C.

D.

Section 174A(d)(2) specifies that in the case of
tangible personal property that is used in the
taxpayer's trade or business, the deduction is
equal to 150% of the taxpayer's basis in the
property (without regard to adjustments under
section 1016(a)). Thus, the deduction is equal

to 150% of original costs unreduced by any allowance
for depreciation.

The Detailed Description indicates that the intent

is that the deduction be equal to (1) 150% of
original cost, minus (2) total depreciation deductions
taken. Under this provision the maximum deduction

is 150% of cost and the minimum deduction is 50% of

cost.

The actual bill language must be changed to reduce the
amount of the deduction by depreciation taken in order
to reflect the expressed intent.

Section 174A(f)(2) excludes an electing small business
corporation from the definition of the term "corporation".
Perhaps it is a policy issue as to whether deductions such
as those provided by proposed section 174A not be allowed
to individuals, even in a flow-through environment.
However, as a result of the SubChapter S Revision Act of
1982 (P.L.97-354), many corporations including computer
and computer equipment manufacturers, scientific equipment
manufacturers, and software developers can and will avail
themselves of the small business corporation provisions
as defined in section 1371(b).

Accordingly, in order

22-894 0-83--20

to provide the same incentives to those companies
as to regular corporations to support educational
institutions through contributions of computer and
scientific equipment and computer software, consi-
deration should be given to allowing small business
corporations to be considered eligible for purposes

of proposed section 174A.

E. Section 2 of the Technology Education Assistance and
Development Act of 1983 deletes paragraph (4) of

F.

subsections (e) of section 170 and proposes to enact
new section 174A.

This leaves section 170(e)(3) in tact. Under the proposed
resulting statutory structure it is conceivable that a
deduction of an amount as specified therein would be
allowed by section 174A as well as a deduction as
specified therein by section 170(e)(3). In order to
avoid this possible outcome, proposed section 174A
treatment could be at the election of the taxpayer or
it could be specified in proposed section 174A that any
deduction allowed by that section is in lieu of any
deduction allowed by section 170.

Section 3 of the Technology Education Assistance and
Development Act of 1983 provides for an expansion of
existing law dealing with payments for basic research
for purposes of the R&D Credit as well as for scien-
tific education payments. With respect to this section
of the bill we submit the following comments:

1.

2.

3.

Proposed section 44F(e)(1) has language which
makes it clear that the prepaid rule contained
in existing section 44F(b)(3)(D) will not be
applicable to payments for basic research or
scientific education.

This modificaltion should enhance the basic

research provisions in at least two ways.
It will eliminate the necessity of potential
donor determining the amount of funding a
donee would plan to spend in a given year for
purposes of determining the amount of the donor's
payment. Secondly, it will eliminate a potentially
horrendous recordkeeping and reporting problem for
the donee to account to the donor on the amount of

a specific contribution spent in a given taxable year,
which would be particularly onerous where the donor
and the donee had different yearends.

Proposed section 44F(e)(2) would exclude any basic
research or scientific education payments from
the base period for purposes of determining the
increase in qualified research expenditures.
This provision will certainly create more encourage-
ment for taxpayers to fund basic research and up-
grade the research capabilities and facilities of
the qualified organizations as well as their teachers

education programs.

Proposed section 44F(e)(6) provides for two limitations in determining the amount of scientific education

payments which will qualify for the R&D Creidt.

a.

b.

Paragraph (B) requires that in order to

be eligible any amounts paid as wages must be paid pursuant to a written agreement which obligates the donor to pay the same or greater amount in each of and not less than three consecutive taxable years. Presumably the intent of this limitation is to provide for an organized approach to funding projects which span a number of years and create a real committment on the part of the donor. This is all well and good except there may be many potential donors who might be willing to make a one year committment but rather unwilling or cannot afford to make a minimum three year committment. One other possibility is that rather than giving a single amount in one year a donor, because of this limitation, will give that same amount but in installments over a three year period which would not seem to carryout the overall intent of the bill.

A second overall limitation is contained in

paragraph (6)(C) which requires for any amount
to qualify for the R&D Credit the total amount
in any given taxable year paid for scientific
education must exceed the average of all amounts

paid to all institutions of higher

education which are deductible under

section 170 and which are not designated by the taxpayer for scientific education during the three preceding taxable years. Again there is presumably a policy issue at stake, but, this limitation seems so onerous as to severely limit potential donor participation in this type of funding. In order to derive any immediate benefit of this provision considering this limitation the donor would have to have

either little or no base expenditures or be willing to make a major committment to fund these types of expenses.

The wording of the limitation would include