percentage shall be 8 percent for any tax-
able year ending after December 31, 1994,
and on or before December 31, 1999, if in
such year the number of employees of the
qualified business increases 4 percent or
more over the average number of employ-
ees of the qualified business during the 3
preceding years (the ‘qualifying increase’).
‘‘(iii) RECAPTURE
IN
CASE
OF
DE-
CREASED
EMPLOYMENT.—If a qualified
business claims the benefit of the incre-
mental employment incentive percentage
under clause (ii), and its average employ-
ment during any of the 3 years following
the year in which the benefit of the in-
creased percentage was claimed falls below
the qualifying increase level (a ‘disqualify-
ing decrease’), the qualified business shall
increase its tax liability for the year during
which the disqualifying decrease occurred
by the difference between the credit to
which it would have been entitled under
clause (i) and the credit claimed under
clause (ii).
‘‘(C) QUALIFIED
CONVERSION
INVEST-
MENT.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied conversion investment’ means the
costs paid or incurred by a qualified busi-
ness during the taxable year for the pur-
pose of acquiring, constructing, creating,
or developing any tangible or intangible as-
sets, in connection with the conduct of the
qualified business’ nondefense-related busi-
ness, except that such term shall not in-
clude direct production costs of any prop-
erty held by the qualified business for sale
to customers in the ordinary course of its
trade or business.
‘‘(ii) INTANGIBLE ASSETS.—The term
‘intangible assets’ includes all ‘intangible
property’ 
as 
defined 
in 
section
936(h)(3)(B) (other than literary, musical
or artistic compositions) and specifically
includes processes and products, models,
and prototypes.
‘‘(D) QUALIFIED
BUSINESS.—For pur-
poses of this subsection and pursuant to regula-
tions to be prescribed by the Secretary—
‘‘(i) IN GENERAL.—The term ‘quali-
fied business’ means any corporation, part-
nership, or sole proprietorship or separate
unit thereof in existence on January 1,
1995, which derived a substantial portion
of its gross receipts or incurred a substan-
tial portion of its gross costs during the 5
years preceding January 1, 1995, from 1
or more defense-related businesses, and
which derives a significant portion of its
gross receipts from (or incurs a significant
amount of costs in acquiring or developing)
1 or more nondefense-related businesses
during the taxable year.
‘‘(ii) DEFENSE-RELATED BUSINESS.—
A ‘defense-related business’ is an activity
in connection with the development or pro-
duction (pursuant to a contract or sub-
contract) of any property designed, modi-
fied, or equipped for military purposes (in-
cluding NASA).
‘‘(iii) NONDEFENSE-RELATED
BUSI-
NESS.—A ‘nondefense-related business’ is
any activity in connection with the develop-
ment or production of any property not de-
signed, modified, or equipped for military
purposes which uses a significant portion
of assets and employees which had been
employed in a defense-related business.’’
(c) ACCELERATED DEPRECIATION OF EXCESS DE-
FENSE CONVERSION PROPERTY.—
(1) Subsection (b)(3) of section 168 of such
Code is amended by adding at the end thereof the
following new subparagraph:
‘‘(F) Property described in subsection
(e)(3)(B)(vii).’’
(2) Subsection (e)(3)(B) of section 168 of such
Code is amended by striking ‘‘and’’ at the end of
clause (v), by striking the period at the end of clause
(vi) and inserting ‘‘, and’’, and by adding at the end
thereof the following new clause:
‘‘(vii) any qualifying excess defense
conversion property.’’
(3) Subsection (i) of section 168 of such Code
is amended by adding at the end thereof the follow-
ing new paragraph:
‘‘(14) QUALIFYING EXCESS DEFENSE CONVER-
SION PROPERTY.—
‘‘(A) The term ‘qualifying excess defense
conversion property’ means, with respect to
property owned or leased by the taxpayer and
otherwise subject to depreciation under this sec-
tion and which is ‘excess defense conversion
property’ (as defined in subparagraph (B)), the
basis of property (or the portion thereof) con-
stituting excess defense conversion property
owned by the taxpayer or the total discounted
cost of lease obligations during the remaining
term of the lease applicable to excess conversion
property leased by the taxpayer.
‘‘(B) The term ‘excess defense conversion
property’ means property that—
‘‘(i) has been used by the taxpayer in
a defense-related business (as defined in
section 48(c)(3)(D)); and
‘‘(ii) is not being used in the taxable
year, and is not reasonably expected to be
used in the foreseeable future, in a de-
fense-related business.
‘‘(C) Any deductions claimed by a taxpayer
with respect to property reported on its return
as qualifying excess defense conversion property
and which is later determined as not constitut-
ing excess defense conversion property shall be
agreement may be made in the form of money or real or
personal property.
(b) AUTHORITY TO ACCEPT PAYMENTS.—The Sec-
retary of Defense may accept any payment of money or
real or personal property made pursuant to any agreement
described in subsection (a).
(c) USE OF FUNDS.—Money accepted by the Sec-
retary of Defense under subsection (b), and proceeds from
the sale of any property so accepted by the Secretary of
Defense, shall be used by the Secretary to provide addi-
tional funds for defense conversion, reinvestment, and
transition assistance programs (as defined in section
1102(c) of the National Defense Authorization Act for
Fiscal Year 1995) of the Department of Defense.
Æ
HR 5121 IH——2