Tax Proposals Attempt to Bridge the “Valley of Death” for Small Research Firms

March 24, 2015

Two new tax proposals sponsored by the Coalition of Small Business Innovators promise to help small, research-intensive companies cross the “Valley of Death” by attracting investors even when they are still far from profitability. The first proposal would amend Section 382 of the Tax Code to permit passive investors to take advantage of the net operating losses and research tax credits of small research companies in which they invest. The second change would make it easier for small companies to carry net operating losses forward even as they conduct new rounds of financing. An independent study by Ernst & Young estimates that this change would increase investment in these companies by $9.2 billion, allowing them to create 47,000 jobs.