I
106TH CONGRESS
1ST SESSION
H. R. 1682
To amend the Internal Revenue Code of 1986 to establish a permanent
tax incentive for research and development, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 4, 1999
Mr. WILSON (for herself, Mr. SKEEN, Mr. FORD, and Mr. UDALL of New
Mexico) introduced the following bill; which was referred to the Com-
mittee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to establish
a permanent tax incentive for research and development,
and for other purposes.
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 ‘‘Private Sector Re-
search and Development Investment Act of 1999’’.
SEC. 2. PERMANENT EXTENSION OF RESEARCH CREDIT.
(a) IN GENERAL.—Section 41 of the Internal Rev-
enue Code of 1986 (relating to credit for increasing re-
search activities) is amended by striking subsection (h).
(b) CONFORMING AMENDMENT.—Section 45C(b)(1)
of the Internal Revenue Code of 1986 is amended by strik-
ing subparagraph (D).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
June 30, 1999.
SEC. 3. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.
(a) IN GENERAL.—Section 41 of the Internal Rev-
enue Code of 1986 (relating to credit for increasing re-
search activities), as amended by section 2, is amended
by adding at the end the following new subsection:
‘‘(h) ELECTION
OF ALTERNATIVE INCREMENTAL
CREDIT.—
‘‘(1) IN GENERAL.—At the election of the tax-
payer, the credit under subsection (a)(1) shall be de-
termined under this section by taking into account
the modifications provided by this subsection.
‘‘(2) DETERMINATION OF BASE AMOUNT.—
‘‘(A) IN GENERAL.—In computing the base
amount under subsection (c)—
‘‘(i) notwithstanding subsection (c)(3),
the fixed-base percentage shall be equal to
80 percent of the percentage which the ag-
gregate qualified research expenses of the
taxpayer for the base period is of the ag-
gregate gross receipts of the taxpayer for
the base period, and
‘‘(ii) the minimum base amount under
subsection (c)(2) shall not apply.
‘‘(B) START-UP AND SMALL TAXPAYERS.—
In computing the base amount under subsection
(c), the gross receipts of a taxpayer for any tax-
able year in the base period shall be treated as
at least equal to $1,000,000.
‘‘(C) BASE PERIOD.—For purposes of this
subsection, the base period is the 8-taxable year
period preceding the taxable year (or, if shorter,
the period the taxpayer (and any predecessor)
has been in existence).
‘‘(3) ELECTION.—An election under this sub-
section shall apply to the taxable year for which
made and all succeeding taxable years unless re-
voked with the consent of the Secretary.’’
(b) CONFORMING AMENDMENT.—Section 41(c) of
the Internal Revenue Code of 1986 is amended by striking
paragraph (4) and by redesignating paragraphs (5) and
(6) as paragraphs (4) and (5), respectively.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 4. MODIFICATIONS TO CREDIT FOR BASIC RESEARCH.
(a) ELIMINATION
OF
INCREMENTAL
REQUIRE-
MENT.—
(1) IN
GENERAL.—Paragraph (1) of section
41(e) of the Internal Revenue Code of 1986 (relat-
ing to credit allowable with respect to certain pay-
ments to qualified organizations for basic research)
is amended to read as follows:
‘‘(1) IN GENERAL.—The amount of basic re-
search payments taken into account under sub-
section (a)(2) shall be determined in accordance with
this subsection.’’
(2) CONFORMING AMENDMENTS.—
(A) Section 41(a)(2) of such Code is
amended by striking ‘‘determined under sub-
section (e)(1)(A)’’ and inserting ‘‘for the tax-
able year’’.
(B) Section 41(e) of such Code is amended
by striking paragraphs (3), (4), and (5) and by
redesignating paragraphs (6) and (7) as para-
graphs (3) and (4), respectively.
(C) Section 41(e)(4) of such Code (as re-
designated by subparagraph (B)) is amended by
striking subparagraph (B) and by redesignating
subparagraphs (C), (D), and (E) as subpara-
graphs (B), (C), and (D), respectively.
(D) Clause (i) of section 170(e)(4)(B) of
such Code is amended by striking ‘‘section
41(e)(6)’’ and inserting ‘‘section 41(e)(3)’’.
(b) BASIC RESEARCH.—
(1) SPECIFIC
COMMERCIAL
OBJECTIVE.—Sec-
tion 41(e)(4) of the Internal Revenue Code of 1986
(relating to definitions and special rules), as redesig-
nated by subsection (a)(2)(B), is amended by adding
at the end the following new subparagraph:
‘‘(E) SPECIFIC COMMERCIAL OBJECTIVE.—
For purposes of subparagraph (A), research
shall not be treated as having a specific com-
mercial objective if the results of such research
are to be published in a timely manner as to be
available to the general public prior to their use
for a commercial purpose.’’
(2) EXCLUSIONS
FROM
BASIC
RESEARCH.—
Clause (ii) of section 41(e)(4)(A) of such Code (re-
lating to definitions and special rules), as redesig-
nated by subsection (a), is amended to read as fol-
lows:
‘‘(ii) basic research in the arts and
humanities.’’
(c) EXPANSION OF CREDIT TO RESEARCH DONE AT
FEDERAL LABORATORIES.—Section 41(e)(3) of the Inter-
nal Revenue Code of 1986, as redesignated by subsection
(a), is amended by adding at the end the following new
subparagraph:
‘‘(E) FEDERAL LABORATORIES.—Any or-
ganization which is a Federal laboratory (as de-
fined in section 4(6) of the Stevenson-Wydler
Technology Innovation Act of 1980 (15 U.S.C.
3703(6)).’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 5. CREDIT FOR EXPENSES ATTRIBUTABLE TO CER-
TAIN 
COLLABORATIVE 
RESEARCH 
CON-
SORTIA.
(a) CREDIT FOR EXPENSES ATTRIBUTABLE TO CER-
TAIN
COLLABORATIVE
RESEARCH
CONSORTIA.—Sub-
section (a) of section 41 of the Internal Revenue Code of
1986 (relating to credit for increasing research activities)
is amended by striking ‘‘and’’ at the end of paragraph (1),
by striking the period at the end of paragraph (2) and
inserting ‘‘, and’’, and by adding at the end the following
new paragraph:
‘‘(3) 20 percent of the amounts paid or in-
curred by the taxpayer in carrying on any trade or
business of the taxpayer during the taxable year (in-
cluding as contributions) to a qualified research con-
sortium.’’
(b) 
QUALIFIED
RESEARCH
CONSORTIUM
DE-
FINED.—Subsection (f) of section 41 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the
following new paragraph:
‘‘(6) QUALIFIED RESEARCH CONSORTIUM.—The
term ‘qualified research consortium’ means any
organization—
‘‘(A) which is—
‘‘(i) described in section 501(c)(3) and
is exempt from tax under section 501(a)
and is organized and operated primarily to
conduct scientific or engineering research,
or
‘‘(ii) organized and operated primarily
to conduct scientific or engineering re-
search in the public interest (within the
meaning of section 501(c)(3)),
‘‘(B) which is not a private foundation,
‘‘(C) to which at least 5 unrelated persons
paid or incurred during the calendar year in
which the taxable year of the organization be-
gins amounts (including as contributions) to
such organization for scientific or engineering
research, and
‘‘(D) to which no single person paid or in-
curred (including as contributions) during such
calendar year an amount equal to more than 50
percent of the total amounts received by such
organization during such calendar year for sci-
entific or engineering research.
All persons treated as a single employer under sub-
section (a) or (b) of section 52 shall be treated as
related persons for purposes of subparagraph (C)
and as a single person for purposes of subparagraph
(D).’’
(c) CONFORMING AMENDMENT.—Paragraph (3) of
section 41(b) of the Internal Revenue Code of 1986 is
amended by striking subparagraph (C).
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 6. IMPROVEMENT TO CREDIT FOR SMALL BUSINESSES
AND RESEARCH PARTNERSHIPS.
(a) ASSISTANCE TO SMALL AND START-UP BUSI-
NESSES.—The Secretary of the Treasury or the Sec-
retary’s delegate shall take such actions as are appropriate
to—
(1) provide assistance to small and start-up
businesses in complying with the requirements of
section 41 of the Internal Revenue Code of 1986,
and
(2) reduce the costs of such compliance.
(b) REPEAL
OF LIMITATION
ON CONTRACT RE-
SEARCH EXPENSES PAID TO SMALL BUSINESSES, UNI-
VERSITIES, 
AND
FEDERAL
LABORATORIES.—Section
41(b)(3) of the Internal Revenue Code of 1986, as amend-
ed by section 5(c), is amended by adding at the end the
following new subparagraph:
‘‘(C) AMOUNTS PAID TO ELIGIBLE SMALL
BUSINESSES, 
UNIVERSITIES, 
AND
FEDERAL
LABORATORIES.—
‘‘(i) IN
GENERAL.—In the case of
amounts paid by the taxpayer to an eligible
small business, an institution of higher
education (as defined in section 3304(f)),
or an organization which is a Federal lab-
oratory 
(as 
defined 
in 
subsection
(e)(3)(E)), subparagraph (A) shall be ap-
plied by substituting ‘100 percent’ for ‘65
percent’.
‘‘(ii) ELIGIBLE
SMALL
BUSINESS.—
For purposes of this subparagraph, the
term ‘eligible small business’ means a
small business with respect to which the
taxpayer does not own (within the meaning
of section 318) 50 percent or more of—
‘‘(I) in the case of a corporation,
the outstanding stock of the corpora-
tion (either by vote or value), and
‘‘(II) in the case of a small busi-
ness which is not a corporation, the
capital and profits interests of the
small business.
‘‘(iii) SMALL
BUSINESS.—For pur-
poses of this subparagraph—
‘‘(I) IN
GENERAL.—The term
‘small business’ means, with respect
to any calendar year, any person if
the annual average number of employ-
ees employed by such person during
either of the 2 preceding calendar
years was 500 or fewer. For purposes
of the preceding sentence, a preceding
calendar year may be taken into ac-
count only if the person was in exist-
ence throughout the year.
‘‘(II) STARTUPS, 
CONTROLLED
GROUPS, AND PREDECESSORS.—Rules
similar to the rules of subparagraphs
(B) and (D) of section 220(c)(4) shall
apply for purposes of this clause.’’
(c) CREDIT
FOR PATENT FILING FEES.—Section
41(a) of the Internal Revenue Code of 1986, as amended
by section 5(a), is amended by striking ‘‘and’’ at the end
of paragraph (2), by striking the period at the end of para-
graph (3) and inserting ‘‘, and’’, and by adding at the
end the following new paragraph:
‘‘(4) 20 percent of the patent filing fees paid or
incurred by a small business (as defined in sub-
section (b)(3)(C)(iii)) to the United States or to any
foreign government in carrying on any trade or busi-
ness.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
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