II

106TH CONGRESS

1ST SESSION S. 1010

To amend the Internal Revenue Code of 1986 to provide for a medical

innovation tax credit for clinical testing research expenses attributable

to academic medical centers and other qualified hospital research organizations.

IN THE SENATE OF THE UNITED STATES

MAY 11, 1999

Mr. JEFFORDS (for himself, Mr. ROCKEFELLER, Mrs. HUTCHISON, Mrs.

FEINSTEIN, and Mrs. BOXER) 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 provide

for a medical innovation tax credit for clinical testing

research expenses attributable to academic medical centers and other qualified hospital research organizations.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. CREDIT FOR CLINICAL TESTING RESEARCH EX2 PENSES ATTRIBUTABLE TO CERTAIN QUALI3 FIED ACADEMIC INSTITUTIONS INCLUDING

4 TEACHING HOSPITALS.

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of

7 1986 (relating to business related credits) is amended by

8 inserting after section 41 the following:

9 ‘‘SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.

10 ‘‘(a) GENERAL RULE.—For purposes of section 38,

11 the medical innovation credit determined under this sec12 tion for the taxable year shall be an amount equal to 20

13 percent of the excess (if any) of—

14 ‘‘(1) the qualified medical innovation expenses

15 for the taxable year, over

16 ‘‘(2) the medical innovation base period

17 amount.

18 ‘‘(b) QUALIFIED MEDICAL INNOVATION EX19 PENSES.—For purposes of this section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified medical

21 innovation expenses’ means the amounts which are

22 paid or incurred by the taxpayer during the taxable

23 year directly or indirectly to any qualified academic

24 institution for clinical testing research activities.

25 ‘‘(2) CLINICAL TESTING RESEARCH ACTIVI26 TIES.—
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1 ‘‘(A) IN GENERAL.—The term ‘clinical

2 testing research activities’ means human clinical

3 testing conducted at any qualified academic in4 stitution in the development of any product,

5 which occurs before—

6 ‘‘(i) the date on which an application

7 with respect to such product is approved

8 under section 505(b), 506, or 507 of the

9 Federal Food, Drug, and Cosmetic Act,

10 ‘‘(ii) the date on which a license for

11 such product is issued under section 351 of

12 the Public Health Service Act, or

13 ‘‘(iii) the date classification or ap14 proval of such product which is a device in15 tended for human use is given under sec16 tion 513, 514, or 515 of the Federal Food,

17 Drug, and Cosmetic Act.

18 ‘‘(B) PRODUCT.—The term ‘product’

19 means any drug, biologic, or medical device.

20 ‘‘(3) QUALIFIED ACADEMIC INSTITUTION.—The

21 term ‘qualified academic institution’ means any of

22 the following institutions:

23 ‘‘(A) EDUCATIONAL INSTITUTION.—A

24 qualified organization described in section

25 170(b)(1)(A)(iii) which is owned or affiliated
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1 with an institution of higher education as de2 scribed in section 3304(f).

3 ‘‘(B) TEACHING HOSPITAL.—A teaching

4 hospital which—

5 ‘‘(i) is publicly supported or owned by

6 an organization described in section

7 501(c)(3), and

8 ‘‘(ii) is affiliated with an organization

9 meeting the requirements of subparagraph

10 (A).

11 ‘‘(C) FOUNDATION.—A medical research

12 organization described in section 501(c)(3)

13 (other than a private foundation) which is affili14 ated with, or owned by—

15 ‘‘(i) an organization meeting the re16 quirements of subparagraph (A), or

17 ‘‘(ii) a teaching hospital meeting the

18 requirements of subparagraph (B).

19 ‘‘(D) CHARITABLE RESEARCH HOS20 PITAL.—A hospital that is designated as a can21 cer center by the National Cancer Institute.

22 ‘‘(4) EXCLUSION FOR AMOUNTS FUNDED BY

23 GRANTS, ETC.—The term ‘qualified medical innova24 tion expenses’ shall not include any amount to the

25 extent such amount is funded by any grant, con-
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1 tract, or otherwise by another person (or any gov2 ernmental entity).

3 ‘‘(c) MEDICAL INNOVATION BASE PERIOD

4 AMOUNT.—For purposes of this section, the term ‘medical

5 innovation base period amount’ means the average annual

6 qualified medical innovation expenses paid by the taxpayer

7 during the 3-taxable year period ending with the taxable

8 year immediately preceding the first taxable year of the

9 taxpayer beginning after December 31, 1998.

10 ‘‘(d) SPECIAL RULES.—

11 ‘‘(1) LIMITATION ON FOREIGN TESTING.—No

12 credit shall be allowed under this section with re13 spect to any clinical testing research activities con14 ducted outside the United States.

15 ‘‘(2) CERTAIN RULES MADE APPLICABLE.—

16 Rules similar to the rules of subsections (f) and (g)

17 of section 41 shall apply for purposes of this section.

18 ‘‘(3) ELECTION.—This section shall apply to

19 any taxpayer for any taxable year only if such tax20 payer elects to have this section apply for such tax21 able year.

22 ‘‘(4) COORDINATION WITH CREDIT FOR IN23 CREASING RESEARCH EXPENDITURES AND WITH

24 CREDIT FOR CLINICAL TESTING EXPENSES FOR CER25 TAIN DRUGS FOR RARE DISEASES.—Any qualified
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1 medical innovation expense for a taxable year to

2 which an election under this section applies shall not

3 be taken into account for purposes of determining

4 the credit allowable under section 41 or 45C for

5 such taxable year.

6 ‘‘(e) TERMINATION.—This section shall not apply to

7 any expense paid or incurred after the date specified in

8 section 41(h)(1)(B).’’.

9 (b) CREDIT TO BE PART OF GENERAL BUSINESS

10 CREDIT.—

11 (1) IN GENERAL.—Section 38(b) of such Code

12 (relating to current year business credits) is amend13 ed by striking ‘‘plus’’ at the end of paragraph (11),

14 by striking the period at the end of paragraph (12)

15 and inserting ‘‘, plus’’, and by adding at the end the

16 following:

17 ‘‘(13) the medical innovation expenses credit

18 determined under section 41A(a).’’.

19 (2) TRANSITION RULE.—Section 39(d) of such

20 Code is amended by adding at the end the following

21 new paragraph:

22 ‘‘(9) NO CARRYBACK OF SECTION 41A CREDIT

23 BEFORE ENACTMENT.—No portion of the unused

24 business credit for any taxable year which is attrib25 utable to the medical innovation credit determined
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1 under section 41A may be carried back to a taxable

2 year beginning before January 1, 1999.’’.

3 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C of

4 such Code is amended by adding at the end the following

5 new subsection:

6 ‘‘(d) CREDIT FOR INCREASING MEDICAL INNOVA7 TION EXPENSES.—

8 ‘‘(1) IN GENERAL.—No deduction shall be al9 lowed for that portion of the qualified medical inno10 vation expenses (as defined in section 41A(b)) other11 wise allowable as a deduction for the taxable year

12 which is equal to the amount of the credit deter13 mined for such taxable year under section 41A(a).

14 ‘‘(2) CERTAIN RULES TO APPLY.—Rules similar

15 to the rules of paragraphs (2), (3), and (4) of sub16 section (c) shall apply for purposes of this sub17 section.’’.

18 (d) DEDUCTION FOR UNUSED PORTION OF CRED19 IT.—Section 196(c) of such Code (defining qualified busi20 ness credits) is amended by resdesignating paragraphs (5)

21 through (8) as paragraphs (6) through (9), respectively,

22 and by inserting after paragraph (4) the following new

23 paragraph:

24 ‘‘(5) the medical innovation expenses credit de25 termined under section 41A(a) (other than such
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1 credit determined under the rules of section

2 280C(d)(2)),’’.

3 (e) CLERICAL AMENDMENT.—The table of sections

4 for subpart D of part IV of subchapter A of chapter 1

5 of such Code is amended by adding after the item relating

6 to section 41 the following:

‘‘Sec. 41A. Credit for medical innovation expenses.’’.

7 (f) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years beginning after

9 December 31, 1998.

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