H.R. 3938 — what changed

“(e) Suspension of application—This section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2025 (and shall not apply to amounts paid or incurred in taxable years beginning on or before such date).”

“174A. Temporary rules for research and experimental expenditures

“(a) Treatment as expenses—Notwithstanding section 263, there shall be allowed as a deduction any research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year in connection with the taxpayer’s trade or business.

“(b) Amortization of certain research and experimental expenditures

“(1) In general—At the election of the taxpayer, made in accordance with regulations or other guidance provided by the Secretary, research or experimental expenditures which—

“(A) are paid or incurred by the taxpayer in connection with his trade or business, and

“(B) would (but for subsection (a)) be chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion),

“(2) Time for and scope of election—The election provided by paragraph (1) may be made for any taxable year, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election.

changed “(c) Election To to capitalize expenses—In the case of a taxpayer which elects (at such time and in such manner as the Secretary may provide) the application of this subsection, subsections (a) and (b) shall not apply. Such election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election and may be made with respect to part of the expenditures paid or incurred during any taxable year only with the approval of the Secretary.

“(d) Land and other property—This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.

“(e) Exploration expenditures—This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).

“(f) Software development—For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.

“(g) Only reasonable research expenditures eligible—This section shall apply to a research or experimental expenditure only to the extent that the amount thereof is reasonable under the circumstances.

“(h) Coordination with research credit

“(1) In general—Section 41(d)(1)(A) shall be applied by substituting “expenses under section 174A” for “specified research or experimental expenditures under section 174”.

“(2) Denial of double benefit

“(A) In general—Section 280C(c) shall not apply and the amount taken into account under this section as research or experimental expenditures shall be reduced by the amount of the credit allowable under section 41(a).

“(B) Election of reduced credit

“(i) In general—In the case of any taxable year for which an election is made under this subparagraph—

“(I) subparagraph (A) shall not apply, and

“(II) the amount of the credit under section 41(a) shall be the amount determined under clause (ii).

“(ii) Amount of reduced credit—The amount of credit determined under this clause for any taxable year shall be the amount equal to the excess of—

“(I) the amount of credit determined under section 41(a) without regard to this subparagraph, over

“(II) the product of the amount described in subclause (I), multiplied by the rate of tax under section 11(b).

“(iii) Election—An election under this subparagraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary may prescribe. Such an election, once made, shall be irrevocable.

“(C) Controlled groups—Paragraph (3) of section 280C(b) shall apply for purposes of this paragraph.

changed “(i) Coordination with long-Term long-term contract rules—For purposes of determining percentage of completion under section 460(b)(1)(A), any research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer’s trade or business shall be taken into account as a cost allocated to the contract for the taxable year in which so paid or incurred.

“(j) Coordination with certain other provisions—A reference to the corresponding provision of this section shall be treated as included in any reference to section 174 in section 56(b), 59(e), 144(a), 168(i), 170(e), 195(c), 263(a), 263A(c), 469(c), 543(d), 864(g), 993(d), 1016(a)(14), 1202(a), or 1298(e).

“(k) Termination

“(1) In general—This section shall not apply to amounts paid or incurred in taxable years beginning after December 31, 2025.

“(2) Change in method of accounting—Paragraph (1) (and the corresponding application of section 174) shall be treated as a change in method of accounting for purposes of section 481 and—

“(A) such change shall be treated as initiated by the taxpayer,

“(B) such change shall be treated as made with the consent of the Secretary, and

“(C) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2025, and no adjustment under section 481(a) shall be made.”

“(e) Coordination with certain other provisions

“(1) Coordination with alternative minimum tax—Sections 56(b)(2) and 59(e)(2)(B) shall not apply to specified research or experimental expenditures to which this section applies.

“(2) Coordination with basis adjustment rules—Section 1016(a)(14) shall be applied by substituting “an amortization deduction under section 174(a)” for “deductions as deferred expenses under section 174(b)(1)”.

“(3) Coordination with long-term contract rules—For purposes of determining percentage of completion under section 460(b)(1)(A), the amortization deduction under subsection (a) shall be taken into account as a cost allocated to the contract.”

“50B Acquisition of United States agricultural interests by disqualified persons

“5000E. Imposition of tax on acquisition of United States agricultural interests by disqualified persons

“(a) In general—In the case of any acquisition of any United States agricultural interest by any disqualified person, there is hereby imposed on such person a tax equal to 60 percent of the amount paid for such interest.

“(b) Disqualified person—For purposes of this section—

“(1) In general—The term “disqualified person” means—

“(A) any citizen of a country of concern (other than a citizen, or lawful permanent resident, of the United States and other than an individual domiciled in Taiwan possessing a valid identification card or number issued by the government of Taiwan),

“(B) any entity domiciled in a country of concern (other than an entity domiciled in Taiwan),

“(C) any country of concern and any political subdivision, agency, or instrumentality thereof, and

“(D) except as provided in paragraph (3), any entity if persons described in subparagraph (A), (B), or (C) (in the aggregate) 10-percent control such entity.

“(2) Country of concern—The term “country of concern” means any country the government of which is engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or the security and safety of United States persons, including the People’s Republic of China, the Russian Federation, Iran, North Korea, Cuba, and the regime of Nicolas Maduro in Venezuela.

“(3) Exception for certain publicly traded corporations

“(A) In general—An entity shall not be treated as described in paragraph (1)(D) if—

“(i) such entity is a specified publicly traded corporation, or

“(ii) specified publicly traded corporations (in the aggregate) control such entity.

“(B) Specified publicly traded corporation

“(i) In general—The term “specified publicly traded corporation” means any corporation if—

“(I) the stock of such corporation is regularly traded on an established securities market located in the United States, and

“(II) specified disqualified persons do not (in the aggregate) control such corporation.

“(ii) Specified disqualified persons—The term “specified disqualified persons” means, with respect to any corporation referred to in clause (i), any person which—

“(I) is described in subparagraph (A), (B), or (C) of paragraph (1), and

“(II) 10-percent controls such corporation.

“(c) Prorated tax on acquisitions by entities not more than 50 percent controlled by disqualified persons

“(1) In general—In the case of any disqualified person described in subsection (b)(1)(D) with respect to which persons described in subparagraphs (A), (B), or (C) of subsection (b)(1) do not (in the aggregate) control such disqualified person, subsection (a) shall be applied by substituting “the applicable percentage of the amount” for “the amount”.

“(2) Applicable percentage—For purposes of this section, the term “applicable percentage” means, with respect to any disqualified person to which paragraph (1) applies, the highest percentage which could be substituted for “50 percent” both places it appears in section 954(d)(3) without causing persons described in subparagraph (A), (B), or (C) of subsection (b)(1) (in the aggregate) to control (determined by taking into account such substitution) such disqualified person.

“(d) Control—For purposes of this section—

“(1) In general—The term “control” has the meaning given such term under section 954(d)(3), determined by treating the rules of section 958(a)(2) as applying to both foreign and domestic corporations, partnerships, trusts, and estates.

“(2) 10-percent control—The term “10-percent control” means control (as defined in paragraph (1)), determined by substituting “10 percent” for “50 percent” both places it appears in section 954(d)(3).

“(e) United States agricultural interest—For purposes of this section—

“(1) In general—The term “United States agricultural interest” has the meaning which would be given the term “United States real property interest” by section 897(c) if—

“(A) paragraph (1)(A)(i) were applied by substituting “an interest in agricultural land” for “an interest in real property” and all that follows,

“(B) paragraph (1)(A)(ii) were applied by substituting “such corporation was not a United States real property holding corporation at the time of acquisition” for “such corporation” and all that follows,

“(C) paragraph (1)(B) did not apply, and

“(D) paragraph (3) were applied by substituting “at the time of acquisition” for “at some time during the shorter of the periods described in paragraph (1)(A)(ii)”.

“(2) Agricultural land—For purposes of paragraph (1), the term “agricultural land” means—

“(A) agricultural land as defined in section 9 of the Agricultural Foreign Investment Disclosure Act of 1978 (7 U.S.C. 3508), and

“(B) land located in one or more States and used for livestock production purposes (determined under rules similar to the rules that apply under such section 9).”

“6050AA. Returns relating to acquisition of United States agricultural interests by disqualified persons

“(a) In general—The required reporting person, with respect to any acquisition of any United States agricultural interest by a presumptively disqualified person to which section 5000E(a) applies, shall make a return at such time as the Secretary may provide setting forth—

“(1) the name, address, and TIN of such presumptively disqualified person,

“(2) a description of such United States agricultural interest (including the street address, if applicable), and

“(3) the amount paid for such United States agricultural interest.

changed “(b) Statement To to be furnished to presumptively disqualified person—Every person required to make a return under subsection (a) shall furnish, at such time as the Secretary may provide, to each presumptively disqualified person whose name is required to be set forth in such return a written statement showing—

“(1) the name and address of the information contact of the required reporting person, and

“(2) the information described in paragraphs (1), (2), and (3) of subsection (a) which relates to such disqualified person.

“(c) Required reporting person—For purposes of this section, the term “required reporting person” means, with respect to any acquisition of any United States agricultural interest—

“(1) the person (including any attorney or title company) responsible for closing the transaction in which such United States agricultural interest is acquired, or

“(2) if no one is responsible for closing such transaction (or in such other cases as the Secretary may provide), the transferor of such United States agricultural interest.

“(d) Presumptively disqualified person—For purposes of this section, the term “presumptively disqualified person” means any person unless such person furnishes to the required reporting person an affidavit by the such person stating, under penalty of perjury, that such person is not a disqualified person (as defined in section 5000E(b)).

changed “(e) Requirement To to request affidavit—If the required reporting person, with respect to any acquisition of any United States agricultural interest, has not, as of the time of such acquisition, been furnished the affidavit described in subsection (d) by the acquirer of such interest, such required reporting person shall furnish to such acquirer, at such time, a written statement informing such acquirer of the required reporting person’s obligation to make the return described in subsection (a) with respect to such acquisition and including such other information as the Secretary may require.

“(f) United States agricultural interest—For purposes of this section, the term “United States agricultural interest” has the meaning given such term in section 5000E.”

“(xxix) section 6050AA(a) (relating to returns relating to acquisition of United States agricultural interests by disqualified persons), and”

“(MM) subsection (b) or (e) of section 6055AA (relating to statements relating to acquisition of United States agricultural interests by disqualified persons).”

“(2) Base amount—The amount determined under this paragraph is $2,500.

“(3) Battery capacity—In the case of a vehicle which draws propulsion energy from a battery with not less than 5 kilowatt hours of capacity, the amount determined under this paragraph is $417, plus $417 for each kilowatt hour of capacity in excess of 5 kilowatt hours. The amount determined under this paragraph shall not exceed $5,000.”

“(1) Critical minerals requirement—No credit shall be allowed under this section with respect to any vehicle unless, with respect to the battery from which the electric motor of such vehicle draws electricity, the percentage of the value of the applicable critical minerals (as defined in section 45X(c)(6)) contained in such battery that were—

“(A) extracted or processed—

“(i) in the United States, or

“(ii) in any country with which the United States has a free trade agreement in effect, or

“(B) recycled in North America,

“(2) Battery components—No credit shall be allowed under this section with respect to any vehicle unless, with respect to the battery from which the electric motor of such vehicle draws electricity, all of the components contained in such battery were manufactured or assembled in North America (as certified by the manufacturer, in such form or manner as prescribed by the Secretary).

“(3) Restriction on foreign entities of concern—No credit shall be allowed under this section which respect to any vehicle placed in service after December 31, 2024, if any of the applicable critical minerals contained in the battery of such vehicle (as described in paragraph (1)) were extracted, processed, or recycled by a foreign entity of concern (as defined in section 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))).”

“(3) Property used by tax-exempt entity—In the case of a vehicle the use of which is described in paragraph (3) or (4) of section 50(b) and which is not subject to a lease, the person who sold such vehicle to the person or entity using such vehicle shall be treated as the taxpayer that placed such vehicle in service, but only if such person clearly discloses to such person or entity in a document the amount of any credit allowable under subsection (a) with respect to such vehicle (determined without regard to subsection (c)). For purposes of subsection (c), property to which this paragraph applies shall be treated as of a character subject to an allowance for depreciation.”

changed “(g) Limitation on number of new qualified plug-In plug-in electric drive motor vehicles eligible for credit

“(1) In general—In the case of a new qualified plug-in electric drive motor vehicle sold during the phaseout period, only the applicable percentage of the credit otherwise allowable under subsection (a) shall be allowed.

“(2) Phaseout period—For purposes of this subsection, the phaseout period is the period beginning with the second calendar quarter following the calendar quarter which includes the first date on which the number of new qualified plug-in electric drive motor vehicles manufactured by the manufacturer of the vehicle referred to in paragraph (1) sold for use in the United States after December 31, 2009, is at least 200,000.

“(3) Applicable percentage—For purposes of paragraph (1), the applicable percentage is—

“(A) 50 percent for the first 2 calendar quarters of the phaseout period,

“(B) 25 percent for the 3rd and 4th calendar quarters of the phaseout period, and

“(C) 0 percent for each calendar quarter thereafter.

“(4) Controlled groups—Rules similar to the rules of section 30B(f)(4) shall apply for purposes of this subsection.”