I
105TH CONGRESS
2D SESSION
H. R. 3815
To amend the Internal Revenue Code of 1986 to provide for a medical
innovation tax credit for clinical testing research expenses attributable
to academic medical centers and other qualified hospital research organi-
zations.
IN THE HOUSE OF REPRESENTATIVES
MAY 7, 1998
Mr. SAM JOHNSON of Texas (for himself, Mr. LEVIN, Mr. ENGLISH of Penn-
sylvania, Mr. HOUGHTON, Mr. PRICE of North Carolina, Ms. LOFGREN,
Mr. DOOLEY of California, and Mr. BENTSEN) 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 innovation tax credit for clinical testing
research expenses attributable to academic medical cen-
ters and other qualified hospital research organizations.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. CREDIT FOR CLINICAL TESTING RESEARCH EX-
PENSES ATTRIBUTABLE TO CERTAIN QUALI-
FIED ACADEMIC INSTITUTIONS INCLUDING
TEACHING HOSPITALS.
(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:
‘‘SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the medical innovation credit determined under this sec-
tion for the taxable year shall be an amount equal to 20
percent of the excess (if any) of—
‘‘(1) the qualified medical innovation expenses
for the taxable year, over
‘‘(2) the medical innovation base period
amount.
‘‘(b) 
QUALIFIED
MEDICAL
INNOVATION
EX-
PENSES.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified medical
innovation expenses’ means the amounts which are
paid or incurred by the taxpayer during the taxable
year directly or indirectly to any qualified academic
institution for clinical testing research activities.
‘‘(2) CLINICAL
TESTING
RESEARCH
ACTIVI-
TIES.—
‘‘(A) IN
GENERAL.—The term ‘clinical
testing research activities’ means human clinical
testing conducted at any qualified academic in-
stitution in the development of any product,
which occurs before—
‘‘(i) the date on which an application
with respect to such product is approved
under section 505(b), 506, or 507 of the
Federal Food, Drug, and Cosmetic Act,
‘‘(ii) the date on which a license for
such product is issued under section 351 of
the Public Health Service Act, or
‘‘(iii) the date classification or ap-
proval of such product which is a device in-
tended for human use is given under sec-
tion 513, 514, or 515 of the Federal Food,
Drug, and Cosmetic Act.
‘‘(B) 
PRODUCT.—The 
term 
‘product’
means any drug, biologic, or medical device.
‘‘(3) QUALIFIED ACADEMIC INSTITUTION.—The
term ‘qualified academic institution’ means any of
the following institutions:
‘‘(A) 
EDUCATIONAL
INSTITUTION.—A
qualified organization described in section
170(b)(1)(A)(iii) which is owned or affiliated
with an institution of higher education as de-
scribed in section 3304(f).
‘‘(B) CHARITABLE RESEARCH HOSPITAL.—
A charitable research hospital which—
‘‘(i) is owned by an organization de-
scribed in section 501(c)(3) and exempt
from taxation under section 501(a),
‘‘(ii) is not a private foundation, and
‘‘(iii) is designated as a cancer center
by the National Cancer Institute.
‘‘(4) EXCLUSION
FOR
AMOUNTS
FUNDED
BY
GRANTS, ETC.—The term ‘qualified medical innova-
tion expenses’ shall not include any amount to the
extent such amount is funded by any grant, con-
tract, or otherwise by another person (or any gov-
ernmental entity).
‘‘(c) 
MEDICAL
INNOVATION
BASE
PERIOD
AMOUNT.—For purposes of this section, the term ‘medical
innovation base period amount’ means the average annual
qualified medical innovation expenses paid by the taxpayer
during the 3-taxable year period ending with the taxable
year immediately preceding the first taxable year of the
taxpayer beginning after December 31, 1997.
‘‘(d) SPECIAL RULES.—
‘‘(1) LIMITATION ON FOREIGN TESTING.—No
credit shall be allowed under this section with re-
spect to any clinical testing research activities con-
ducted outside the United States.
‘‘(2) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of subsections (f) and (g)
of section 41 shall apply for purposes of this section.
‘‘(3) ELECTION.—This section shall apply to
any taxpayer for any taxable year only if such tax-
payer elects (at such time and in such manner as
the Secretary may by regulation prescribe) to have
this section apply for such taxable year.
‘‘(4) COORDINATION
WITH
CREDIT
FOR
IN-
CREASING
RESEARCH
EXPENDITURES
AND
WITH
CREDIT FOR CLINICAL TESTING EXPENSES FOR CER-
TAIN DRUGS FOR RARE DISEASES.—Any qualified
medical innovation expense for a taxable year to
which an election under this section applies shall not
be taken into account for purposes of determining
the credit allowable under section 41 or 45C for
such taxable year.’’
(b) GENERAL BUSINESS CREDIT.—Section 38(b) of
the Internal Revenue Code of 1986 (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 medical innovation expenses credit
determined under section 41A(a).’’
(c) DEDUCTION FOR UNUSED PORTION OF CRED-
IT.—Section 196(c) of the Internal Revenue Code of 1986
(defining qualified business credits) is amended by strik-
ing ‘‘and’’ at the end of paragraph (6), by striking the
period at the end of paragraph (7) and inserting ‘‘, and’’,
and by adding at the end the following:
‘‘(8) the medical innovation expenses credit de-
termined under section 41A(a).’’
(d) CONFORMING AMENDMENT.—The table of sec-
tions for subpart D of part IV of subchapter A of chapter
1 of the Internal Revenue Code of 1986 is amended by
adding after the item relating to section 41 the following:
‘‘Sec. 41A. Credit for medical innovation expenses.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
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