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Wanted: Tax Policies to Support Innovation

June 25, 2014
Innovative small businesses work to advance research, development, and manufacturing of technologies to help solve economic, environmental, and societal challenges. The Coalition of Small Business Innovators is a national, non-partisan coalition of organizations dedicated to stimulating sustained, private investment in small companies focusing on the development of transformative, life-changing new technologies.

Small business innovators are working every day to solve the greatest challenges facing our society – whether it’s finding a cure for cancer, developing critical medical devices, increasing energy efficiency, or the manufacturing of sustainable products. The current tax code does not adequately support this growing segment of small pre-revenue businesses.

The Coalition aims to (1) stimulate private capital for research by relaxing the passive activity loss rules in Section 469 for small research-intensive companies, which would allow companies to partner with their investors on research projects, enabling investors to enjoy more attractive tax treatment throughout the R&D process; (2) remove financing restrictions in Section 382 to allow small companies, in certain instances, to retain their net operating losses generated by R&D expenditures; and (3) improve capital gains treatment for small companies by changing the gross assets test in order for these companies to qualify for Section 1202.

The research and development that small business innovators embark on require substantial start-up costs and a lengthy experimentation period. The Coalition’s legislative proposals would make it more attractive to invest in these pioneering innovative industries, providing the bridge financing needed to make key breakthroughs for next generation technologies. Every step Congress takes to incent investment in groundbreaking R&D projects could improve the U.S. innovation ecosystem.