7,b7 in the case of a corporation1 subsection 7a77#b7 shall be applied by substituting alternative minimum taxable income for taxable income4 7#d7 ,coordination with domestic production activities deduction ,this section shall be applied without regard to the deduction allowed under section #aii4 7#e7 ,unrelated business taxable income ,for purposes of determining the tax imposed by section #eaa1 subsection 7a77#b7 shall be applied by substituting unrelated business taxable income for taxable income4 7#f7 ,acquisitions and dispositions ,the ,secretary shall provide for the application of this subsection in cases where the taxpayer acquires1 or disposes of1 the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year4 7#g7 ,united ,states ,the term ,united ,states includes the ,district of ,columbia1 ,puerto ,rico1 the ,virgin ,islands1 ,guam1 ,american ,samoa1 the ,commonwealth of the ,northern ,mariana ,islands1 the ,federated ,states of ,micronesia1 the ,republic of the ,marshall ,islands1 and ,palau4 7e7 ,election 7#a7 ,in general ,the taxpayer may make an election to have this section apply for any taxable year4 7#b7 ,pass-thru entities ,in the case of a pass-thru entity1 the election shall be made at the partner or shareholder level4 7#c7 ,revocation ,an election under paragraph 7#a71 once made1 may be revoked only with the consent of the ,secretary4 7f7 ,regulations ,the ,secretary shall prescribe such regulations as may be appropriate to carry out this section1 including regulations which prevent the abuse of the purposes of this section4 4 7b7 ,conforming amendments 7#a7 ,section #ef7;d77#a77;,a7 of such ,code is amended by striking deduction under section #aii both places it appears and inserting deductions under sections #aii and #bjj4 7#b7 ,section #ef7;g77#d77;,c7 of such ,code is amended by adding at the end the following new clause3 7vii7 ,deduction for domestic business income ,clause 7i7 shall not apply to any amount allowable as a deduction under section #bjj4 4 7#c7 ,the following provisions of such ,code are each amended by inserting #bjj1 after #aii14 7,a7 ,section #hf7;b77#b77;,a74 7,b7 ,section #ace7;c77#d77;,a74 7,c7 ,section #acg7;b77#c77;,a74 7,d7 ,section #bai7;g77#c77;,a77ii74 7,e7 ,section #bba7;b77#b77;,c77i74 7,f7 ,section #bbb 7b77#b77;,c77i74 7,g7 ,section #bdf7;b77#a74 7,h7 ,section #dfi7;i77#c77;,f77iii74 7#d7 ,section #afc7;j77#f77;,a77i7 of such ,code is amended by striking and at the end of subclause 7,,iii7 and by inserting after subclause 7,,iv7 the following new subclause3 7,v7 any deduction allowable under section #bjj1 and 4 7#e7 ,section #agj7;b77#b77;,c7 of such ,code is amended by striking and at the end of clause 7iv71 by striking the period at the end of clause 7v7 and inserting 1 and1 and by inserting after clause 7v7 the following new clause3 7vi7 section #bjj4 4 7#f7 ,section #agb7;d7 of such ,code is amended by adding at the end the following new paragraph3 7#h7 ,domestic business income ,the deduction under section #bjj shall not be allowed4 4 7#g7 ,section #aii7;c7 of such ,code is amended by adding at the end the following new paragraph3 7#h7 ,coordination with patent box profits deduction ,qualified production activities income1 taxable income1 and domestic production gross receipts shall be determined without regard to section #bjj4 4 7#h7 ,section #aii7;d77#b77;,b7 of such ,code is amended by striking this section and inserting this section and section #bjj4 7#i7 ,section #fac7;a7 of such ,code is amended by striking deduction under section #aii and inserting deductions under sections #aii and #bjj4 7#aj7 ,section #fac;,a7d77#a7 of such ,code is amended by redesignating subparagraphs 7,c71 7,d71 and 7,e7 as subparagraphs 7,d71 7,e71 and 7,f71 respectively1 and by inserting after subparagraph 7,b7 the following new subparagraph3 7,c7 any deduction allowable under section #bjj1 4 7#aa7 ,section #adjb7;a7 of such ,code is amended by striking and at the end of paragraph 7#af71 by redesignating paragraph 7#ag7 as paragraph 7#ah71 and by inserting after paragraph 7#af7 the following new paragraph3 7#ag7 the deduction provided by section #bjj shall not be allowed2 and 4 7c7 ,clerical amendment ,the table of sections for part ,,vi of subchapter ,b of chapter #a of such ,code is amended by adding at the end the following new item3 ,sec4 #bjj4 ,patent box profits4 4 7d7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this ,act4