A bill to amend the Internal Revenue Code of 1986 to enhance the global competitiveness of United States businesses by permanently extending the research credit, and for other purposes.

Summary: Amends the Internal Revenue Code to make permanent the credit for increasing research activities.  Modifies the fixed-base percentage used in determining such credit.  Makes the credit available to additional laboratories and centers.  Revises the definition of basic research.

SECTION 1. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) In General.--Section 41 of the Internal Revenue Code of 1986 
(relating to credit for increasing research activities) is amended by 
striking subsection (h).
    (b) Conforming Amendment.--Section 45C(b)(1) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (D).
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after June 30, 1998.

SEC. 2. MODIFICATIONS OF CREDIT FOR QUALIFIED RESEARCH EXPENSES.

    (a) Fixed-Base Percentage.--Subparagraph (A) of section 41(c)(3) of 
the Internal Revenue Code of 1986 (defining fixed-base percentage) is 
amended to read as follows:
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the fixed-base percentage is the 
                percentage which the aggregate qualified research 
                expenses of the taxpayer for taxable years beginning in 
                the base period is of the aggregate gross receipts of 
                the taxpayer for such taxable years. For purposes of 
                the preceding sentence, the base period for any taxable 
                year is any period of 4 consecutive taxable years 
                elected by the taxpayer from the 10 immediately 
                preceding taxable years.''
    (b) Start-Up Companies.--
            (1) Fixed-base percentage.--
                    (A) In general.--Clause (i) of section 41(c)(3)(B) 
                of such Code (relating to start-up companies) is 
                amended to read as follows:
                            ``(i) Taxpayers to which subparagraph 
                        applies.--The fixed-base percentage shall be 
                        determined under this subparagraph if the 
                        taxpayer did not have both gross receipts and 
                        qualified research expenses in each of the 10 
                        taxable years described in subparagraph (A).''
                    (B) Maximum percentage not to apply.--Section 
                41(c)(3)(C) of such Code (relating to maximum fixed-
                base percentage) is amended by adding at the end the 
                following: ``This subparagraph shall not apply to a 
                taxpayer to which subparagraph (B) applies.''
                    (C) Conforming amendments.--Section 41(c)(3)(B)(ii) 
                of such Code is amended--
                            (i) by striking ``1st 5 taxable years 
                        beginning after December 31, 1993'' and 
                        inserting ``1st 5 taxable years in the 10-year 
                        period described in subparagraph (A)'', and
                            (ii) by inserting ``and'' at the end of 
                        subclause (V), by striking ``, and'' at the end 
                        of subclause (VI), and by striking subclause 
                        (VII).
                    (2) Repeal of minimum base amount for start-up 
                companies.--Section 41(c)(2) of the Internal Revenue 
                Code of 1986 (relating to minimum base amount) is 
                amended by adding at the end the following: ``This 
                paragraph shall not apply to a taxpayer to which 
                paragraph (3)(B) applies.''
    (c) Repeal of Limitation on Contract Research Expenses.--Section 
41(b)(3) of the Internal Revenue Code of 1986 (defining contract 
research expenses) is amended--
            (1) by striking ``65 percent of'' in subparagraph (A), and
            (2) by striking subparagraph (C).
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1998.
            (2) Transition rule.--In the case of a taxpayer's 1st 5 
        taxable years beginning after December 31, 1998, the taxpayer 
        may elect to have section 41 of the Internal Revenue Code of 
        1986 applied without regard to the amendments made by 
        subsections (a) and (b).

SEC. 3. MODIFICATIONS OF BASIC RESEARCH CREDIT.

    (a) Expansion of Credit to Research Done With National Laboratories 
and Federal Research Centers.--Section 41(e)(6) of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(E) National laboratories and research centers.--
                Any organization which is--
                            ``(i) a national laboratory specified by 
                        the Secretary of Energy as being under contract 
                        with the Department of Energy, or
                            ``(ii) a federally funded research and 
                        development center (within the meaning of 
                        section 2367 of title 10, United States 
                        Code).''
    (b) Basic Research.--Section 41(e)(7) of the Internal Revenue Code 
of 1986 (relating to definitions and special rules) is amended by 
adding at the end the following new subparagraph:
                    ``(F) Specific commercial objective.--For purposes 
                of subparagraph (A), research shall not be treated as 
                having a specific commercial objective if--
                            ``(i) all results of such research are to 
                        be published in such a manner as to be 
                        available to the general public prior to their 
                        use for a commercial purpose, or
                            ``(ii) such research is done for a 
                        consortium of domestic corporations which 
                        represent substantially all of the domestic 
                        corporations conducting business within the 
                        sector to which the research relates.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.