I
106TH CONGRESS
1ST SESSION
H. R. 2617
To amend the Internal Revenue Code of 1986 to allow a tax credit for
development costs of encryption products with plaintext capability without
the user’s knowledge.
IN THE HOUSE OF REPRESENTATIVES
JULY 27, 1999
Mr. GOSS (for himself, Mr. LEWIS of California, Mr. BASS, Mr. GIBBONS, and
Mr. LAHOOD) 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 allow a
tax credit for development costs of encryption products
with plaintext capability without the user’s knowledge.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Tax Relief for Respon-
sible Encryption Act of 1999’’.
SEC. 
2. 
CREDIT 
FOR 
DEVELOPMENT 
COSTS 
OF
ENCRYPTION PRODUCTS WITH PLAINTEXT
CAPABILITY WITHOUT USER’S KNOWLEDGE.
Subpart D of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 (relating to business
related credits) is amended by adding at the end the fol-
lowing:
‘‘SEC. 45D. DEVELOPMENT COSTS OF ENCRYPTION PROD-
UCTS WITH PLAINTEXT CAPABILITY WITH-
OUT USER’S KNOWLEDGE.
‘‘(a) GENERAL RULE.—For purposes of section 38,
in the case of a developer of computer software, the
encrypted product-plaintext capability credit determined
under this section is an amount equal to 15 percent of
the taxpayer’s encrypted product-plaintext development
capability costs during the taxable year.
‘‘(b) ENCRYPTED PRODUCT-PLAINTEXT CAPABILITY
DEVELOPMENT COSTS.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘encrypted prod-
uct-plaintext capability development costs’ means
amounts paid or incurred in connection with the de-
velopment of computer software allowing for a
plaintext access capability without the user’s knowl-
edge of such access at the time such access occurs
through any method, including the following meth-
ods:
‘‘(A) Access to fields where plaintext oc-
curs.
‘‘(B) Key recovery.
‘‘(C) Provision of decryption information.
‘‘(D) Any other technique or methodology
that may be created that allows timely access to
plaintext or decryption information.
‘‘(2) PLAINTEXT
ACCESS
CAPABILITY.—The
term ‘plaintext access capability’ means a technique
or methodology by which encrypted information,
data, or communications is converted to plaintext or
plainvoice, or by which access to decryption informa-
tion can be obtained.
‘‘(3) COMPUTER SOFTWARE.—The term ‘com-
puter software’ has the meaning given to such term
by section 197(e)(3)(B) (without regard to the sec-
ond sentence thereof).
‘‘(c) SPREAD OF PRE-EFFECTIVE DATE COSTS.—
For each of the taxable years beginning after December
31, 1991, and before January 1, 2000, in which the tax-
payer has encrypted product-plaintext capability develop-
ment costs, the aggregate amount of such costs shall be
treated as a carryforward under section 39 beginning with
the first taxable year beginning after December 31,
1999.’’.
SEC. 3. CURRENT YEAR BUSINESS CREDIT CALCULATION.
Section 38(b) of such Code (relating to current year
business 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 encrypted product-plaintext capability
credit determined under section 45D(a).’’.
SEC. 4. CREDIT ALLOWED AGAINST REGULAR AND MIN-
IMUM TAX.
(a) IN GENERAL.—Subsection (c) of section 38 of
such Code (relating to limitation based on amount of tax)
is amended by redesignating paragraph (3) as paragraph
(4) and by inserting after paragraph (2) the following new
paragraph:
‘‘(3) SPECIAL RULES FOR ENCRYPTED PROD-
UCT-PLAINTEXT
CAPABILITY
DEVELOPMENT
CRED-
IT.—
‘‘(A) IN
GENERAL.—In the case of the
encrypted product-plaintext capability credit—
‘‘(i) this section and section 39 shall
be applied separately with respect to the
credit, and
‘‘(ii) in applying paragraph (1) to the
credit—
‘‘(I) subparagraph (A) thereof
shall not apply, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the
taxable year (other than the encrypted
product-plaintext capability develop-
ment credit).
‘‘(B) 
ENCRYPTED
PRODUCT-PLAINTEXT
CAPABILITY DEVELOPMENT CREDIT.—For pur-
poses of this subsection, the term ‘encrypted
product-plaintext capability development credit’
means the credit allowable under subsection (a)
by reason of section 45D(a).’’.
(b) CONFORMING AMENDMENT.—Subclause (II) of
section 38(c)(2)(A)(ii) of such Code is amended by insert-
ing ‘‘or the encrypted product-plaintext capability develop-
ment credit’’ after ‘‘employment credit’’.
SEC. 5. DISALLOWANCE OF DEDUCTION BY AMOUNT OF
CREDIT.
Section 280C of such Code (relating to certain ex-
penses for which credits are allowable) is amended by add-
ing at the end the following:
‘‘(d) CREDIT FOR ENCRYPTED PRODUCT-PLAINTEXT
DEVELOPMENT CAPABILITY.—No deduction shall be al-
lowed for that portion of the encrypted product-plaintext
capability development costs (as defined in section
45D(b)) made during the taxable year that is equal to the
amount of credit determined for the taxable year under
section 45D(a). In the case of a corporation which is a
member of a controlled group of corporations (within the
meaning of section 52(a)) or a trade or business which
is treated as being under common control with other
trades or businesses (within the meaning of section 52(b)),
this subsection shall be applied under rules prescribed by
the Secretary similar to the rules applicable under sub-
sections (a) and (b) of section 52.’’.
SEC. 6. LIMITATION ON CARRYBACK.
Subsection (d) of section 39 of such Code (relating
to carryback and carryforward of unused credits) is
amended by adding at the end the following:
‘‘(9) NO CARRYBACK OF ENCRYPTED PRODUCT-
PLAINTEXT CAPABILITY DEVELOPMENT CREDIT BE-
FORE
EFFECTIVE
DATE.—No amount of unused
business credit available under section 45D may be
carried back to a taxable year beginning before Jan-
uary 1, 2000.’’.
SEC. 7. CLERICAL AMENDMENT.
The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 of such Code is amended by insert-
ing after the item relating to section 45C the following:
‘‘Sec. 45D. Development costs of encryption products with
plaintext capability without user’s knowledge.’’.
SEC. 8. EFFECTIVE DATE.
The amendments made by this Act shall apply to tax-
able years beginning after December 31, 1999.
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