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. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.

    (a) In General.--Section 41 of the Internal Revenue Code of 1986 
(as amended by section 1 of this Act) is amended by adding at the end 
of the following new subsection:
    ``(h) Election of Alternative Incremental Credit.--
            ``(1) In general.--At the election of the taxpayer, the 
        credit under subsection (a)(1) shall be determined under this 
        subsection by taking into account the modifications provided by 
        this subsection.
            ``(2) Determination of base amount.--
                    ``(A) In general.--In computing the base amount 
                under subsection (c)--
                            ``(i) notwithstanding subsection (c)(3), 
                        the fixed-base percentage shall be equal to 85 
                        percent of the percentage which the aggregate 
                        qualified research expenses of the taxpayer for 
                        the base period is of the aggregate gross 
                        receipts of the taxpayer for the base period, 
                        and
                            ``(ii) the minimum base amount under 
                        subsection (c)(2) shall not apply.
                    ``(B) Start-up and small taxpayer.--In computing 
                the base amount under subsection (c), the gross 
                receipts of a taxpayer for any taxable year in the base 
                period shall be treated as at least equal to 
                $1,000,000.
                    ``(C) Base period.--For purposes of this 
                subsection, the base period is the 8-taxable year 
                period preceding the taxable year (or, if shorter, the 
                period the taxpayer (and any predecessor) has been in 
                existence).
            ``(3) Qualified research.--
                    ``(A) In general.--Notwithstanding subsection (d), 
                the term `qualified research' means research with 
                respect to which expenditures are treated as research 
                and development costs for the purposes of a report or 
                statement concerning such taxable year--
                            ``(i) to shareholders, partners, or other 
                        proprietors, or to beneficiaries, or
                            ``(ii) for credit purposes.
                Such term shall not include any research described in 
                subparagraph (F) or (H) of subsection (d)(4).
                    ``(B) Financial accounting standards.--
                            ``(i) In general.--Subparagarph (A) shall 
                        only apply to the extent that the treatment of 
                        expenditures as research and development costs 
                        is consistent with the Statement of Financial 
                        Standards No. 2 Accounting for Research and 
                        Development Costs.
                            ``(ii) Significant changes.--If the 
                        Secretary determines that there is any 
                        significant change in the accounting standards 
                        described in clause (i) after the date of 
                        enactment of this subsection--
                                    ``(I) the Secretary shall notify 
                                the Committee on Ways and Means of the 
                                House of Representatives and the 
                                Committee on Finance of the Senate of 
                                such change, and
                                    ``(II) such change shall not be 
                                taken into account for any taxable year 
                                beginning before the date which is 1 
                                year after the date of notice under 
                                subclause (I).
                    ``(C) Transition rule.--At the election of the 
                taxpayer, this paragraph shall not apply in computing 
                the base amount for any taxable year in the base period 
                beginning before January 1, 1999.
            ``(4) Election.--An election under this subsection shall 
        apply to the taxable year for which made and all succeeding 
        taxable year unless revoked with the consent of the 
        Secretary.''
    (b) Assistance of Small and Start-Up Businesses.--The Secretary of 
the Treasury of his delegate shall take such actions as are appropriate 
to--
            (1) provide assistance to small and start-up businesses in 
        complying with the requirements of section 41 of the Internal 
        Revenue Code of 1986, and
            (2) reduce the costs of such compliance.
    (c) Conforming Amendment.--Section 41(c) of the Internal Revenue 
Code of 1986 is amended by striking paragraph (4) and redesignating 
paragraphs (5) and (6) as paragraphs (4) and (5), respectively.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 3. MODIFICATIONS TO CREDIT FOR BASIC RESEARCH.

    (a) Elimination of Incremental Requirement.--
            (1) In general.--Paragraph (1) of section 41(e) of the 
        Internal Revenue Code of 1986 is amended to read as follows:
            ``(1) In general.--The amount of basic research payments 
        taken into account under subsection (a)(2) shall be determined 
        in accordance with this subsection.''
            (2) Conforming amendments.--
                    (A) Section 41(a)(2) of such Code is amended by 
                striking ``determined under subsection (e)(1)(A)'' and 
                inserting ``for the taxable year''.
                    (B) Section 41(e) of such Code is amended by 
                striking paragraphs (3), (4), and (5) and by 
                redesignating paragraphs (6) and (7) as paragraphs (3) 
                and (4), respectively.
                    (C) Section 41(e)(4) of such Code (as redesignated) 
                is amended by striking subparagraph (B) and by 
                redesignating subparagraphs (C), (D), and (E) as 
                subparagraphs (B), (C), and (D), respectively.
                    (D) Clause (i) of section 170(e)(4)(B) of such Code 
                is amended by striking ``section 41(e)(6)'' and 
                inserting ``section 41(e)(3)''.
    (b) Basic Research.--
            (1) Specific commercial objective.--Section 41(e)(4) 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 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.''
            (2) Exclusions from basic research.--Section 41(e)(4)(A) of 
        the Internal Revenue Code of 1986 (as redesignated by 
        subsection (a)) is amended by striking clause (ii) and 
        inserting the following:
                            ``(ii) basic research in the arts or 
                        humanities.''
    (c) Expansion of Credit to Research at Federal Laboratories.--
Section 41(e)(3) of the Internal Revenue Code of 1986 (as redesignated 
by subsection (a)(2)(C) of this section) is amended by adding at the 
end the following new subparagraph:
                    ``(E) Federal laboratories.--Any organization which 
                is a federal laboratory within the meaning of that term 
                is section 4(6) of the Stevenson-Wydler Technology 
                Innovation Act of 1980 (15 U.S.C. 3703(6)).''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 4. CREDIT FOR EXPENSES ATTRIBUTABLE TO CERTAIN COLLABORATIVE 
              RESEARCH CONSORTIA.

    (a) Credit for Expenses Attributable to Certain Collaborative 
Research Consortia.--Subsection (a) of section 41 of the Internal 
Revenue Code of 1986 (relating to credit for increasing research 
activities) is amended by--
            (1) striking ``and'' at the end of paragraph (1);
            (2) striking the period at the end of paragraph (2) and 
        inserting ``, and ''; and
            (3) adding at the end the following new paragraph:
            ``(3) 20 percent of the amounts paid or incurred during the 
        taxable year (including as contributions) to a qualified 
        research consortium.''
    (b) Qualified Research Consortium Defined.--Subsection (f) of such 
Code is amended by adding at the end the following new paragraph:
            ``(6) Qualified research consortium.--The term `qualified 
        research consortium' means any organization which--
                    ``(A) is described in section 501(c)(3) and is 
                exempt from tax under section 501(a),
                    ``(B) is organized and operated primarily to 
                conduct scientific or engineering research,
                    ``(C) is not a private foundation,
                    ``(D) to which at least 15 unrelated persons paid 
                or incurred (including as contributions), during the 
                calendar year in which the taxable year of the 
                organization begins, amounts to such organization for 
                scientific or engineering research,
                    ``(E) to which no 3 unrelated persons paid or 
                incurred (including as contributions) during such 
                calendar year more than 50 percent of the total amounts 
                received by such organization during such calendar year 
                for scientific or engineering research, and
                    ``(F) to which no single person paid or incurred 
                (including as contributions) more than 25 percent of 
                such total amounts.
        All persons treated as a single employer under subsection (a) 
        or (b) of section 52 shall be treated as related persons for 
        purposes of subparagraphs (D) and (E), and as a single person 
        for purposes of subparagraph (F).''
    (c) Conforming Amendment.--Paragraph (3) of section 41(b) of such 
Code is amended by striking subparagraph (C).
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.
Amends the Internal Revenue Code to permanently extend the credit for increasing research activities.  Permits the election of an alternative incremental credit.  Modifies the credit with respect to basic research.  Allows the credit for expenses attributable to a qualified research consortium (as defined).
A bill to amend the Internal Revenue Code of 1986 to improve the research and experimentation tax credit, and for other purposes.