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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4212 Introduced in House (IH)]

103d CONGRESS
  2d Session
                                H. R. 4212

     To stimulate the research and development of biotechnologies.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             April 14, 1994

 Mr. Blute (for himself and Ms. Eshoo) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
     To stimulate the research and development of biotechnologies.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Biotechnology Stimulus Act of of 
1994''.

SEC. 2. BIOTECHNOLOGY RESEARCH CREDIT IMPROVEMENT.

    (a) Alternative Credit Calculation Based on Aggregate Research 
Expenses.--
            (1) In general.--Subsection (a) of section 41 of the 
        Internal Revenue Code of 1986 (relating to general rule) is 
        amended to read as follows:
    ``(a) General Rule.--For purposes of section 38, the research 
credit determined under this section for the taxable year shall be an 
amount equal to 1 of the following amounts (as elected by the taxpayer 
for the taxable year):
            ``(1) 25 percent of increased research expenses.--The sum 
        of--
                    ``(A) 25 percent of the excess (if any) of--
                            ``(i) the qualified biotechnology (as 
                        defined in section 2(f) of the Biotechnology 
                        Competitiveness Act of 1994) research expenses, 
                        over
                            ``(ii) the base amount, and
                    ``(B) 25 percent of the basic research payments, 
                determined under subsection (e)(1)(A).
            ``(2) 5 percent of aggregate biotechnology research 
        expenses.--The sum of--
                    ``(A) 5 percent of the qualified research expenses, 
                determined by substituting `100 percent' for `65 
                percent' in subsection (b)(3)(A), and
                    ``(B) 5 percent of the basic research payments, 
                determined under subsection (e)(2).''.
            (2) Conforming amendments.--
                    (A) Paragraph (1) of section 41(e) of such Code 
                (relating to basic research credit) is amended--
                            (i) by striking ``subsection (a)(2)'' and 
                        inserting ``subsection (a)(1)(B)'', and
                            (ii) by striking ``subsection (a)(1)'' and 
                        inserting ``subsection (a)(1)(A)''.
                    (B) Subparagraph (C) of section 41(e)(7) of such 
                Code (relating to definitions and special rules) is 
                amended--
                            (i) by striking ``incremental'' in the 
                        subparagraph caption and inserting ``other'',
                            (ii) by striking ``subsection (a)(1)'' and 
                        inserting ``paragraph (1)(A) or (2)(A) of 
                        subsection (a)'',
                            (iii) by striking ``subsection (a)(2)'' and 
                        inserting ``paragraph (1)(B) or (2)(B) of such 
                        subsection'',
                            (iv) by striking ``subsection (a)(1)(A)'' 
                        and inserting ``paragraph (1)(A)(i) or (2)(A) 
                        of such subsection'', and
                            (v) by striking ``subsection (a)(1)(B)'' 
                        and inserting ``paragraph (1)(A)(ii) of such 
                        subsection''.
                    (C) Subparagraph (A) of section 280C(c)(2) of such 
                Code (relating to disallowance of deduction for 
                expenses for which research credit taken) is amended by 
                striking ``section 41(a)(1)'' and inserting ``paragraph 
                (1)(A) or (2)(A) of section 41(a)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.
    (b) Permanent Extension of Credit.--
            (1) In general.--Section 41 of such Code is amended by 
        striking subsection (h) (relating to termination).
            (2) Conforming amendment.--Paragraph (1) of section 28(b) 
        of such Code (relating to qualified clinical testing expenses) 
        is amended by striking subparagraph (D).

SEC. 3. VARIABLE CAPITAL GAINS.

    (a) In General.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by adding at the end thereof the following new section:

``SEC. 1202. BIOTECHNOLOGY VARIABLE CAPITAL GAINS DEDUCTION.

    ``(a) Deduction Allowed.--If for any taxable year a taxpayer other 
than a biotechnology (as defined in section 2(f) of the Biotechnology 
Competitiveness Act of 1994) corporation has a net capital gain, there 
shall be allowed as a deduction from gross income an amount equal to 
the sum of--
            ``(1) 100 percent of the qualified 10-year net capital 
        gain,
            ``(2) 90 percent of the qualified 9-year net capital gain,
            ``(3) 80 percent of the qualified 8-year net capital gain,
            ``(4) 70 percent of the qualified 7-year net capital gain,
            ``(5) 60 percent of the qualified 6-year net capital gain,
            ``(6) 50 percent of the qualified 5-year net capital gain,
            ``(7) 40 percent of the qualified 4-year net capital gain,
            ``(8) 30 percent of the qualified 3-year net capital gain,
            ``(9) 20 percent of the qualified 2-year net capital gain, 
        plus
            ``(10) 10 percent of the qualified 1-year net capital gain.
    ``(b) Qualified Net Capital Gain.--For purposes of subsection (a)--
            ``(1) Qualified 10-year net capital gain.--The term 
        `qualified 10-year net capital gain' means the amount of net 
        long-term capital gain which would be computed for the taxable 
        year if only capital assets held by the taxpayer for at least 
        10 years at the time of the sale or exchange were taken into 
        account. Such term shall not exceed the amount of the net 
        capital gain for such taxable year.
            ``(2) Qualified 9-year net capital gain.--The term 
        `qualified 9-year net capital gain' means the amount of net 
        long-term capital gain which would be computed for the taxable 
        year if only capital assets held by the taxpayer for at least 9 
        years but less than 10 years at the time of the sale or 
        exchange were taken into account. Such term shall not exceed 
        the amount of the net capital gain for such taxable year 
        reduced by the amount of the qualified 10-year net capital 
        gain.
            ``(3) Other definitions.--The amount of the qualified 8-
        year net capital gain, 7-year net capital gain, 6-year net 
        capital gain, 5-year net capital gain, 4-year net capital gain, 
        3-year net capital gain, qualified 2-year net capital gain, and 
        qualified 1-year net capital gain shall be determined under the 
        principles of paragraphs (1) and (2).
    ``(c) Estate and Trusts.--In the case of an estate or trust, the 
deduction shall be computed by excluding the portion (if any) of the 
gains for the taxable year from sales or exchanges of capital assets 
which, under sections 652 and 662 (relating to inclusions of amounts in 
gross income of beneficiaries of trusts), is includible by the income 
beneficiaries as gain derived from the sale or exchange of capital 
assets.''.
    (b) Treatment of Collectibles.--
            (1) In general.--Section 1222 of such Code is amended by 
        inserting after paragraph (11) the following new paragraph:
            ``(12) Special rule for collectibles.--
                    ``(A) In general.--Any gain or loss from the sale 
                or exchange of a collectible shall be treated as a 
                short-term capital gain or loss (as the case may be), 
                without regard to the period such asset was held. The 
                preceding sentence shall apply only to the extent the 
                gain or loss is taken into account in computing taxable 
                income.
                    ``(B) Treatment of certain sales of interest in 
                partnership, etc.--For purposes of subparagraph (A), 
                any gain from the sale or exchange of an interest in a 
                partnership, S corporation, or trust which is 
                attributable to unrealized appreciation in the value of 
                collectibles held by such entity shall be treated as 
                gain from the sale or exchange of a collectible. Rules 
                similar to the rules of section 751(f) shall apply for 
                purposes of the preceding sentence.
                    ``(C) Collectible.--For purposes of this paragraph, 
                the term `collectible' means any capital asset which is 
                a collectible (as defined in section 408(m) without 
                regard to paragraph (3) thereof).''.
            (2) Charitable deduction not affected.--
                    (A) Paragraph (1) of section 170(e) of such Code is 
                amended by adding at the end thereof the following new 
                sentence: ``For purposes of this paragraph, section 
                1222 shall be applied without regard to paragraph (12) 
                thereof (relating to special rule for collectibles).''.
                    (B) Clause (iv) of section 170(b)(1)(C) of such 
                Code is amended by inserting before the period at the 
                end thereof the following: ``and section 1222 shall be 
                applied without regard to paragraph (12) thereof 
                (relating to special rule for collectibles)''.
    (c) Conforming Amendments.--
            (1) Section 1 of such Code is amended by striking 
        subsection (h).
            (2) Subsection (a) of section 62 of such Code is amended by 
        inserting after paragraph (13) the following new paragraph:
            ``(14) Long-term capital gains.--In the case of a taxpayer 
        other than a corporation, the deduction allowed by section 
        1202.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. CAPITAL GAINS EXCLUSION FOR BIOTECHNOLOGY STARTUP BUSINESS 
              STOCK.

    (a) Taxpayers Other Than Corporations.--Part I of subchapter P of 
chapter 1 of the Internal Revenue Code of 1986 (relating to treatment 
of capital gains) is amended by adding at the end the following new 
section:

``SEC. 1203. DEDUCTION FOR CAPITAL GAINS ON CERTAIN BIOTECHNOLOGY 
              BUSINESS STOCK HELD FOR MORE THAN 2 YEARS.

    ``(a) General Rule.--If for any taxable year a taxpayer other than 
a corporation has a qualified business net capital gain, there shall be 
allowed as a deduction from gross income an amount equal to 50 percent 
of the qualified business net capital gain.
    ``(b) Qualified Business Net Capital Gain.--For purposes of this 
section--
            ``(1) In general.--The term `qualified business net capital 
        gain' means the lesser of--
                    ``(A) the net capital gain for the taxable year, or
                    ``(B) the net capital gain for the taxable year 
                determined by taking into account only gain or loss 
                from qualified business stock with a holding period of 
                at least 2 years at the time of the disposition.
            ``(2) Qualified business stock.--
                    ``(A) In general.--The term `qualified business 
                stock' means biotechnology (as defined in section 2(f) 
                of the Biotechnology Competitiveness Act of 1994) 
                business stock which--
                            ``(i) is first acquired (whether directly 
                        or through an underwriter) from the issuer by 
                        the taxpayer, and
                            ``(ii) is not issued in redemption of (or 
                        otherwise exchanged for) stock.
                    ``(B) Exception for personal service 
                corporations.--The term `qualified business stock' does 
                not include stock issued by a personal service 
                corporation (within the meaning of section 269A(b)(1)).
    ``(c) Estates and Trusts.--In the case of an estate or trust, the 
deduction under subsection (a) shall be computed by excluding the 
portion (if any) of the gains for the taxable year from sales or 
exchanges of capital assets which, under sections 652 and 662 (relating 
to inclusions of amounts in gross income of beneficiaries of trusts), 
is includible by the income beneficiaries as gain derived from the sale 
or exchange of capital assets.''.
    (b) Corporations.--Section 1201 of such Code (relating to 
alternative tax for corporations) is amended by redesignating 
subsection (b) as subsection (c) and by inserting after subsection (a) 
the following new subsection:
    ``(b) Deduction for Gain on Qualified Business Stock.--
            ``(1) In general.--If for any taxable year a corporation 
        has a qualified business net capital gain, there shall be 
        allowed as a deduction from gross income an amount equal to 50 
        percent of the qualified business net capital gain.
            ``(2) Qualified business net capital gain.--For purposes of 
        this subsection, the term `qualified business net capital gain' 
        has the meaning given such term in section 1203(b).''.
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 1201 of such Code is amended 
        by inserting after ``net capital gain'' each place it appears 
        the following: ``(other than qualified business net capital 
        gain (within the meaning of section 1203(b))''.
            (2) Subsection (a) of section 62 of such Code is amended by 
        adding at the end the following new paragraph:
            ``(15) Qualified business stock capital gains.--The 
        deduction allowed by section 1203.''.
            (3)(A) The heading for section 1201 of such Code is amended 
        to read as follows:

``SEC. 1201. ALTERNATIVE TAX FOR BIOTECHNOLOGY CORPORATIONS; DEDUCTION 
              FOR GAIN ON QUALIFIED BUSINESS STOCK.''.

            (B) The item relating to section 1201 in the table of 
        sections for part I of subchapter P of chapter 1 of such Code 
        is amended to read as follows:

                              ``Sec. 1201. Alternative tax for 
                                        biotechnology corporations; 
                                        deduction for gain on qualified 
                                        business stock.''.
            (4) The table of sections for part I of subchapter P of 
        chapter 1 of such Code is amended by adding at the end the 
        following new item:

                              ``Sec. 1203. Deduction for capital gains 
                                        on certain business stock held 
                                        for more than 2 years.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to stock issued after the date of the enactment of this Act.

SEC. 5. INDEXING OF CERTAIN CAPITAL ASSETS.

    (a) In General.--Part II of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to basis rules of general 
application) is amended by inserting after section 1021 the following 
new section:

``SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING 
              GAIN OR LOSS.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted basis.--Except 
        as provided in paragraph (2), if an indexed asset which has 
        been held for more than 1 year is sold or otherwise disposed 
        of, for purposes of this title the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The deduction for 
        depreciation, depletion, and amortization shall be determined 
        without regard to the application of paragraph (1) to the 
        taxpayer or any other person.
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, the term 
        `indexed asset' means--
                    ``(A) stock in a corporation, and
                    ``(B) tangible property (or any interest therein), 
                which is a capital asset or property used in the trade 
                or business (as defined in section 1231(b)).
            ``(2) Certain property excluded.--For purposes of this 
        section, the term `indexed asset' does not include stock in a 
        foreign corporation.
    ``(c) Indexed Basis.--For purposes of this section:
            ``(1) Indexed basis.--The indexed basis for any asset is--
                    ``(A) the adjusted basis of the asset, multiplied 
                by
                    ``(B) the applicable inflation ratio.
            ``(2) Applicable inflation ratio.--The applicable inflation 
        ratio for any asset is the percentage arrived at by dividing--
                    ``(A) the gross national product deflator the 
                calendar quarter in which the disposition takes place, 
                by
                    ``(B) the gross national product deflator for the 
                calendar quarter in which the asset was acquired by the 
                taxpayer (or, if later, the calendar quarter ending 
                December 31, 1991).
        The applicable inflation ratio shall not be taken into account 
        unless it is greater than 1. The applicable inflation ratio for 
        any asset shall be rounded to the nearest one-tenth of 1 
        percent.
            ``(3) Gross national product deflator.--The gross national 
        product deflator for any calendar quarter is the implicit price 
        deflator for the gross national product for such quarter (as 
        shown in the first revision thereof).
    ``(d) Special Rules.--For purposes of this section:
            ``(1) Treatment as separate asset.--In the case of any 
        asset, the following shall be treated as a separate asset:
                    ``(A) a substantial improvement to property,
                    ``(B) in the case of stock of a corporation, a 
                substantial contribution to capital, and
                    ``(C) any other portion of an asset to the extent 
                that separate treatment of such portion is appropriate 
                to carry out the purposes of this section.
            ``(2) Assets which are not indexed assets throughout 
        holding period.--
                    ``(A) In general.--The applicable inflation ratio 
                shall be appropriately reduced for calendar months at 
                any time during which the asset was not an indexed 
                asset.
                    ``(B) Certain short sales.--For purposes of 
                applying subparagraph (A), an asset shall be treated as 
                not an indexed asset for any short sale period during 
                which the taxpayer or the taxpayer's spouse sells short 
                property substantially identical to the asset. For 
                purposes of the preceding sentence, the short sale 
                period begins on the day after the substantially 
                identical property is sold and ends on the closing date 
                for the sale.
            ``(3) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of subsection 
        (a)(1) to an asset while such asset was held by the taxpayer, 
        the date of acquisition of such asset by the taxpayer shall be 
        treated as not earlier than the date of the most recent such 
        prior application.
    ``(e) Certain Conduit Entities.--
            ``(1) Regulated investment companies; real estate 
        investment trusts; common trust funds.--
                    ``(A) In general.--Stock in a qualified investment 
                entity shall be an indexed asset for any calendar month 
                in the same ratio as the fair market value of the 
                assets held by such entity at the close of such month 
                which are indexed assets bears to the fair market value 
                of all assets of such entity at the close of such 
                month.
                    ``(B) Ratio of 90 percent or more.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 90 percent or 
                more, such ratio for such month shall be 100 percent.
                    ``(C) Ratio of 10 percent or less.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 10 percent or 
                less, such ratio for such month shall be zero.
                    ``(D) Valuation of assets in case of real estate 
                investment trusts.--Nothing in this paragraph shall 
                require a real estate investment trust to value its 
                assets more frequently than once each 36 months (except 
                where such trust ceases to exist). The ratio under 
                subparagraph (A) for any calendar month for which there 
                is no valuation shall be the trustee's good faith 
                judgment as to such valuation.
                    ``(E) Qualified investment entity.--For purposes of 
                this paragraph, the term `qualified investment entity' 
                means--
                            ``(i) a regulated investment company 
                        (within the meaning of section 851),
                            ``(ii) a real estate investment trust 
                        (within the meaning of section 856), and
                            ``(iii) a common trust fund (within the 
                        meaning of section 584).
            ``(2) Partnerships.--In the case of a partnership, the 
        adjustment made under subsection (a) at the partnership level 
        shall be passed through to the partners.
    ``(f) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to any sale 
        or other disposition of property between related persons except 
        to the extent that the basis of such property in the hands of 
        the transferee is a substituted basis.
            ``(2) Related persons defined.--For purposes of this 
        section, the term `related persons' means--
                    ``(A) persons bearing a relationship set forth in 
                section 267(b), and
                    ``(B) persons treated as single employer under 
                subsection (b) or (c) of section 414.
    ``(g) Transfers To Increase Indexing Adjustment.--If any person 
transfers cash, debt, or any other property to another person and the 
principal purpose of such transfer is to secure or increase an 
adjustment under subsection (a), the Secretary may disallow part or all 
of such adjustment or increase.
    ``(h) Definition of Stock.--For purposes of this section, the term 
`stock in a corporation' includes any interest in a common trust fund 
(as defined in section 584(a)).
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 312 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(3) Effect on earnings and profits of indexed basis.--

                                ``For substitution of indexed basis for 
adjusted basis in the case of the disposition of certain assets, see 
section 1022(a)(1).''.
            (2) The table of sections for part II of subchapter O of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 1021 the following new item:

                              ``Sec. 1022. Indexing of certain assets 
                                        for purposes of determining 
                                        gain or loss.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dispositions after the date of the enactment of this Act.

SEC. 6. SENSE OF CONGRESS REGARDING EFFECT OF CERTAIN NEW ACCOUNTING 
              STANDARDS ON BIOTECHNOLOGY BUSINESSES.

    It is the sense of the Congress that--
            (1) the accounting standards proposed by the Financial 
        Accounting Standards Board will have grave economic 
        consequences, particularly for biotechnology businesses in new-
        growth sectors, which rely heavily on entrepreneurship; and
            (2) the Financial Accounting Standards Board should not 
        change the accounting rules in effect on the date of the 
        enactment of this Act under Accounting Principles Board 
        Decision 25 by requiring that biotechnology businesses deduct 
        the value of stock options from their profits.

                                 <all>

HR 4212 IH----2
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