II

105TH CONGRESS

2D SESSION S. 1885

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

MARCH 31, 1998

Mr. D’AMATO (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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•S 1885 IS

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) CHARITABLE RESEARCH HOSPITAL.—

4 A charitable research hospital which—

5 ‘‘(i) is owned by an organization de6 scribed in section 501(c)(3) and exempt

7 from taxation under section 501(a),

8 ‘‘(ii) is not a private foundation, and

9 ‘‘(iii) is designated as a cancer center

10 by the National Cancer Institute.

11 ‘‘(4) EXCLUSION FOR AMOUNTS FUNDED BY

12 GRANTS, ETC.—The term ‘qualified medical innova13 tion expenses’ shall not include any amount to the

14 extent such amount is funded by any grant, con15 tract, or otherwise by another person (or any gov16 ernmental entity).

17 ‘‘(c) MEDICAL INNOVATION BASE PERIOD

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

19 innovation base period amount’ means the average annual

20 qualified medical innovation expenses paid by the taxpayer

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

22 year immediately preceding the first taxable year of the

23 taxpayer beginning after December 31, 1997.

24 ‘‘(d) SPECIAL RULES.—
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1 ‘‘(1) LIMITATION ON FOREIGN TESTING.—No

2 credit shall be allowed under this section with re3 spect to any clinical testing research activities con4 ducted outside the United States.

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

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

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

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

9 any taxpayer for any taxable year only if such tax10 payer elects (at such time and in such manner as

11 the Secretary may by regulation prescribe) to have

12 this section apply for such taxable year.

13 ‘‘(4) COORDINATION WITH CREDIT FOR IN14 CREASING RESEARCH EXPENDITURES AND WITH

15 CREDIT FOR CLINICAL TESTING EXPENSES FOR CER16 TAIN DRUGS FOR RARE DISEASES.—Any qualified

17 medical innovation expense for a taxable year to

18 which an election under this section applies shall not

19 be taken into account for purposes of determining

20 the credit allowable under section 41 or 45C for

21 such taxable year.’’

22 (b) GENERAL BUSINESS CREDIT.—Section 38(b) of

23 the Internal Revenue Code of 1986 (relating to current

24 year business credit) is amended by striking ‘‘plus’’ at the

25 end of paragraph (11), by striking the period at the end
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1 of paragraph (12) and inserting ‘‘, plus’’, and by adding

2 at the end the following:

3 ‘‘(13) the medical innovation expenses credit

4 determined under section 41A(a).’’

5 (c) DEDUCTION FOR UNUSED PORTION OF CRED6 IT.—Section 196(c) of the Internal Revenue Code of 1986

7 (defining qualified business credits) is amended by strik8 ing ‘‘and’’ at the end of paragraph (6), by striking the

9 period at the end of paragraph (7) and inserting ‘‘, and’’,

10 and by adding at the end the following:

11 ‘‘(8) the medical innovation expenses credit de12 termined under section 41A(a).’’

13 (d) CONFORMING AMENDMENT.—The table of sec14 tions for subpart D of part IV of subchapter A of chapter

15 1 of the Internal Revenue Code of 1986 is amended by

16 adding after the item relating to section 41 the following:

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

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

18 this section shall apply to taxable years beginning after

19 December 31, 1997.

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