I

104TH CONGRESS

2D SESSION H. R. 2984

To amend the Internal Revenue Code of 1986 to extend the research credit,

to allow an alternative incremental research credit, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 28, 1996

Mr. FOX of Pennsylvania (for himself, Mr. BEREUTER, Mr. DORNAN, and Mr.

ZIMMER) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to extend

the research credit, to allow an alternative incremental

research credit, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. EXTENSION AND MODIFICATION OF RESEARCH

4 CREDIT.

5 (a) EXTENSION.—Subsection (h) of section 41 of the

6 Internal Revenue Code of 1986 (relating to credit for re7 search activities) is amended—

8 (1) by striking ‘‘June 30, 1995’’ each place it

9 appears and inserting ‘‘December 31, 1997’’, and
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1 (2) by striking ‘‘July 1, 1995’’ each place it ap2 pears and inserting ‘‘January 1, 1998’’.

3 (b) BASE AMOUNT FOR START-UP COMPANIES.—

4 Clause (i) of section 41(c)(3)(B) of such Code (relating

5 to start-up companies) is amended to read as follows:

6 ‘‘(i) TAXPAYERS TO WHICH SUBPARA7 GRAPH APPLIES.—The fixed-base percent8 age shall be determined under this sub9 paragraph if—

10 ‘‘(I) the first taxable year in

11 which a taxpayer had both gross re12 ceipts and qualified research expenses

13 begins after December 31, 1983, or

14 ‘‘(II) there are fewer than 3 tax15 able years beginning after December

16 31, 1983, and before January 1,

17 1989, in which the taxpayer had both

18 gross receipts and qualified research

19 expenses.’’.

20 (c) ELECTION OF ALTERNATIVE INCREMENTAL

21 CREDIT.—Subsection (c) of section 41 of such Code is

22 amended by redesignating paragraphs (4) and (5) as para23 graphs (5) and (6), respectively, and by inserting after

24 paragraph (3) the following new paragraph:
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1 ‘‘(4) ELECTION OF ALTERNATIVE INCREMEN2 TAL CREDIT.—

3 ‘‘(A) IN GENERAL.—At the election of the

4 taxpayer, the credit determined under sub5 section (a)(1) shall be equal to the sum of—

6 ‘‘(i) 1.65 percent of so much of the

7 qualified research expenses for the taxable

8 year as exceeds 1 percent of the average

9 described in subsection (c)(1)(B) but does

10 not exceed 1.5 percent of such average,

11 ‘‘(ii) 2.2 percent of so much of such

12 expenses as exceeds 1.5 percent of such av13 erage but does not exceed 2 percent of

14 such average, and

15 ‘‘(iii) 2.75 percent of so much of such

16 expenses as exceeds 2 percent of such aver17 age.

18 ‘‘(B) ELECTION.—An election under this

19 paragraph may be made only for the first tax20 able year of the taxpayer beginning after June

21 30, 1995. Such an election shall apply to the

22 taxable year for which made and all succeeding

23 taxable years unless revoked with the consent of

24 the Secretary.’’
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1 (d) INCREASED CREDIT FOR CONTRACT RESEARCH

2 EXPENSES WITH RESPECT TO CERTAIN RESEARCH CON3 SORTIA.—Paragraph (3) of section 41(b) of such Code is

4 amended by adding at the end the following new subpara5 graph:

6 ‘‘(C) AMOUNTS PAID TO CERTAIN RE7 SEARCH CONSORTIA.—

8 ‘‘(i) IN GENERAL.—Subparagraph (A)

9 shall be applied by substituting ‘80 per10 cent’ for ‘65 percent’ with respect to

11 amounts paid or incurred by the taxpayer

12 to a qualified research consortium for

13 qualified research.

14 ‘‘(ii) QUALIFIED RESEARCH CONSOR15 TIUM.—The term ‘qualified research con16 sortium’ means any organization described

17 in subsection (e)(6)(B) if—

18 ‘‘(I) at least 15 unrelated tax19 payers paid (during the calendar year

20 in which the taxable year of the tax21 payer begins) amounts to such organi22 zation for qualified research,

23 ‘‘(II) no 3 persons paid during

24 such calendar year more than 50 per25 cent of the total amounts paid during
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1 such calendar year for qualified re2 search, and

3 ‘‘(III) no person contributed

4 more than 20 percent of such total

5 amounts.

6 For purposes of subclause (I), all persons

7 treated as a single employer under sub8 section (a) or (b) of section 52 shall be

9 treated as related taxpayers.’’

10 (e) CONFORMING AMENDMENT.—Subparagraph (D)

11 of section 28(b)(1) of such Code is amended by striking

12 ‘‘June 30, 1995’’ and inserting ‘‘December 31, 1997’’.

13 (f) EFFECTIVE DATE.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by this section

16 shall apply to taxable years ending after June 30,

17 1995.

18 (2) SUBSECTIONS (c) AND (d).—The amend19 ments made by subsections (c) and (d) shall apply

20 to taxable years beginning after June 30, 1995.

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