I
106TH CONGRESS
1ST SESSION
H. R. 3505
To amend the Internal Revenue Code of 1986 to provide for a medical
research tax credit.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 18, 1999
Mr. WATKINS 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 provide
for a medical research tax credit.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. CREDIT FOR MEDICAL RESEARCH.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business related credits) is amended by
inserting after section 41 the following new section:
‘‘SEC. 41A. CREDIT FOR MEDICAL RESEARCH EXPENSES.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the medical research credit determined under this section
for the taxable year shall be 30 percent of the excess (if
any) of—
‘‘(1) the qualified medical research expenses for
the taxable year, over
‘‘(2) the medical research base period amount.
In determining the amount of credit, the special rules set
forth in section 41(f) shall apply.
‘‘(b) QUALIFIED MEDICAL RESEARCH ACTIVITIES.—
‘‘(1) DEFINITIONS.—The term ‘qualified med-
ical research activities’ means research, including
human clinical testing and animal testing, in or rea-
sonably expected to lead to, the development of any
medical product for the prevention, cure, or allevi-
ation of human disease, sickness, or injury which oc-
curs before—
‘‘(A) the date on which an application with
respect to such product is approved under sec-
tion 505(b) or 505A of the Federal Food,
Drug, and Cosmetic Act,
‘‘(B) the date on which a license for such
product is approved under section 351 of the
Public Health Service Act, or
‘‘(C) the date (or latter of the dates) clas-
sification of a device intended for human use is
made under section 513 of the Federal Food,
Drug, and Cosmetic Act or approval of a device
intended for human use is granted under sec-
tion 515 of such Act.
The term ‘qualified medical research activities’ includes
preclinical and clinical testing occurring after the dates
specified above in this subsection if the purpose of such
testing is to develop new functional uses (including pedi-
atric studies as described in section 355A(g) of the Fed-
eral Food, Drug, and Cosmetic Act), characteristics, indi-
cations, combinations, dosages, or delivery forms to an ex-
isting product.
‘‘(2) EXCLUSIONS.—The term ‘qualified med-
ical research activities’ shall not include—
‘‘(A) any amount to the extent funded by
any grant, contract, or otherwise by another
person, entity, government, or instrumentality
of a government,
‘‘(B) any such activities conducted outside
the United States and its possessions,
‘‘(C) except as otherwise permitted by
paragraph (1) of this subsection, any research
conducted after commercial production of the
product,
‘‘(D) market research, testing, or develop-
ment (including advertising or promotion), or
‘‘(E) routine or ordinary testing or inspec-
tion for quality control.
‘‘(c) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) QUALIFIED
MEDICAL
RESEARCH
EX-
PENSES.—The term ‘qualified medical research ex-
penses’ means amounts paid or incurred by the tax-
payer for qualified medical research activities which
are qualified research expenses within the meaning
of section 41(b); except that paragraph (3)(A) of
section 41(b) shall be applied for purposes of this
section by substituting ‘100 percent’ for ‘65 percent’
with respect to amounts paid to a qualified academic
institution and by substituting ‘85 percent’ for ‘65
percent’ with respect to amounts paid to a qualified
nonprofit medical institution.
‘‘(2) PRODUCT.—The term ‘product’ means any
drug, biologic, medical or diagnostic test, or medical
device.
‘‘(3) QUALIFIED ACADEMIC INSTITUTION.—The
term ‘qualified academic institution’ means any of
the following institutions:
‘‘(A) EDUCATIONAL INSTITUTION.—An in-
stitution described in section 170(b)(1)(A) (ii)
or (iii) which is owned or affiliated with an in-
stitution of higher education as described in
section 3304(f).
‘‘(B) CANCER RESEARCH INSTITUTION.—A
cancer research institution which is designated
as a cancer center by the National Cancer In-
stitute, is, or is owned by, an organization de-
scribed in section 501(c)(3), is exempt from
taxation under section 501(a), and is not a pri-
vate foundation, or
‘‘(C) 
NONPROFIT
INDEPENDENT
RE-
SEARCH INSTITUTIONS.—A not-for-profit, inde-
pendent research institute organized and oper-
ated exclusively for scientific or educational
purposes and exempt from taxation under sec-
tion 501(c)(3).
‘‘(4) QUALIFIED NONPROFIT MEDICAL INSTITU-
TION.—The term ‘nonprofit qualified medical insti-
tution’ means any not-for-profit organization which
is described in section 501(c)(3), is exempt from
taxation under section 501(a) by reason of its oper-
ation of a hospital or medical or health activity, and
is not a private foundation and which is not a quali-
fied academic institution.
‘‘(5) 
MEDICAL
RESEARCH
BASE
PERIOD
AMOUNT.—The term ‘medical research base period
amount’ means the average of the taxpayer’s quali-
fied medical research expenses for the most recent
consecutive 5 taxable years of the taxpayer which
ended 6 months before the beginning of the taxable
year for which such base period amount is deter-
mined.
‘‘(A) If the taxpayer has not paid or in-
curred expenses for qualified medical research
activities for any year during the base period
set forth above, the base period amount shall be
the average of the taxpayer’s expenses for quali-
fied medical research activities for the years
during such period in which the taxpayer did
pay or incur expenses for qualified medical re-
search activities.
‘‘(B) For each of the first 2 taxable years
in which the taxpayer pays or incurs qualified
medical research expenses, the medical research
base period amount shall be 60 percent of the
taxpayer’s qualified medical research expenses
for the taxable year for which such base period
amount is determined.
‘‘(d) COORDINATION WITH CREDIT FOR INCREASING
RESEARCH EXPENDITURES AND WITH CREDIT FOR CLIN-
ICAL TESTING EXPENSES
FOR CERTAIN DRUGS
FOR
RARE DISEASES.—
‘‘(1) No credit is allowable under this section
for any taxable year for which the taxpayer is al-
lowed the credit under section 41.
‘‘(2) Any expenses for qualified medical re-
search expenses for a taxable year to which an elec-
tion under this section applies shall not be taken
into account for purposes of determining the credit
allowable under section 45C for such taxable year.’’
(b) GENERAL BUSINESS CREDIT.—Section 38(b) of
such Code (relating to current business year credit) is
amended by striking ‘‘plus’’ at the end of paragraph (11),
by striking the period at the end of paragraph (12), and
inserting ‘‘, plus’’, and by adding at the end the following:
‘‘(13) the medical research expenses credit de-
termined under section 41A(a).’’
(c) DEDUCTION FOR UNUSED PORTION OF CRED-
IT.—Section 196(c) of such Code (defining qualified busi-
ness credits) is amended by striking ‘‘and’’ at the end of
paragraph (7), by striking the period at the end of para-
graph (8) and inserting ‘‘, and’’, and by adding at the
end the following:
‘‘(9) the medical research expenses credit deter-
mined under section 41A(a).’’
(d) LIMITATION ON DEDUCTIONS FOR EXPENSES
FOR WHICH CREDIT IS ALLOWABLE.—Section 280C of
such Code (relating to certain expenses for which credits
are allowable) is amended by adding at the end the fol-
lowing new subsection:
‘‘(d) CREDIT FOR INCREASING RESEARCH ACTIVI-
TIES.—
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the qualified medical re-
search expenses (as defined in section 41A(c)(1))
otherwise allowable as a deduction for the taxable
year which is equal to the amount of the credit de-
termined for such taxable year under section 41A(a).
‘‘(2) SIMILAR
RULE
WHERE
TAXPAYER
CAP-
ITALIZES RATHER THAN DEDUCTS EXPENSES.—If—
‘‘(A) the amount of the credit determined
for the taxable year under section 41A(a), ex-
ceeds, and
‘‘(B) the amount allowable as a deduction
for such taxable year for qualified medical re-
search expenses (determined without regard to
paragraph (1)),
the amount chargeable to capital account for the
taxable year for such expenses shall be reduced by
the amount of such excess.
‘‘(3) ELECTION OF REDUCED CREDIT.—
‘‘(A) IN
GENERAL.—In the case of any
taxable year for which an election is made
under this paragraph—
‘‘(i) paragraphs (1) and (2) shall not
apply, and
‘‘(ii) the amount of the credit under
section 41A(a) shall be the amount deter-
mined under subparagraph (B).
‘‘(B) AMOUNT OF REDUCED CREDIT.—The
amount of credit determined under this sub-
paragraph for any taxable year shall be the
amount equal to the excess of—
‘‘(i) the amount of credit determined
under section 41A(a) without regard to
this paragraph, over
‘‘(ii) the product of—
‘‘(I) the amount described in
clause (i), and
‘‘(II) the maximum rate of tax
under section 11(b)(1).
‘‘(C) ELECTION.—An election under this
paragraph for any taxable year shall be made
no later than the time for filing the return of
tax for such year (including extensions), shall
be made on such return, and shall be made in
such manner as the Secretary may prescribe.
Such an election, once made, shall be irrev-
ocable.
‘‘(4) CONTROLLED GROUPS.—Paragraph (3) of
subsection (b) shall apply for purposes of this sub-
section.’’
(e) CONFORMING AMENDMENT.—The table of sec-
tions for subpart D of part IV of subchapter A of chapter
1 of such Code is amended by inserting after the item
relating to section 41 the following:
‘‘Sec. 41A. Credit for medical research expenses’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
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