China AgTech

First there was an Industrial Revolution, then a Cultural Revolution, and now there is an Agricultural Revolution.

The Royse AgTech Innovation Network brought Silicon Valley to China this past December, hosting pitches, panels and presentation events in Shanghai, Beijing, ShenZhen and Hangzhou (and additional events in Taipei, Hong Kong and Seoul). Panels consisting of cross border VCs, tech companies and members of Royse AgTech exchanged views on the state of agtech in Asia, including the investment climate and new innovation. It is clear from the exchange that China is poised to be an agtech powerhouse, both as a market for new technology as well as a source of innovation.

Many countries and cities claim to be the next Silicon Valley, but China already has a Silicon Valley; in fact it has several Silicon Valleys in tech hubs throughout the country. Agtech plays a prominent role in those national innovation initiatives.

For starters, China is huge – 5 times the population but only a little more land than the United States. Of that population, roughly 800 million people are engaged in agriculture, according to Cynthia Xing of Yuan Associates, a food and agricultural consultancing based in China. That is not a typo – the number is 800 million, with two 0’s. As you might expect, farms are very small compared to US farms, but that is changing as the country becomes more urbanized. As farms consolidate, and the number of farmers decrease, the need for technology solutions will increase. The Chinese government knows this well, and both local and national governments are actively encouraging the development of solutions.

Secondly, China is growing. The International Monetary Fund (IMF) calculates that China’s GDP exceeds America’s, if Chinese GDP is converted into dollars at purchasing power parity (the exchange rate that would equalize the dollar price of similar goods in each country). While GDP growth has slowed, it is still high enough to require technology solutions to solve existing problems and alleviate stress on the system.

Other factors are driving the need to innovate in food and agriculture. Like many other countries, China has a farm labor shortage. Because of urbanization, i.e. the movement of people from the rural areas to the inner cities for economic opportunities, the farming areas are left with girls under age 16 and men over 50, who are not the most productive farm workers. Like the experience in other industries, technology must step up to fill that gap.

The government supports innovation in China, and agriculture has attracted the attention of the highest levels. Recently, an Iowa demonstration farm was “transplanted” to Hebei province, with the approval of Chinese President Xi Jinping. One of our panelists reported that China has perhaps hundreds of agricultural and science parks, sometimes working with foreign investors.

A final driver in the upcoming agricultural revolution is China’s estimated 900 infrastucture projects affecting 80 different countries as China seeks to expand it opportunities for international trade. The Belt and Road Initiative is creating business opportunities throughout Asia, Africa and Europe and estimates indicate that infrastructure projects will require investments of US1.7 trillion a year.

In addition to these economic factors, the Chinese government itself is a factor in the Agricultural Revolution. The Chinese government has identified three main areas of focus in food and agricultural production. First, China is committed to protecting its environment. China currently emits more than twice the CO2 as America and produces 50% more electricity. China has committed to cut carbon emissions and has income more stringent in enforcing those goals. Similarly, there is a commitment to cleaning up dirty industries. Agtech solutions that replace chemicals with machine learning and AI, data, and robots will find a market in China and an ally in the Chinese government in promoting their tech.

Secondly, economic development is a priority. While we talk a lot about food security in the US tech community as a theoretical future problem, food supply is a real and current problem in China. Many agricultural areas cannot even produce enough food to feed their local residents. The Chinese government has made bringing these people out of poverty a priority. Clearly, precision farming techniques that reduce the cost of inputs and increase the outputs will have a role in the development of farming areas.

Thirdly, and maybe surprisingly, the Chinese government is encouraging innovation in biotech and molecular biology, especially technologies that can increase production and reverse recent trends in China’s grain production lagging behind population growth.

Several cross border companies presented their China solutions at the Royse Agtech Asia events. Aeesence, based in Sunnyvale with a China office, demonstrated its complete hydroponic systems. Anitoa, headquartered at the Royse Agtech office in Silicon Valley and having an office in HangZhou, develops a CMOS bio-optical sensor, which was originally meant for medical applications but has agricultural uses as well.

Given China’s shortage of ag land and dense population, many companies are developing urban solutions. Mirakhl, a Korean company with R&D in Silicon Valley, is focused on urban farming with a smart home growing system. Similarly, Rooftop Republic showed its urban farms.

In addition to Silicon Valley companies, several local companies also presented. Hangzhou in particular has a surprising number of startups developing technologies in molecular biology, data, sensors and drone tech.

Also surprising is the number of private investors that are investing in agtech, both in Asia and the US. Many investors seek technologies that can be easily translated to China agriculture. China as a country is a quick adapter of new tech, so companies that might struggle to create a market in the US have an opportunity to get quick market acceptance in China, Savvy Chinese investors add value buy assisting in market entry. Our panels for example, were joined by AngelHere, a US-China angel network, CDB Capital, Sunshino Venture Capital and Mesh Ventures, to name just a few.

In sum, there is a thriving silicon valley in agtech in China, several of them in fact, and the country offers both a huge market as well as large opportunity for development. The Royse AgTech Innovation Network will be back in China again soon.

More information about our Asia tour can be found on our website at the Royse AgTech Innovation Network.

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Re: Tax Cuts and Jobs Act

December 8, 2017
The Honorable Mitch McConnell
Majority Leader
United States Senate
317 Russell Senate Office Building
Washington, DC 20510

The Honorable Orrin G. Hatch
United States Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Charles E. Schumer
Minority Leader
United States Senate
322 Hart Senate Office Building
Washington DC  20510

The Honorable Ron Wyden
Ranking Member
United States Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Re: Tax Cuts and Jobs Act

Dear Majority Leader McConnell, Minority Leader Schumer, Chairman Hatch and Ranking Member Wyden:

My law firm, the Royse Law Firm, is a Silicon Valley-based law firm that advises companies on tax, business, and corporate law matters. We regularly comment on tax issues of interest to the business community. Today, I write to urge you to amend pending legislation so that professional service firms are taxed at the same rate as other businesses.

In late 2014, the Senate Finance Committee released report entitled “Comprehensive Tax Reform for 2015 and Beyond”. That Report noted that tax reform should abide by key principles, including fairness, simplicity and competitiveness. We applaud your efforts in passing the Tax Cuts and Jobs Act (the “Act”) for moving us closer to a fairer, simpler tax code that creates jobs for individuals, increases take home pay for working families, and levels the playing field for American businesses in the United States.

While an improvement over the current system, the Act does not fully accomplish its goals in one notable respect. The Senate version of the Act would reduce taxes on certain business income from a partnership, S corporation, or sole proprietorship (a “passthrough”) by providing a 23 percent deduction for qualified pass-through business income, effectively resulting in a top rate of 29.6 percent in the absence of other limitations. The Act, however, would reduce or deny the benefit of the lower rate out for professional service businesses that earn more than $500,000 for married individuals filing jointly and $250,000 for other individuals.

We urge Congress to evenhandedly apply the reduced pass-through tax rate to all professional service businesses, including law firms. Professional service providers are no less important actors in our economy and equally contribute to the nation’s goal of creating jobs and competitive wages. Without the benefit of a fair and consistent rate reduction, the incentive to start or grow a professional business would be diminished. Accordingly, in any adjustments in the Code, Congress should provide parity for all pass-through entities, regardless of their line of business, in order to achieve a fairer, simpler, and more competitive tax code. In particular, removing the professional service business exceptions from the lower pass-through tax rates or qualified business income deduction would promote efficiency and fairness.

We also suggest that, consistent with the goal of simplicity, Congress should minimize the effect of the tax law on a taxpayer’s decision, and encourage businesses to make decisions motivated by economic and business factors instead, such as interest rates, supply and demand, inflation, technology, and human capital. Excluding professional services firms from the pass through rate would undoubtedly push many such firms to convert to C corporations, which would enjoy a lower rate of tax. We do not believe that the tax code should drive taxpayers’ decisions on how to form their businesses.

Finally, we note that in today’s economy, professional and personal service pass-throughs increasingly compete on an international level. As the US moves to a service based economy, and technology enables remote work, many service businesses find that their income is increasingly mobile. The same considerations that compel Congress to reduce business tax rates on the non-service sector apply to the services sector, perhaps even more so. New graduates now must compete with foreign workers in low cost destinations and are being displaced by foreign providers of US legal and accounting services. The tax law may not be able to stop that practice, but should not encourage it. We urge you to allow American professional service firms to remain competitive.

Thus, we urge Congress to amend pending tax reform legislation consistent with the principles of sound tax policy outline above.

Very truly yours,

Roger Royse
Attorney at Law

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Re: Proposal to Remove section III.H.l. From the Chairman’s Mark of the Tax Cuts and Jobs Act

November 14, 2017

U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, D.C. 20510-6200

I write in support of the tax reform efforts being considered by Congress and advocate for the removal of section III.H.1 from the Chairman’s Mark of the Tax Cuts and Jobs Act, JCX-51-17(2017).


My law firm, the Royse Law Firm, is a Silicon Valley-based law firm that advises companies on tax, business, and corporate law matters. If section III.H.l. becomes law, startup and growth tech companies will no longer be able to offer equity compensation to most employees, thus preventing American workers from sharing in the wealth of their companies. This will profoundly impair our tech sector and hinder U.S. competitiveness abroad.

Current U.S. Tax Treatment of Stock Options

Under current tax law, employees must generally include stock compensation in their taxable income at grant or when the shares become substantially vested. Stock options, however, are not included in income until exercised. Likewise, a common stock option is not treated as nonqualified deferred compensation for 409A purposes as long as the exercise price of the stock option cannot be less than the fair market value, on the date the option is granted, of the stock subject to the option (and the option does not otherwise include a deferral feature).

The JCT. III.H.l. Proposal

Under Section III.H.l., any compensation deferred under a nonqualified deferred compensation plan, including stock options, would be includible in the gross income of the service provider when there is no substantial risk of forfeiture of the service provider’s rights to such compensation. Moreover, for tax purposes, the rights of a service provider to compensation would be treated as subject to a substantial risk of forfeiture only if the rights are conditioned on the future performance of substantial services by an individual. This means that a condition related to a purpose of the compensation, other than the future performance of substantial services, such as a condition based on achieving a specified performance goal or a condition intended in whole or in part to defer taxation,  would not create a substantial risk of forfeiture, regardless of whether the possibility of forfeiture is substantial. In addition, a covenant not to compete would not create a substantial risk of forfeiture.

Remove JCT, III.H.l, from the Chairman’s Mark of the Tax Cuts and Jobs Act

The current proposal applies to all stock options and SARs (and similar arrangements involving noncorporate entities), regardless of how the exercise price compares to the value of  the related stock on the date the option or SAR is granted. It is intended by the proposal that no exceptions are to be provided in treasury regulations or other administrative guidance. This means that companies can no longer rely on a safe harbor to offer equity compensation under a stock option plan to their employees. Instead, we will see equity compensation replaced with cash compensation and the ability of employees to share in the wealth of their companies will be taken away. Thus, we advocate for the  removal of section III.H.l. from the Tax Cuts and Job Act to protect our tech sector and incentivize equity ownership in American companies.

Revive the Empowering Employees through Stock Ownership Act, H.R. 5719 (2016)

In 2016, Congress took steps to help alleviate the tax burden associated with equity compensation plans. The House of Representatives passed a bill titled the “Empowering Employees through Stock Ownership Act” to help implement better tax policy. The goal was to permit private companies to issue stock to their employees without triggering the immediate inclusion of taxable income. This bill died in the previous Congress after its receipt in the Senate.

If revived, H.R. 5719 would alleviate the hardships imposed by the tax treatment of stock compensation in small, startup businesses as well as larger, private companies. To accomplish this goal, an eligible employee could elect to defer taxation until an event triggers the cash or cash-equivalent that the employee needs to pay the income tax on the stock compensation. Under the original bill, the company would be required to provide the stock compensation to at least 80 percent of its workforce. Further, the income deferral would not be available for top management and top paid employees. The Silicon Valley was built on equity compensation. It is time for the tax law to catch up and encourage the further development of the innovation economy.


1 hope that you will find this proposal helpful and informative as Congress acts to modernize U.S. tax law and empower American businesses. I am also available upon request to testify as to the content of this letter and the proposal contained herein.

Very truly yours,


Roger Royse
Attorney at Law

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Seven Things You Should Start Thinking About Now in Anticipation of Tax Reform

Today the “Big 6” released their Unified Tax Reform plan. There were no surprises, and not much detail; however, we do have an idea where things are heading. If President Trump can pull this off as proposed, you will have wanted to be prepared for 2018. Here are some tips based on the assumption that we get reform in 2018 along the lines of the Unified plan, assuming prospective treatment only and no good transition rules (I know – big assumptions). More Thursday at our webinar:

  1. Accelerate deductions into 2017. Top corporate and business rates are proposed to drop to 20% and 25% respectively. They are at 35% and 39.6% currently. Thus, a deduction today could be worth 15% more than a deduction next year.
  2. Delay purchases of equipment. The Plan anticipates full expensing. While it is not likely that we will have both lower rates and full expensing, we will likely see some form of extra write offs for investment in equipment, making a purchase next year more tax advantageous than a purchase now.
  3. Think hard about taking on debt. The Plan would disallow net interest deductions in a C corporation, placing debt on par with equity for tax purposes. All other things (e.g. tax) being equal, equity is better than debt – it need not be repaid, does not carry interest, and does not fight for priority with trade debt, like commercial lines.
  4. Make an S election. If you are currently zeroing out C corporation income with rents and compensation. you will find that to be an expensive strategy in a world where comp is taxed at 35% and passthrough income at 25%. Of course, we expect anti abuse rules and plenty of arguments with the IRS over how much (or how little, rather) comp is reasonable, but the basic strategy of converting high taxed compensation to low taxed business income is sound.
  5. Get a “loan out” corporation. A “loan out” is a corporation that employs a service provider and contracts with the service recipient, thus running the income through a corporation. We use them all the time for artists, actors and athletes (or at least we used to). Early indications are that the low passthough rate (25%) will not apply to services income, but the low C corporation rate (20%) might. Of course we have personal service corporation taxes and other gauntlets to clear, but the basic idea may be useful.
  6. Don’t die. Not yet anyway, at least not until the estate tax is killed. It is not at all clear that this will benefit decedents, however, because the estate tax could very well be replaced by a deemed sale of assets of the decedent, which will work out to be a tax increase. Here is why – the estate tax is the most voluntary tax we have. We can with careful planning avoid it. As an example, America’s most famous billionaires are also the most ardent proponents of the estate tax, probably because they will never pay it. Instead, they will leave their estates to tax exempt family foundations. They would not have that loophole under the Trump version of estate tax repeal and replace.
  7. Move to a red state, such as South Dakota or Nevada or any state that has low state taxes, because that deduction is on the chopping block. Those of us in states like California or New York will tell you that it is a big number.

You can read more about tax planning in 2017 at our blog:

Tomorrow I will post about which industries win and which lose under this plan. Stay tuned.

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Re: Proposal to Extend Section 179 of the Internal Revenue Code to All Intangibles

September 15, 2017


The Honorable Orrin G. Hatch
Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, D .C. 20510

Re: Proposal to Extend Section 179 of the Internal Revenue Code to All Intangibles

I write in support of the tax reform efforts being considered by the Senate Finance Committee and propose extending first year expensing to intangible assets.


My law firm, the Royse Law Firm, is a Silicon Valley-based law firm that advises companies on tax, business, and corporate law matters. Since I have started practicing law, the business world has changed considerably while the tax laws have not kept up with the country’s new and evolving technologies, market demands, or business practices.

Extending Section 179 to All Intangibles

Section 179 of the Internal Revenue Code (the “Code”) allows companies to elect to expense (i.e., deduct immediately) certain tangible assets in the year of acquisition. Currently, intangible property is in eligible for this election.

The breadth of commercially available intangibles has grown dramatically since the Tax Reform Act of 1986.  In the 1980s, intangible assets primarily consisted of intellectual property, such as patents and copyrights.  Today, domain names, social media assets, cloud-based software, and other computer-related intangible assets are ubiquitous in our day-to-day business operations.

While Congress is considering lowering tax rates via base broadening, we also suggest changing the tax treatment of intangible property under the Code. If 100% expensing of tangible assets is part of tax reform, then this tax treatment should also be extended to intangible assets. If 100% expensing of assets is not part of tax reform, however, then we believe the expensing rule under section 179 should be expanded to include acquired intangibles.

This proposed amendment is a significant tool that Congress can use to spur U.S. investment and boost productivity. Moreover, a revitalized economy means increased employment rates and higher wages for U.S workers. Thus, we support extending Code section 179 to all intangibles as part of comprehensive tax reform.


I hope that you will find this proposal helpful and informative as Congress acts to modernize the tax laws and empower American businesses. I am also available upon request to testify as to the content of this letter and the proposal contained herein.

Very truly yours,


/s/ Roger Royse

Roger Royse
Attorney at Law


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Letter to the Hon. Cory Gardner Re: ASIAN, Inc.

August 3, 2017
The Honorable Cory Gardner
354 Russell Senate Office Building
Washington DC 20510

Re: ASIAN, Inc.

Dear Senator Gardner:

I write to you as a member of the Board of ASIAN, Inc. to encourage you to support full funding (at the current enacted FY2017 level) of the U.S. Department of Commerce’s Minority Business Development Agency (MBDA) in FY2018, currently included the Department of Commerce Appropriations Act, 2018.1

I applaud the House and Senate appropriators for overwhelmingly passing appropriations bills that both fund the Minority Business Development Agency (MBDA) at $34 million in FY2018. I urge similar support by the full House and Senate of their respective Commerce, Justice, Science and Related Agencies Appropriations bills.

On average, MBDA facilitates more than $4 billion in contracts and capital for minority-owned firms annually. Between 2015 and 2016, ASIAN, Inc. contributed nearly $1.1 billion (or over a quarter) of all transactions facilitated by MBDA. Each MBDA center secures an average of $18.8 million worth of financial investment in minority firms; and higher-performing centers like ASIAN, Inc.’s secure more than $50 million worth of investment.

For the past eight years, MBDA has created and saved more than 142,000 jobs and achieved a return on taxpayer investment between 102x and 179x. Given the economic challenges that minority-owned businesses face and the income and wealth gap between minority and non-minority communities, it is important that we fund MBDA to support these firms with overcoming the obstacles that they disproportionately encounter.

I support ASIAN, Inc.’s call for not less than $17,000,000 to be awarded through cooperative agreements, external awards and grants. Attached to this letter is a graphic illustrating recent performance by ASIAN, Inc. and successes other MBDA center operators have had with their projects. I also attach a letter by Michael Chan, which provides additional context.

Very truly yours,
Royse Law Firm, PC
Roger Royse
Attorney at Law

1 Commerce, Justice, Science, and Related Agencies Appropriations Act, 2018, H.R. 3267, 115th Cong. (2017).

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HEARING: Subcommittee on General Farm Commodities and Risk Management – Public Hearing RE: The Future of Farming: Technological Innovations, Opportunities, and Challenges for Producers

Thursday, July 13, 2017 – 10:00 a.m.
1300 Longworth House Office Building
Washington, D.C.

Subcommittee on General Farm Commodities and Risk Management – Public Hearing RE: The Future of Farming: Technological Innovations, Opportunities, and Challenges for Producers Witnesses

Panel I (Click on each name for written statement of testimony)

Mr. Billy Tiller, Co-Founder and Advisor to the CEO, Grower Information Services Cooperative, TTU Innovation Hub at Research Park, Lubbock, TX

Mr. Todd Janzen, President, Janzen Agricultural Law, Indianapolis, IN

Ms. Deb Casurella, CEO, Independent Data Management, Hudson, WI

Mr. Roger Royse, Founder, Royse Law Firm, Menlo Park, CA

Related News
Subcommittee Chairman Crawford’s opening statement
Press Release

Watch Live

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The Financial CHOICE to Fix Crowdfunding

Regulation Crowdfunding (“Regulation CF”) was designed to improve access to capital for small businesses as well as investment opportunities for smaller investors. However, the JOBS Act still requires that the sale of securities occur through a funding portal, i.e., a third-party intermediary registered with the SEC and FINRA. There is also a $1 million investment cap that is limiting small business’ access to capital. Finally, strict disclosure requirements impede small business growth where disclosures can cost up to 20 percent of the raise. Thus, removing registration requirements, increasing the cap, and reducing disclosure requirements is an effective means to encourage more entrepreneurs to consider CF crowdfunding.

The Fix the Crowdfunding Act (H.R. 4855) was introduced by Rep. Patrick McHenry during the 114th Congress. The bill would have amended the Securities Act to allow a crowdfunding issuer to sell shares through a crowdfunding vehicle. The bill would also have amended the Securities Exchange Act to revise the exemptions from SEC registration. The bill was passed by the House in July 2016 but was never passed by the Senate. Several provisions of the bill were then merged into the Financial CHOICE Act.

The Financial CHOICE Act of 2017 (H.R. 10) was introduced by Rep. Jeb Hensarling on April 26, 2017. Subtitle P would remove the individual and aggregate investment caps. It would also allow an issuer to conduct federal crowdfunding without a registered intermediary and remove a significant amount of the existing regulatory requirements on issuers. These reforms permit everyday investors to diversify their portfolios while supporting small business growth. We therefore support easing these restrictions on crowdfunding and effectively increasing American access to capital.

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Supporting Small Business Starts with Codifying the Finder’s Exemption

For many years, the U.S. Securities and Exchange Commission (the “SEC”) allowed small businesses to engage unlicensed finders to assist them in raising money. These finders served a valuable role in the fundraising process by putting investors in touch with companies who were seeking capital, typically in transactions that were too small to attract the attention of federally regulated broker-dealers. Over the past several years, however, the “finder’s exemption” has been steadily eroded by the SEC through enforcement actions to the point where unregistered “finders” no longer exist.

The de facto regulatory repeal of the finder’s exemption has outlawed an entire industry, with no legislative action at all, resulting in a conspicuous absence of legal alternatives for small businesses seeking capital. The SEC’s brief to the 11th Circuit after the SEC v. Kramer case provides a summary of the SEC’s current view of unregistered finders, wherein any commission payment will cause the recipient to be categorized as an unregistered broker-dealer. There is judicial support, however, for finders to take percentage-based compensation without having to register as brokers or dealers. These courts generally hold something more than just transaction-based compensation is necessary to require broker registration.

The purpose of the SEC is to protect investors, not to increase the transaction costs of startup financing by regulating finders. Registration under these circumstances is inefficient and receives inconsistent treatment from the SEC and courts on appeal. The federal securities law should be liberalized to explicitly exclude finders from broker-dealer registration. A codified finder’s exemption will increase economic efficiency by lowering transaction costs associated with the present law’s uncertainty as well as resolve court splits within the judicial system.

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A Section 382 Carve-Out Would Remove the Limitation on Startup Innovation

Internal Revenue Code Section 382 generally requires a corporation to limit the amount of its taxable income in future years that can be offset by net operating losses (NOLs) after a change in ownership. After an ownership change, the corporation may only deduct its pre-change losses against taxable income in an amount equal to the section 382 limitation. The limitation amount is the fair market value of the company’s stock multiplied by the federal long-term tax-exempt rate (e.g., 2.09% for May 2017). As a practical matter, section 382 renders the losses of a corporation useless to an acquiror as the NOLs essentially disappear after a sale.

The loss limitation rules under section 382 were enacted to quite sensibly restrict a corporation from trading in tax losses, i.e., engaging in transactions based on their NOLs instead of legitimate business purposes. Startups, however, will invariably have NOL carryforwards because the upfront cost of innovation is high and the basic startup model is focused on building long-term value rather than generating short-term profits. Consequently, the loss limitation rules effectively prevent startups from ever using their losses to offset income and the parties to an acquisition will factor this into the price. As a result, the section 382 limitation is depressing the value of startup company stock and negating the tax incentives to invest in innovation.

We propose a carve-out from the section 382 limitation for innovation. The simplest approach would be an exemption from section 382 for section 174(a) R&D expenses. We believe, however, that the R&D exemption should be broader and less complex than the 174(a) deduction, and should reward activities that may not reach the level of a 174 R&D expense. Our suggested approach would be to exempt NOLs that are attributable to entering new markets, developing new products, or expanding new technologies.

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