II

106TH CONGRESS

1ST SESSION S. 951

To amend the Internal Revenue Code of 1986 to establish a permanent

tax incentive for research and development, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MAY 4, 1999

Mr. DOMENICI (for himself, Mr. BINGAMAN, Mr. FRIST, Mr. LIEBERMAN, and

Ms. SNOWE) 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 establish

a permanent tax incentive for research and development,

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. SHORT TITLE.

4 This Act may be cited as the ‘‘Private Sector Re5 search and Development Investment Act of 1999’’.

6 SEC. 2. PERMANENT EXTENSION OF RESEARCH CREDIT.

7 (a) IN GENERAL.—Section 41 of the Internal Rev8 enue Code of 1986 (relating to credit for increasing re9 search activities) is amended by striking subsection (h).
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1 (b) CONFORMING AMENDMENT.—Section 45C(b)(1)

2 of the Internal Revenue Code of 1986 is amended by strik3 ing subparagraph (D).

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to amounts paid or incurred after

6 June 30, 1999.

7 SEC. 3. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.

8 (a) IN GENERAL.—Section 41 of the Internal Rev9 enue Code of 1986 (relating to credit for increasing re10 search activities), as amended by section 2, is amended

11 by adding at the end the following new subsection:

12 ‘‘(h) ELECTION OF ALTERNATIVE INCREMENTAL

13 CREDIT.—

14 ‘‘(1) IN GENERAL.—At the election of the tax15 payer, the credit under subsection (a)(1) shall be de16 termined under this section by taking into account

17 the modifications provided by this subsection.

18 ‘‘(2) DETERMINATION OF BASE AMOUNT.—

19 ‘‘(A) IN GENERAL.—In computing the base

20 amount under subsection (c)—

21 ‘‘(i) notwithstanding subsection (c)(3),

22 the fixed-base percentage shall be equal to

23 80 percent of the percentage which the ag24 gregate qualified research expenses of the

25 taxpayer for the base period is of the ag-
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1 gregate gross receipts of the taxpayer for

2 the base period, and

3 ‘‘(ii) the minimum base amount under

4 subsection (c)(2) shall not apply.

5 ‘‘(B) START-UP AND SMALL TAXPAYERS.—

6 In computing the base amount under subsection

7 (c), the gross receipts of a taxpayer for any tax8 able year in the base period shall be treated as

9 at least equal to $1,000,000.

10 ‘‘(C) BASE PERIOD.—For purposes of this

11 subsection, the base period is the 8-taxable year

12 period preceding the taxable year (or, if shorter,

13 the period the taxpayer (and any predecessor)

14 has been in existence).

15 ‘‘(3) ELECTION.—An election under this sub16 section shall apply to the taxable year for which

17 made and all succeeding taxable years unless re18 voked with the consent of the Secretary.’’

19 (b) CONFORMING AMENDMENT.—Section 41(c) of

20 the Internal Revenue Code of 1986 is amended by striking

21 paragraph (4) and by redesignating paragraphs (5) and

22 (6) as paragraphs (4) and (5), respectively.

23 (c) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to taxable years beginning after

25 December 31, 1999.
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1 SEC. 4. MODIFICATIONS TO CREDIT FOR BASIC RESEARCH.

2 (a) ELIMINATION OF INCREMENTAL REQUIRE3 MENT.—

4 (1) IN GENERAL.—Paragraph (1) of section

5 41(e) of the Internal Revenue Code of 1986 (relat6 ing to credit allowable with respect to certain pay7 ments to qualified organizations for basic research)

8 is amended to read as follows:

9 ‘‘(1) IN GENERAL.—The amount of basic re10 search payments taken into account under sub11 section (a)(2) shall be determined in accordance with

12 this subsection.’’

13 (2) CONFORMING AMENDMENTS.—

14 (A) Section 41(a)(2) of such Code is

15 amended by striking ‘‘determined under sub16 section (e)(1)(A)’’ and inserting ‘‘for the tax17 able year’’.

18 (B) Section 41(e) of such Code is amended

19 by striking paragraphs (3), (4), and (5) and by

20 redesignating paragraphs (6) and (7) as para21 graphs (3) and (4), respectively.

22 (C) Section 41(e)(4) of such Code, as re23 designated by subparagraph (B), is amended by

24 striking subparagraph (B) and by redesignating

25 subparagraphs (C), (D), and (E) as subpara26 graphs (B), (C), and (D), respectively.
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1 (D) Clause (i) of section 170(e)(4)(B) of

2 such Code is amended by striking ‘‘section

3 41(e)(6)’’ and inserting ‘‘section 41(e)(3)’’.

4 (b) BASIC RESEARCH.—

5 (1) SPECIFIC COMMERCIAL OBJECTIVE.—Sec6 tion 41(e)(4) of the Internal Revenue Code of 1986

7 (relating to definitions and special rules), as redesig8 nated by subsection (a)(2)(B), is amended by adding

9 at the end the following new subparagraph:

10 ‘‘(E) SPECIFIC COMMERCIAL OBJECTIVE.—

11 For purposes of subparagraph (A), research

12 shall not be treated as having a specific com13 mercial objective if the results of such research

14 are to be published in a timely manner as to be

15 available to the general public prior to their use

16 for a commercial purpose.’’

17 (2) EXCLUSIONS FROM BASIC RESEARCH.—

18 Clause (ii) of section 41(e)(4)(A) of such Code (re19 lating to definitions and special rules), as redesig20 nated by subsection (a), is amended to read as fol21 lows:

22 ‘‘(ii) basic research in the arts and

23 humanities.’’

24 (c) EXPANSION OF CREDIT TO RESEARCH DONE AT

25 FEDERAL LABORATORIES.—Section 41(e)(3) of the Inter-
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1 nal Revenue Code of 1986, as redesignated by subsection

2 (a), is amended by adding at the end the following new

3 subparagraph:

4 ‘‘(E) FEDERAL LABORATORIES.—Any or5 ganization which is a Federal laboratory (as de6 fined in section 4(6) of the Stevenson-Wydler

7 Technology Innovation Act of 1980 (15 U.S.C.

8 3703(6)).’’

9 (d) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to taxable years beginning after

11 December 31, 1999.

12 SEC. 5. CREDIT FOR EXPENSES ATTRIBUTABLE TO CER13 TAIN COLLABORATIVE RESEARCH CON14 SORTIA.

15 (a) CREDIT FOR EXPENSES ATTRIBUTABLE TO CER16 TAIN COLLABORATIVE RESEARCH CONSORTIA.—Sub17 section (a) of section 41 of the Internal Revenue Code of

18 1986 (relating to credit for increasing research activities)

19 is amended by striking ‘‘and’’ at the end of paragraph (1),

20 striking the period at the end of paragraph (2) and insert21 ing ‘‘, and ’’, and by adding at the end the following new

22 paragraph:

23 ‘‘(3) 20 percent of the amounts paid or in24 curred by the taxpayer in carrying on any trade or

25 business of the taxpayer during the taxable year (in-
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1 cluding as contributions) to a qualified research con2 sortium.’’

3 (b) QUALIFIED RESEARCH CONSORTIUM DE4 FINED.—Subsection (f) of section 41 of the Internal Rev5 enue Code of 1986 is amended by adding at the end the

6 following new paragraph:

7 ‘‘(6) QUALIFIED RESEARCH CONSORTIUM.—The

8 term ‘qualified research consortium’ means any

9 organization—

10 ‘‘(A) which is—

11 ‘‘(i) described in section 501(c)(3) and

12 is exempt from tax under section 501(a)

13 and is organized and operated primarily to

14 conduct scientific or engineering research,

15 or

16 ‘‘(ii) organized and operated primarily

17 to conduct scientific or engineering re18 search in the public interest (within the

19 meaning of section 501(c)(3)),

20 ‘‘(B) which is not a private foundation,

21 ‘‘(C) to which at least 5 unrelated persons

22 paid or incurred during the calendar year in

23 which the taxable year of the organization be24 gins amounts (including as contributions) to
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1 such organization for scientific or engineering

2 research, and

3 ‘‘(D) to which no single person paid or in4 curred (including as contributions) during such

5 calendar year an amount equal to more than 50

6 percent of the total amounts received by such

7 organization during such calendar year for sci8 entific or engineering research.

9 All persons treated as a single employer under sub10 section (a) or (b) of section 52 shall be treated as

11 related persons for purposes of subparagraph (C)

12 and as a single person for purposes of subparagraph

13 (D).’’

14 (c) CONFORMING AMENDMENT.—Paragraph (3) of

15 section 41(b) of the Internal Revenue Code of 1986 is

16 amended by striking subparagraph (C).

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years beginning after

19 December 31, 1999.

20 SEC. 6. IMPROVEMENT TO CREDIT FOR SMALL BUSINESSES

21 AND RESEARCH PARTNERSHIPS.

22 (a) ASSISTANCE TO SMALL AND START-UP BUSI23 NESSES.—The Secretary of the Treasury or the Sec24 retary’s delegate shall take such actions as are appropriate

25 to—
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1 (1) provide assistance to small and start-up

2 businesses in complying with the requirements of

3 section 41 of the Internal Revenue Code of 1986,

4 and

5 (2) reduce the costs of such compliance.

6 (b) REPEAL OF LIMITATION ON CONTRACT RE7 SEARCH EXPENSES PAID TO SMALL BUSINESSES, UNI8 VERSITIES, AND FEDERAL LABORATORIES.—Section

9 41(b)(3) of the Internal Revenue Code of 1986, as amend10 ed by section 5(c), is amended by adding at the end the

11 following new subparagraph:

12 ‘‘(C) AMOUNTS PAID TO ELIGIBLE SMALL

13 BUSINESSES, UNIVERSITIES, AND FEDERAL

14 LABORATORIES.—

15 ‘‘(i) IN GENERAL.—In the case of

16 amounts paid by the taxpayer to an eligible

17 small business, an institution of higher

18 education (as defined in section 3304(f)),

19 or an organization which is a Federal lab20 oratory (as defined in subsection

21 (e)(3)(E)), subparagraph (A) shall be ap22 plied by substituting ‘100 percent’ for ‘65

23 percent’.

24 ‘‘(ii) ELIGIBLE SMALL BUSINESS.—

25 For purposes of this subparagraph, the
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1 term ‘eligible small business’ means a

2 small business with respect to which the

3 taxpayer does not own (within the meaning

4 of section 318) 50 percent or more of—

5 ‘‘(I) in the case of a corporation,

6 the outstanding stock of the corpora7 tion (either by vote or value), and

8 ‘‘(II) in the case of a small busi9 ness which is not a corporation, the

10 capital and profits interests of the

11 small business.

12 ‘‘(iii) SMALL BUSINESS.—For pur13 poses of this subparagraph—

14 ‘‘(I) IN GENERAL.—The term

15 ‘small business’ means, with respect

16 to any calendar year, any person if

17 the annual average number of employ18 ees employed by such person during

19 either of the 2 preceding calendar

20 years was 500 or fewer. For purposes

21 of the preceding sentence, a preceding

22 calendar year may be taken into ac23 count only if the person was in exist24 ence throughout the year.
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1 ‘‘(II) STARTUPS, CONTROLLED

2 GROUPS, AND PREDECESSORS.—Rules

3 similar to the rules of subparagraphs

4 (B) and (D) of section 220(c)(4) shall

5 apply for purposes of this clause.’’

6 (c) CREDIT FOR PATENT FILING FEES.—Section

7 41(a) of the Internal Revenue Code of 1986, as amended

8 by section 5(a), is amended by striking ‘‘and’’ at the end

9 of paragraph (2), by striking the period at the end of para10 graph (3) and inserting ‘‘, and’’, and by adding at the

11 end the following new paragraph:

12 ‘‘(4) 20 percent of the patent filing fees paid or

13 incurred by a small business (as defined in sub14 section (b)(3)(C)(iii)) to the United States or to any

15 foreign government in carrying on any trade or busi16 ness.’’

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years beginning after

19 December 31, 1999.

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