II

105TH CONGRESS

2D SESSION S. 2072

To amend the Internal Revenue Code of 1986 to enhance the global competitiveness of United States businesses by permanently extending the research credit, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MAY 13, 1998

Mr. DOMENICI (for himself and Mr. FRIST) 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 enhance

the global competitiveness of United States businesses

by permanently extending the 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. PERMANENT EXTENSION OF RESEARCH CRED4 IT.

5 (a) IN GENERAL.—Section 41 of the Internal Reve6 nue Code of 1986 (relating to credit for increasing re7 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, 1998.

7 SEC. 2. MODIFICATIONS OF CREDIT FOR QUALIFIED RE8 SEARCH EXPENSES.

9 (a) FIXED-BASE PERCENTAGE.—Subparagraph (A)

10 of section 41(c)(3) of the Internal Revenue Code of 1986

11 (defining fixed-base percentage) is amended to read as fol12 lows:

13 ‘‘(A) IN GENERAL.—Except as otherwise

14 provided in this paragraph, the fixed-base per15 centage is the percentage which the aggregate

16 qualified research expenses of the taxpayer for

17 taxable years beginning in the base period is of

18 the aggregate gross receipts of the taxpayer for

19 such taxable years. For purposes of the preced20 ing sentence, the base period for any taxable

21 year is any period of 4 consecutive taxable

22 years elected by the taxpayer from the 10 im23 mediately preceding taxable years.’’

24 (b) START-UP COMPANIES.—

25 (1) FIXED-BASE PERCENTAGE.—
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1 (A) IN GENERAL.—Clause (i) of section

2 41(c)(3)(B) of such Code (relating to start-up

3 companies) is amended to read as follows:

4 ‘‘(i) TAXPAYERS TO WHICH SUBPARA5 GRAPH APPLIES.—The fixed-base percent6 age shall be determined under this sub7 paragraph if the taxpayer did not have

8 both gross receipts and qualified research

9 expenses in each of the 10 taxable years

10 described in subparagraph (A).’’

11 (B) MAXIMUM PERCENTAGE NOT TO

12 APPLY.—Section 41(c)(3)(C) of such Code (re13 lating to maximum fixed-base percentage) is

14 amended by adding at the end the following:

15 ‘‘This subparagraph shall not apply to a tax16 payer to which subparagraph (B) applies.’’

17 (C) CONFORMING AMENDMENTS.—Section

18 41(c)(3)(B)(ii) of such Code is amended—

19 (i) by striking ‘‘1st 5 taxable years

20 beginning after December 31, 1993’’ and

21 inserting ‘‘1st 5 taxable years in the 10-

22 year period described in subparagraph

23 (A)’’, and

24 (ii) by inserting ‘‘and’’ at the end of

25 subclause (V), by striking ‘‘, and’’ at the
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1 end of subclause (VI), and by striking sub2 clause (VII).

3 (2) REPEAL OF MINIMUM BASE AMOUNT

4 FOR START-UP COMPANIES.—Section 41(c)(2)

5 of the Internal Revenue Code of 1986 (relating

6 to minimum base amount) is amended by add7 ing at the end the following: ‘‘This paragraph

8 shall not apply to a taxpayer to which para9 graph (3)(B) applies.’’

10 (c) REPEAL OF LIMITATION ON CONTRACT RE11 SEARCH EXPENSES.—Section 41(b)(3) of the Internal

12 Revenue Code of 1986 (defining contract research ex13 penses) is amended—

14 (1) by striking ‘‘65 percent of’’ in subparagraph

15 (A), and

16 (2) by striking subparagraph (C).

17 (d) EFFECTIVE DATES.—

18 (1) IN GENERAL.—The amendments made by

19 this section shall apply to taxable years beginning

20 after December 31, 1998.

21 (2) TRANSITION RULE.—In the case of a tax22 payer’s 1st 5 taxable years beginning after Decem23 ber 31, 1998, the taxpayer may elect to have section

24 41 of the Internal Revenue Code of 1986 applied
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1 without regard to the amendments made by sub2 sections (a) and (b).

3 SEC. 3. MODIFICATIONS OF BASIC RESEARCH CREDIT.

4 (a) EXPANSION OF CREDIT TO RESEARCH DONE

5 WITH NATIONAL LABORATORIES AND FEDERAL RE6 SEARCH CENTERS.—Section 41(e)(6) of the Internal Rev7 enue Code of 1986 is amended by adding at the end the

8 following new subparagraph:

9 ‘‘(E) NATIONAL LABORATORIES AND RE10 SEARCH CENTERS.—Any organization which

11 is—

12 ‘‘(i) a national laboratory specified by

13 the Secretary of Energy as being under

14 contract with the Department of Energy,

15 or

16 ‘‘(ii) a federally funded research and

17 development center (within the meaning of

18 section 2367 of title 10, United States

19 Code).’’

20 (b) BASIC RESEARCH.—Section 41(e)(7) of the Inter21 nal Revenue Code of 1986 (relating to definitions and spe22 cial rules) is amended by adding at the end the following

23 new subparagraph:

24 ‘‘(F) SPECIFIC COMMERCIAL OBJECTIVE.—

25 For purposes of subparagraph (A), research
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1 shall not be treated as having a specific com2 mercial objective if—

3 ‘‘(i) all results of such research are to

4 be published in such a manner as to be

5 available to the general public prior to

6 their use for a commercial purpose, or

7 ‘‘(ii) such research is done for a con8 sortium of domestic corporations which

9 represent substantially all of the domestic

10 corporations conducting business within

11 the sector to which the research relates.’’

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

13 this section shall apply to taxable years beginning after

14 December 31, 1998.

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