S. 4207

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 4207 Introduced in Senate (IS)]

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119th CONGRESS
2d Session
S. 4207

To amend the Internal Revenue Code of 1986 to promote new business 
innovation, and for other purposes.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

March 25, 2026

Mrs. Blackburn introduced the following bill; which was read twice and 
referred to the Committee on Finance

_______________________________________________________________________

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 Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``American Innovation Act of 2026''.

SEC. 2. SIMPLIFICATION AND EXPANSION OF DEDUCTION FOR START-UP AND 
ORGANIZATIONAL EXPENDITURES.

(a) In General.--Section 195 of the Internal Revenue Code of 1986 
is amended by redesignating subsections (c) and (d) as subsections (d) 
and (e), respectively, and by striking all that precedes subsection (d) 
(as so redesignated) and inserting the following:

``SEC. 195. START-UP AND ORGANIZATIONAL EXPENDITURES.

``(a) Capitalization of Expenditures.--Except as otherwise provided 
in this section, no deduction shall be allowed for start-up or 
organizational expenditures.
``(b) Election To Deduct.--
``(1) In general.--If a taxpayer elects the application of 
this subsection with respect to any active trade or business--
``(A) the taxpayer shall be allowed a deduction for 
the taxable year in which such active trade or business 
begins in an amount equal to the lesser of--
``(i) the aggregate amount of start-up and 
organizational expenditures paid or incurred in 
connection with such active trade or business, 
or
``(ii) $20,000, reduced (but not below 
zero) by the amount by which such aggregate 
amount exceeds $120,000, and
``(B) the remainder of such start-up and 
organizational expenditures shall be charged to capital 
account and allowed as an amortization deduction 
determined by amortizing such expenditures ratably over 
the 180-month period beginning with the month in which 
the active trade or business begins.
``(2) Application to organizational expenditures.--In the 
case of organizational expenditures with respect to any 
corporation or partnership, the active trade or business 
referred to in paragraph (1) means the first active trade or 
business carried on by such corporation or partnership.
``(3) Inflation adjustment.--In the case of any taxable 
year beginning after December 31, 2026, the $20,000 and 
$120,000 amounts in paragraph (1)(A)(ii) shall each be 
increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined 
under section 1(f)(3) for the calendar year in which 
the taxable year begins, determined by substituting 
`calendar year 2025' for `calendar year 2016' in 
subparagraph (A)(ii) thereof.
If any amount as increased under the preceding sentence is not 
a multiple of $1,000, such amount shall be rounded to the 
nearest multiple of $1,000.
``(c) Allowance of Deduction Upon Liquidation or Disposition.--
``(1) Liquidation of partnership or corporation.--If any 
partnership or corporation is completely liquidated by the 
taxpayer, any start-up or organizational expenditures paid or 
incurred in connection with such partnership or corporation 
which were not allowed as a deduction by reason of this section 
may be deducted to the extent allowable under section 165.
``(2) Disposition of trade or business.--If any trade or 
business is completely disposed of or discontinued by the 
taxpayer, any start-up expenditures paid or incurred in 
connection with such trade or business which were not allowed 
as a deduction by reason of this section (and not taken into 
account in connection with a liquidation to which paragraph (1) 
applies) may be deducted to the extent allowable under section 
165. For purposes of this paragraph, in the case of any 
deduction allowed under subsection (b)(1) with respect to both 
start-up and organizational expenditures, the amount treated as 
so allowed with respect to start-up expenditures shall bear the 
same ratio to such deduction as the start-up expenditures taken 
into account in determining such deduction bears to the 
aggregate of the start-up and organizational expenditures so 
taken into account.''.
(b) Organizational Expenditures.--Section 195(d) of such Code, as 
redesignated by subsection (a), is amended by adding at the end the 
following new paragraphs:
``(3) Organizational expenditures.--The term 
`organizational expenditures' means any expenditure which--
``(A) is incident to the creation of a corporation 
or a partnership,
``(B) is chargeable to capital account, and
``(C) is of a character which, if expended incident 
to the creation of a corporation or a partnership 
having an ascertainable life, would be amortizable over 
such life.
``(4) Application to certain disregarded entities.--In the 
case of any entity with a single owner that is disregarded as 
an entity separate from its owner, this section shall be 
applied in the same manner as if such entity were a 
corporation.''.
(c) Election.--Section 195(e)(2) of such Code, as redesignated by 
subsection (a), is amended to read as follows:
``(2) Partnerships and s corporations.--In the case of any 
partnership or S corporation, the election under subsection (b) 
shall be made (and this section shall be applied) at the entity 
level.''.
(d) Conforming Amendments.--
(1)(A) Part VIII of subchapter B of chapter 1 is amended by 
striking section 248 of such Code (and by striking the item 
relating to such section in the table of sections of such 
part).
(B) Section 170(b)(2)(D)(ii) of such Code is amended by 
striking ``(except section 248)''.
(C) Section 312(n)(3) of such Code is amended by striking 
``Sections 173 and 248'' and inserting ``Sections 173 and 
195''.
(D) Section 535(b)(3) of such Code is amended by striking 
``(except section 248)''.
(E) Section 545(b)(3) of such Code is amended by striking 
``(except section 248)''.
(F) Section 545(b)(4) of such Code is amended by striking 
``(except section 248)''.
(G) Section 834(c)(7) of such Code is amended by striking 
``(except section 248)''.
(H) Section 852(b)(2)(C) of such Code is amended by 
striking ``(except section 248)''.
(I) Section 857(b)(2)(A) of such Code is amended by 
striking ``(except section 248)''.
(J) Section 1363(b) of such Code is amended by adding 
``and'' at the end of paragraph (2), by striking paragraph (3), 
and by redesignating paragraph (4) as paragraph (3).
(K) Section 1375(b)(1)(B)(i) of such Code is amended by 
striking ``(other than the deduction allowed by section 248, 
relating to organization expenditures)''.
(2)(A) Section 709 of such Code is amended to read as 
follows:

``SEC. 709. TREATMENT OF SYNDICATION FEES.

``No deduction shall be allowed under this chapter to a partnership 
or to any partner of the partnership for any amounts paid or incurred 
to promote the sale of (or to sell) an interest in the partnership.''.
(B) The item relating to section 709 in the table of 
sections for part I of subchapter K of chapter 1 of such Code 
is amended to read as follows:

``Sec. 709. Treatment of syndication fees.''.
(3) Section 1202(e)(2)(A) of such Code is amended by 
striking ``section 195(c)(1)(A)'' and inserting ``section 
195(d)(1)(A)''.
(4) The item relating to section 195 in the table of 
contents of part VI of subchapter B of chapter 1 of such Code 
is amended to read as follows:

``Sec. 195. Start-up and organizational expenditures.''.
(e) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred in connection with active trades 
or businesses which begin in taxable years beginning after December 31, 
2025.

SEC. 3. PRESERVATION OF START-UP NET OPERATING LOSSES AND TAX CREDITS 
AFTER OWNERSHIP CHANGE.

(a) Application to Net Operating Losses.--Section 382(d) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new paragraph:
``(4) Exception for start-up losses.--
``(A) In general.--In the case of any net operating 
loss carryforward described in paragraph (1)(A) which 
arose in a start-up period taxable year, the amount of 
such net operating loss carryforward otherwise taken 
into account under such paragraph shall be reduced by 
the net start-up loss determined with respect to the 
trade or business referred to in subparagraph (B)(i) 
for such start-up period taxable year.
``(B) Start-up period taxable year.--The term 
`start-up period taxable year' means any taxable year 
of the old loss corporation which--
``(i) begins before the close of the 3-year 
period beginning on the date on which any trade 
or business of such corporation begins as an 
active trade or business (as determined under 
section 195(d)(2) without regard to 
subparagraph (B) thereof), and
``(ii) ends after January 31, 2026.
``(C) Net start-up loss.--
``(i) In general.--The term `net start-up 
loss' means, with respect to any trade or 
business referred to in subparagraph (B)(i) for 
any start-up period taxable year, the amount 
which bears the same ratio (but not greater 
than 1) to the net operating loss carryforward 
which arose in such start-up period taxable 
year as--
``(I) the net operating loss (if 
any) which would have been determined 
for such start-up period taxable year 
if only items of income, gain, 
deduction, and loss properly allocable 
to such trade or business were taken 
into account, bears to
``(II) the amount of the net 
operating loss determined for such 
start-up period taxable year.
``(ii) Special rule for last taxable year 
in start-up period.--In the case of any start-
up period taxable year which ends after the 
close of the 3-year period described in 
subparagraph (B)(i) with respect to any trade 
or business, the net start-up loss with respect 
to such trade or business for such start-up 
period taxable year shall be the same 
proportion of such loss (determined without 
regard to this clause) as the proportion of 
such start-up period taxable year which is on 
or before the last day of such period.
``(D) Application to net operating loss arising in 
year of ownership change.--Subparagraph (A) shall apply 
to any net operating loss described in paragraph (1)(B) 
in the same manner as such subparagraph applies to net 
operating loss carryforwards described in paragraph 
(1)(A), but by only taking into account the amount of 
such net operating loss (and the amount of the net 
start-up loss) which is allocable under paragraph 
(1)(B) to the period described in such paragraph. 
Proper adjustment in the allocation of the net start-up 
loss under the preceding sentence shall be made in the 
case of a taxable year to which subparagraph (C)(ii) 
applies.
``(E) Application to taxable years which are start-
up period taxable years with respect to more than 1 
trade or business.--In the case of any net operating 
loss carryforward which arose in a taxable year which 
is a start-up period taxable year with respect to more 
than 1 trade or business--
``(i) this paragraph shall be applied 
separately with respect to each such trade or 
business, and
``(ii) the aggregate reductions under 
subparagraph (A) shall not exceed such net 
operating loss carryforward.
``(F) Continuity of business requirement.--If the 
new loss corporation does not continue the trade or 
business referred to in subparagraph (B)(i) at all 
times during the 2-year period beginning on the change 
date, this paragraph shall not apply with respect to 
such trade or business.
``(G) Certain title 11 or similar cases.--
``(i) Multiple ownership changes.--In the 
case of a 2nd ownership change to which 
subsection (l)(5)(D) applies, this paragraph 
shall not apply for purposes of determining the 
pre-change loss with respect to such 2nd 
ownership change.
``(ii) Certain insolvency transactions.--If 
subsection (l)(6) applies for purposes of 
determining the value of the old loss 
corporation under subsection (e), this 
paragraph shall not apply.
``(H) Not applicable to disallowed interest.--This 
paragraph shall not apply for purposes of applying the 
rules of paragraph (1) to the carryover of disallowed 
interest under paragraph (3).
``(I) Transition rule.--This paragraph shall not 
apply with respect to any trade or business if the date 
on which such trade or business begins as an active 
trade or business (as determined under section 
195(d)(2) without regard to subparagraph (B) thereof) 
is on or before January 31, 2026.''.
(b) Application To Excess Credits.--Section 383 of such Code is 
amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection:
``(e) Exception for Start-Up Excess Credits.--
``(1) In general.--In the case of any unused general 
business credit of the corporation under section 39 which arose 
in a start-up period taxable year, the amount of such unused 
general business credit otherwise taken into account under 
subsection (a)(2)(A) shall be reduced by the start-up excess 
credit determined with respect to any trade or business 
referred to in section 382(d)(4)(B)(i) for such start-up period 
taxable year.
``(2) Start-up period taxable year.--For purposes of this 
subsection, the term `start-up period taxable year' has the 
meaning given such term in section 382(d)(4)(B).
``(3) Start-up excess credit.--For purposes of this 
subsection, the term `start-up excess credit' means, with 
respect to any trade or business referred to in section 
382(d)(4)(B)(i) for any start-up period taxable year, the 
amount which bears the same ratio to the unused general 
business credit which arose in such start-up period taxable 
year as--
``(A) the amount of the general business credit 
which would have been determined for such start-up 
period taxable year if only credits properly allocable 
to such trade or business were taken into account, 
bears to
``(B) the amount of the general business credit 
determined for such start-up period taxable year.
``(4) Application of certain rules.--Rules similar to the 
rules of subparagraphs (C)(ii), (D), (E), and (F) of section 
382(d)(4) shall apply for purposes of this subsection.
``(5) Transition rule.--This subsection shall not apply 
with respect to any trade or business if the date on which such 
trade or business begins as an active trade or business (as 
determined under section 195(d)(2) without regard to 
subparagraph (B) thereof) is on or before January 31, 2026.''.
(c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after January 31, 2025.
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