I
119THCONGRESS
1
STSESSION H. R. 1778
To amend the Internal Revenue Code of 1986 to promote new business
innovation, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH3, 2025
Mr. B
UCHANAN(for himself, Mr. KELLYof Pennsylvania, Mr. SMITHof Ne-
braska, Mr. E
STES, Mrs. MILLERof West Virginia, and Mr. MILLERof
Ohio) introduced the following bill; which was referred to the Committee
on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to promote
new business innovation, and for other purposes.
Be it enacted by the Senate and House of Representa-1
tives of the United States of America in Congress assembled, 2
SECTION 1. SHORT TITLE. 3
This Act may be cited as the ‘‘American Innovation 4
Act of 2025’’. 5
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SEC. 2. SIMPLIFICATION AND EXPANSION OF DEDUCTION 1
FOR START-UP AND ORGANIZATIONAL EX-2
PENDITURES. 3
(a) I
NGENERAL.—Section 195 of the Internal Rev-4
enue Code of 1986 is amended by redesignating sub-5
sections (c) and (d) as subsections (d) and (e), respec-6
tively, and by striking all that precedes subsection (d) (as 7
so redesignated) and inserting the following: 8
‘‘SEC. 195. START-UP AND ORGANIZATIONAL EXPENDI-9
TURES. 10
‘‘(a) C
APITALIZATION OF EXPENDITURES.—Except 11
as otherwise provided in this section, no deduction shall 12
be allowed for start-up or organizational expenditures. 13
‘‘(b) E
LECTIONTODEDUCT.— 14
‘‘(1) I
N GENERAL.—If a taxpayer elects the ap-15
plication of this subsection with respect to any active 16
trade or business— 17
‘‘(A) the taxpayer shall be allowed a deduc-18
tion for the taxable year in which such active 19
trade or business begins in an amount equal to 20
the lesser of— 21
‘‘(i) the aggregate amount of start-up 22
and organizational expenditures paid or in-23
curred in connection with such active trade 24
or business, or 25
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‘‘(ii) $20,000, reduced (but not below 1
zero) by the amount by which such aggre-2
gate amount exceeds $120,000, and 3
‘‘(B) the remainder of such start-up and 4
organizational expenditures shall be charged to 5
capital account and allowed as an amortization 6
deduction determined by amortizing such ex-7
penditures ratably over the 180-month period 8
beginning with the month in which the active 9
trade or business begins. 10
‘‘(2) A
PPLICATION TO ORGANIZATIONAL EX -11
PENDITURES.—In the case of organizational expend-12
itures with respect to any corporation or partner-13
ship, the active trade or business referred to in para-14
graph (1) means the first active trade or business 15
carried on by such corporation or partnership. 16
‘‘(3) I
NFLATION ADJUSTMENT .—In the case of 17
any taxable year beginning after December 31, 18
2026, the $20,000 and $120,000 amounts in para-19
graph (1)(A)(ii) shall each be increased by an 20
amount equal to— 21
‘‘(A) such dollar amount, multiplied by 22
‘‘(B) the cost-of-living adjustment deter-23
mined under section 1(f)(3) for the calendar 24
year in which the taxable year begins, deter-25
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mined by substituting ‘calendar year 2025’ for 1
‘calendar year 2016’ in subparagraph (A)(ii) 2
thereof. 3
If any amount as increased under the preceding sen-4
tence is not a multiple of $1,000, such amount shall 5
be rounded to the nearest multiple of $1,000. 6
‘‘(c) A
LLOWANCE OF DEDUCTIONUPONLIQUIDA-7
TION ORDISPOSITION.— 8
‘‘(1) L
IQUIDATION OF PARTNERSHIP OR COR -9
PORATION.—If any partnership or corporation is 10
completely liquidated by the taxpayer, any start-up 11
or organizational expenditures paid or incurred in 12
connection with such partnership or corporation 13
which were not allowed as a deduction by reason of 14
this section may be deducted to the extent allowable 15
under section 165. 16
‘‘(2) D
ISPOSITION OF TRADE OR BUSINESS .—If 17
any trade or business is completely disposed of or 18
discontinued by the taxpayer, any start-up expendi-19
tures paid or incurred in connection with such trade 20
or business which were not allowed as a deduction 21
by reason of this section (and not taken into account 22
in connection with a liquidation to which paragraph 23
(1) applies) may be deducted to the extent allowable 24
under section 165. For purposes of this paragraph, 25
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in the case of any deduction allowed under sub-1
section (b)(1) with respect to both start-up and or-2
ganizational expenditures, the amount treated as so 3
allowed with respect to start-up expenditures shall 4
bear the same ratio to such deduction as the start- 5
up expenditures taken into account in determining 6
such deduction bears to the aggregate of the start- 7
up and organizational expenditures so taken into ac-8
count.’’. 9
(b) O
RGANIZATIONAL EXPENDITURES.—Section 10
195(d) of such Code, as redesignated by subsection (a), 11
is amended by adding at the end the following new para-12
graphs: 13
‘‘(3) O
RGANIZATIONAL EXPENDITURES .—The 14
term ‘organizational expenditures’ means any ex-15
penditure which— 16
‘‘(A) is incident to the creation of a cor-17
poration or a partnership, 18
‘‘(B) is chargeable to capital account, and 19
‘‘(C) is of a character which, if expended 20
incident to the creation of a corporation or a 21
partnership having an ascertainable life, would 22
be amortizable over such life. 23
‘‘(4) A
PPLICATION TO CERTAIN DISREGARDED 24
ENTITIES.—In the case of any entity with a single 25
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owner that is disregarded as an entity separate from 1
its owner, this section shall be applied in the same 2
manner as if such entity were a corporation.’’. 3
(c) E
LECTION.—Section 195(e)(2) of such Code, as 4
redesignated by subsection (a), is amended to read as fol-5
lows: 6
‘‘(2) P
ARTNERSHIPS AND S CORPORATIONS .—In 7
the case of any partnership or S corporation, the 8
election under subsection (b) shall be made (and this 9
section shall be applied) at the entity level.’’. 10
(d) C
ONFORMINGAMENDMENTS.— 11
(1)(A) Part VIII of subchapter B of chapter 1 12
is amended by striking section 248 of such Code 13
(and by striking the item relating to such section in 14
the table of sections of such part). 15
(B) Section 170(b)(2)(D)(ii) of such Code is 16
amended by striking ‘‘(except section 248)’’. 17
(C) Section 312(n)(3) of such Code is amended 18
by striking ‘‘Sections 173 and 248’’ and inserting 19
‘‘Sections 173 and 195’’. 20
(D) Section 535(b)(3) of such Code is amended 21
by striking ‘‘(except section 248)’’. 22
(E) Section 545(b)(3) of such Code is amended 23
by striking ‘‘(except section 248)’’. 24
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(F) Section 545(b)(4) of such Code is amended 1
by striking ‘‘(except section 248)’’. 2
(G) Section 834(c)(7) of such Code is amended 3
by striking ‘‘(except section 248)’’. 4
(H) Section 852(b)(2)(C) of such Code is 5
amended by striking ‘‘(except section 248)’’. 6
(I) Section 857(b)(2)(A) of such Code is 7
amended by striking ‘‘(except section 248)’’. 8
(J) Section 1363(b) of such Code is amended 9
by adding ‘‘and’’ at the end of paragraph (2), by 10
striking paragraph (3), and by redesignating para-11
graph (4) as paragraph (3). 12
(K) Section 1375(b)(1)(B)(i) of such Code is 13
amended by striking ‘‘(other than the deduction al-14
lowed by section 248, relating to organization ex-15
penditures)’’. 16
(2)(A) Section 709 of such Code is amended to 17
read as follows: 18
‘‘SEC. 709. TREATMENT OF SYNDICATION FEES. 19
‘‘No deduction shall be allowed under this chapter to 20
a partnership or to any partner of the partnership for any 21
amounts paid or incurred to promote the sale of (or to 22
sell) an interest in the partnership.’’. 23
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(B) The item relating to section 709 in the 1
table of sections for part I of subchapter K of chap-2
ter 1 of such Code is amended to read as follows: 3
‘‘Sec. 709. Treatment of syndication fees.’’.
(3) Section 1202(e)(2)(A) of such Code is 4
amended by striking ‘‘section 195(c)(1)(A)’’ and in-5
serting ‘‘section 195(d)(1)(A)’’. 6
(4) The item relating to section 195 in the table 7
of contents of part VI of subchapter B of chapter 1 8
of such Code is amended to read as follows: 9
‘‘Sec. 195. Start-up and organizational expenditures.’’.
(e) EFFECTIVEDATE.—The amendments made by 10
this section shall apply to expenditures paid or incurred 11
in connection with active trades or businesses which begin 12
in taxable years beginning after December 31, 2025. 13
SEC. 3. PRESERVATION OF START-UP NET OPERATING 14
LOSSES AND TAX CREDITS AFTER OWNER-15
SHIP CHANGE. 16
(a) A
PPLICATION TO NETOPERATINGLOSSES.— 17
Section 382(d) of the Internal Revenue Code of 1986 is 18
amended by adding at the end the following new para-19
graph: 20
‘‘(4) E
XCEPTION FOR START-UP LOSSES.— 21
‘‘(A) I
N GENERAL.—In the case of any net 22
operating loss carryforward described in para-23
graph (1)(A) which arose in a start-up period 24
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taxable year, the amount of such net operating 1
loss carryforward otherwise taken into account 2
under such paragraph shall be reduced by the 3
net start-up loss determined with respect to the 4
trade or business referred to in subparagraph 5
(B)(i) for such start-up period taxable year. 6
‘‘(B) S
TART-UP PERIOD TAXABLE YEAR .— 7
The term ‘start-up period taxable year’ means 8
any taxable year of the old loss corporation 9
which— 10
‘‘(i) begins before the close of the 3- 11
year period beginning on the date on which 12
any trade or business of such corporation 13
begins as an active trade or business (as 14
determined under section 195(d)(2) with-15
out regard to subparagraph (B) thereof), 16
and 17
‘‘(ii) ends after January 31, 2026. 18
‘‘(C) N
ET START-UP LOSS.— 19
‘‘(i) I
N GENERAL.—The term ‘net 20
start-up loss’ means, with respect to any 21
trade or business referred to in subpara-22
graph (B)(i) for any start-up period tax-23
able year, the amount which bears the 24
same ratio (but not greater than 1) to the 25
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net operating loss carryforward which 1
arose in such start-up period taxable year 2
as— 3
‘‘(I) the net operating loss (if 4
any) which would have been deter-5
mined for such start-up period taxable 6
year if only items of income, gain, de-7
duction, and loss properly allocable to 8
such trade or business were taken into 9
account, bears to 10
‘‘(II) the amount of the net oper-11
ating loss determined for such start- 12
up period taxable year. 13
‘‘(ii) S
PECIAL RULE FOR LAST TAX -14
ABLE YEAR IN START-UP PERIOD.—In the 15
case of any start-up period taxable year 16
which ends after the close of the 3-year pe-17
riod described in subparagraph (B)(i) with 18
respect to any trade or business, the net 19
start-up loss with respect to such trade or 20
business for such start-up period taxable 21
year shall be the same proportion of such 22
loss (determined without regard to this 23
clause) as the proportion of such start-up 24
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period taxable year which is on or before 1
the last day of such period. 2
‘‘(D) A
PPLICATION TO NET OPERATING 3
LOSS ARISING IN YEAR OF OWNERSHIP 4
CHANGE.—Subparagraph (A) shall apply to any 5
net operating loss described in paragraph 6
(1)(B) in the same manner as such subpara-7
graph applies to net operating loss 8
carryforwards described in paragraph (1)(A), 9
but by only taking into account the amount of 10
such net operating loss (and the amount of the 11
net start-up loss) which is allocable under para-12
graph (1)(B) to the period described in such 13
paragraph. Proper adjustment in the allocation 14
of the net start-up loss under the preceding 15
sentence shall be made in the case of a taxable 16
year to which subparagraph (C)(ii) applies. 17
‘‘(E) A
PPLICATION TO TAXABLE YEARS 18
WHICH ARE START-UP PERIOD TAXABLE YEARS 19
WITH RESPECT TO MORE THAN 1 TRADE OR 20
BUSINESS.—In the case of any net operating 21
loss carryforward which arose in a taxable year 22
which is a start-up period taxable year with re-23
spect to more than 1 trade or business— 24
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‘‘(i) this paragraph shall be applied 1
separately with respect to each such trade 2
or business, and 3
‘‘(ii) the aggregate reductions under 4
subparagraph (A) shall not exceed such net 5
operating loss carryforward. 6
‘‘(F) C
ONTINUITY OF BUSINESS REQUIRE -7
MENT.—If the new loss corporation does not 8
continue the trade or business referred to in 9
subparagraph (B)(i) at all times during the 2- 10
year period beginning on the change date, this 11
paragraph shall not apply with respect to such 12
trade or business. 13
‘‘(G) C
ERTAIN TITLE 11 OR SIMILAR 14
CASES.— 15
‘‘(i) M
ULTIPLE OWNERSHIP 16
CHANGES.—In the case of a 2nd ownership 17
change to which subsection (l)(5)(D) ap-18
plies, this paragraph shall not apply for 19
purposes of determining the pre-change 20
loss with respect to such 2nd ownership 21
change. 22
‘‘(ii) C
ERTAIN INSOLVENCY TRANS -23
ACTIONS.—If subsection (l)(6) applies for 24
purposes of determining the value of the 25
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old loss corporation under subsection (e), 1
this paragraph shall not apply. 2
‘‘(H) N
OT APPLICABLE TO DISALLOWED 3
INTEREST.—This paragraph shall not apply for 4
purposes of applying the rules of paragraph (1) 5
to the carryover of disallowed interest under 6
paragraph (3). 7
‘‘(I) T
RANSITION RULE.—This paragraph 8
shall not apply with respect to any trade or 9
business if the date on which such trade or 10
business begins as an active trade or business 11
(as determined under section 195(d)(2) without 12
regard to subparagraph (B) thereof) is on or 13
before January 31, 2026.’’. 14
(b) A
PPLICATIONTOEXCESSCREDITS.—Section 15
383 of such Code is amended by redesignating subsection 16
(e) as subsection (f) and by inserting after subsection (d) 17
the following new subsection: 18
‘‘(e) E
XCEPTION FORSTART-UPEXCESSCREDITS.— 19
‘‘(1) I
N GENERAL.—In the case of any unused 20
general business credit of the corporation under sec-21
tion 39 which arose in a start-up period taxable 22
year, the amount of such unused general business 23
credit otherwise taken into account under subsection 24
(a)(2)(A) shall be reduced by the start-up excess 25
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credit determined with respect to any trade or busi-1
ness referred to in section 382(d)(4)(B)(i) for such 2
start-up period taxable year. 3
‘‘(2) S
TART-UP PERIOD TAXABLE YEAR .—For 4
purposes of this subsection, the term ‘start-up pe-5
riod taxable year’ has the meaning given such term 6
in section 382(d)(4)(B). 7
‘‘(3) S
TART-UP EXCESS CREDIT.—For purposes 8
of this subsection, the term ‘start-up excess credit’ 9
means, with respect to any trade or business re-10
ferred to in section 382(d)(4)(B)(i) for any start-up 11
period taxable year, the amount which bears the 12
same ratio to the unused general business credit 13
which arose in such start-up period taxable year 14
as— 15
‘‘(A) the amount of the general business 16
credit which would have been determined for 17
such start-up period taxable year if only credits 18
properly allocable to such trade or business 19
were taken into account, bears to 20
‘‘(B) the amount of the general business 21
credit determined for such start-up period tax-22
able year. 23
‘‘(4) A
PPLICATION OF CERTAIN RULES .—Rules 24
similar to the rules of subparagraphs (C)(ii), (D), 25
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(E), and (F) of section 382(d)(4) shall apply for 1
purposes of this subsection. 2
‘‘(5) T
RANSITION RULE.—This subsection shall 3
not apply with respect to any trade or business if 4
the date on which such trade or business begins as 5
an active trade or business (as determined under 6
section 195(d)(2) without regard to subparagraph 7
(B) thereof) is on or before January 31, 2026.’’. 8
(c) E
FFECTIVEDATE.—The amendments made by 9
this section shall apply to taxable years ending after Janu-10
ary 31, 2025. 11
Æ
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