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CONTENTS

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1 3 10

10 10 10 11

12 12 17

Introduction

I Summary.
II Description of Bills
1. §. 654 (Senators Wallop, Armstrong, Symms,

Boren, Durenberger, Danforth, Roth, Glenn,
Heinz, Packwood, Chafee, Bentsen, and Baucus):
Rules for Allocating Research Expenditures to
U.S.-Source Income .....

Treasury Regulations
Explanation of 1981 Provision ......

Explanation of the Bill......
2. S. 738 (Senators Danforth, Bentsen, Chafee, Glenn,

Grassley, Symms, Boren, Tsongas, Durenberger,
Wilson, and Cohen): Make Permanent the Credit
for Increased Research Expenditures...

Present Law....

Explanation of the Bill...
3. S. 1147 (Senators Danforth, Tsongas, Symms, and

Thurmond): “Mortgage Debt Forgiveness Tax Act
of 1983"

Present Law.....

Explanation of the Bill.....
4. S. 1194 (Senators Danforth, Symms, Chafee, Bur-

dick, Pell, Wilson, Inouye, and Cohen): “Technol-
ogy Education Assistance and Development Act of

1983”; and ......
5. S. 1195 (Senators Bentsen and Chafee): “High

Technology Research and Educational Develop-
ment Act of 1983”.
a. Increased Deduction for Transfers of Scientif-

ic, Technical, or Computer Equipment for Cer-
tain Research or Educational Purposes.
Present Law.........
Prior Committee Action ....
Explanation of S. 1194 (Section 2).

Overview......
Transfers of qualified scientific property.
Transfers of qualified computer equipment
Allowable deduction .......
Special limitations

Effective date.........
Explanation of S. 1195 (Section 2)

Överview.....

18 18 19

21

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21 21 22 24 24 25 27 29 29 30 30 30 Page 31 32 34 35 35 36 36 38

Introduction-Continued

5. S. 1195 (Senators Bentsen and Chafee-Continued

a. Increased Deduction for Transfers of Scientif

ic, Technical, or Computer Equipment for Cer-
tain Research or Educational Purposes-Contin-
ued

Transfers of qualified scientific property
Transfers of qualified computer equipment..
Allowable deduction.
Special limitations

Effective date......
b. Expansion of Section 44F Credit

Present Law.....
Explanation of S. 1194 (Section 3).......

Expenditures for faculty wages and student
loans...
Exclusion of payments from base period de-
terminations

Effective date....
Explanation of S. 1195 (Section 3)....

Expenditures for faculty wages and student
loans .....
Exclusion of payments from base period de-
terminations

Effective date.....
c. Tax Treatment of Payments and Loan For-

giveness Received by Certain Graduate Sci-
ence Students .....
Present Law...
Explanation of S. 1194 (Section 4) and S. 1195

(Section 4)...........

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INTRODUCTION The bills described in this pamphlet have been scheduled for a public hearing on May 27, 1983, by the Senate Finance Subcommittee on Taxation and Debt Management.

There are five bills scheduled for the hearing. Four of the bills (S. 654, S. 738, S. 1194, and S. 1195) generally would extend or expand provisions of present law relating to the tax treatment of expenditures for research and development. The fifth bill (S. 1147) relates to the tax treatment of income from discharge of indebtedness on a personal residence.

The first part of the pamphlet is a summary of the bills. This is followed by a more detailed description of the bills, including present law, explanation of provisions, and effective dates.

I. SUMMARY

1. S. 654–Senators Wallop, Armstrong, Symms, Boren, Duren

berger, Danforth, Roth, Glenn, Heinz, Packwood, Chafee, Bentsen, and Baucus

Rules for Allocating Research Expenditures to U.S.-Source

Income

In determining foreign-source taxable income for purposes of computing the foreign tax credit limitation, taxpayers must allo cate or apportion expenses between foreign-source income and U.S.source income (Code secs. 861-863). Rules for allocating and apportioning research and other expenses are set forth in Treasury regulations.

In the Economic Recovery Tax Act of 1981 (ERTA), the Congress directed the Treasury Department to study the impact of its section 861 regulations on activities conducted in the United States and on the availability of the foreign tax credit. Pending action on the study, the Congress provided that for a taxpayer's first two taxable years beginning after the date of enactment of ERTA (August 13, 1981), all research expenditures in those years for research activities conducted in the United States are to be allocated or apportioned to sources within the United States for tax purposes.

The bill would provide a permanent rule allocating to U.S. sources all research expenditures attributable to activities conducted in the United States. The amendment made by the bill would apply retroactively to taxable years beginning after 1980. 2. S. 738–Senators Danforth, Bentsen, Chafee, Glenn, Grassley,

Symms, Boren, Tsongas, Durenberger, Wilson, and Cohen Make Permanent the Credit for Increased Research Expenditures

An income tax credit is allowed for certain qualified research expenditures incurred in carrying on a trade or business (Code sec. 44F, enacted in ERTA). The credit applies only to the extent that the taxpayer's qualified research expenditures for the taxable year exceed the average amount of yearly qualified research expenditures in the specified base period (generally, the preceding three taxable years). The rate of the credit is 25 percent of the incremental research expenditure amount.

For purposes of the section 44F credit, the definition of research is the same as that used for purposes of the special deduction rules under section 174, but subject to certain exclusions. A taxpayer's research expenditures eligible for the section 44F incremental credit consist of (1) "in-house" expenditures by the taxpayer for research wages and supplies used in research, plus certain amounts paid for research use of laboratory equipment, computers, or other

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