Outline of the U.S. Healthcare Technologies Competitiveness Act

TITLE I: Corporate Side - Tax Incentives

1. Net Operating Loss Companies - The provision ensures that loss biotech and medical device companies (or life sciences companies) receiving new capital or pursuing business-driven mergers with another loss biotechnology company do not run afoul of the onerous I.R.C. section 382 limitations which severely curtail the use of net operating losses (NOLs). This narrowly crafted proposal is consistent with the underlying policy of section 382 which seeks to prevent the inappropriate 'trafficking' of NOLs (i.e. where a profitable firm buys a loss company solely to utilize the outstanding NOLs).
2. AMT/NOL (Eliminate 90% Limit) - Present law prevents loss companies from utilizing NOLs to offset more than 90% of their Alternative Minimum Tax (AMT) liability. This provision would repeal this unfair tax result for life sciences companies and allow 100% of NOLs to be used against regular and AMT tax liability.
3. Research and Development Tax Credit -
   1. Permanent extension - This provision would permanently extend the R&D tax credit.
   2. Expand AIRC rates - Increases the Alternative Incremental Credit rates.
   3. New Alternative Simplified Credit - Creates new simplified regime for claiming the research credit.
   4. 100% contract research expenses for biotech research - The provision would increase the amount of "contract research" expenses eligible for the present-law R&D tax credit to 100% of such expenses made by a life sciences firm.
   5. Expand credit for biotech basic research payments - Increase amount of basic research payments to universities that qualifies for the full credit for life sciences research.
4. "Medical Innovation" Tax Credit for Clinical Trials - The provision provides a 40% credit on qualified medical research expenses (including human and animal clinical testing) that is expected to lead to the development of a medical product (drug, biologic, or medical device) performed at medical schools, teaching hospitals and NIH designated centers.
5. Orphan Drug Credit (Extend and Expand) - The provision amends the Orphan Drug Credit to allow expenditures incurred after application is made to be designated an orphan drug to qualify for the tax credit.
6. Countermeasure and Pandemic Flu Research Tax Incentives - The provision allows companies who have contracted to develop countermeasures or pandemic flu products for the Federal government to elect one of three preferential tax regimes: 1) for companies with gross assets under $750 million, relaxing present-law restrictions on the utilization of passive losses; 2) excluding qualified capital gains; or 3) claiming one of several business credits for medical research expenditures related to the development of countermeasures and pandemic flu responses.
7. "Biotech Science Park" Tax Incentives - The provision would expand I.R.C. section 179 expensing to remove the dollar limitation on expensing for property placed in service at a life sciences park (a group of interrelated companies and institutions located in a specific area whose administration promotes real estate development, technology transfer and partnership). In addition, the provision would add a 20% credit for research performed in life sciences parks.
8. Medical Research Expensing - The provision allows life sciences companies to elect to expense qualifying medical research equipment.

TITLE II: Investor Side - Tax Incentives

1. Capital Gain Rollover - The provision allows capital gains on the sale of stock in a life sciences company held for longer than six months to be deferred as long as the proceeds are reinvested in another life sciences company within 60 days.
2. Section 1244 Stock (Ordinary Loss Treatment) - The provision allows up to $50,000 in capital losses ($100,000 in the case of joint return filers) on the sale of stock in a life sciences company to be treated as ordinary losses by individuals or partnerships.
3. Equity Credit for Incubational Firms - The provision provides a 40% credit for investors in biotech firms engaging in 'incubational' research.
4. Biotech Flow-through Entities
   1. Modify Passive Loss Rules - The provision would modify the I.R.C. section 469 passive loss rules to permit investors to realize up to $25,000 in losses, regardless of their material participation in the venture.
   2. Modify Subchapter S Corporation Rules - The provision would allow an increased number of shareholders (150 as opposed to 100) in a life sciences company organized under Subchapter S.
5. Debt Financing Incentives
   1. Treat certain activities - clinical research - as qualifying "private activity" - The provision would amend the private activity bond rules to permit bond funding of certain qualifying biotech research expenditures (facilities, etc.).
   2. Biotechnology Zone Credit Bonds - The provision would create a new funding mechanism through the I.R.C. to encourage the construction of science research parks and incubator facilities focused on life sciences research by providing a federal tax credit to offset the interest income inclusion from bonds tied to the construction of qualifying facilities.