To amend the Internal Revenue Code of 1986 to provide an exception from the passive loss rules for investments in high technology research small business pass-thru entities.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. EXCEPTION FROM PASSIVE LOSS RULES FOR INVESTMENTS IN HIGH TECHNOLOGY RESEARCH SMALL BUSINESS PASS-THRU ENTITIES.
(a) In General.--Subsection (c) of section 469 of the Internal Revenue Code of 1986 is amended by redesignating paragraphs (4) through (7) as paragraphs (5) through (8), respectively, and by inserting after paragraph (3) the following new paragraph: ``(4) High technology research activities.-- ``(A) In general.--The term `passive activity' shall not include any activity of the taxpayer carried on by a high technology research small business pass- thru entity. ``(B) High technology research small business pass- thru entity.--For purposes of this paragraph, the term `high technology research small business pass-thru entity' means any domestic pass-thru entity for any taxable year if-- ``(i) either-- ``(I) more than 75 percent of the entity's expenditures (including salaries, rent and overhead) for such taxable year are paid or incurred in connection with qualified research (within the meaning of section 41(d)(1)(B) taking into account section 41(d)(4) and constituting elements of a process of experimentation for a purpose described in paragraph (3) of section 41(d)), or ``(II) more than 50 percent of the entity's expenditures for such taxable year constitute qualified research expenses (as defined in section 41(b), but determined without...