I
103D CONGRESS
2D SESSION
H. R. 4212
To stimulate the research and development of biotechnologies.
IN THE HOUSE OF REPRESENTATIVES
APRIL 14, 1994
Mr. BLUTE (for himself and Ms. ESHOO) introduced the following bill; which
was referred to the Committee on Ways and Means
A BILL
To stimulate the research and development of
biotechnologies.
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 ‘‘Biotechnology Stimu-
lus Act of of 1994’’.
SEC. 2. BIOTECHNOLOGY RESEARCH CREDIT IMPROVE-
MENT.
(a) ALTERNATIVE CREDIT CALCULATION BASED ON
AGGREGATE RESEARCH EXPENSES.—
(1) IN GENERAL.—Subsection (a) of section 41
of the Internal Revenue Code of 1986 (relating to
general rule) is amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of section 38,
the research credit determined under this section for the
taxable year shall be an amount equal to 1 of the following
amounts (as elected by the taxpayer for the taxable year):
‘‘(1) 25 PERCENT
OF
INCREASED
RESEARCH
EXPENSES.—The sum of—
‘‘(A) 25 percent of the excess (if any) of—
‘‘(i) the qualified biotechnology (as de-
fined in section 2(f) of the Biotechnology
Competitiveness Act of 1994) research ex-
penses, over
‘‘(ii) the base amount, and
‘‘(B) 25 percent of the basic research pay-
ments, determined under subsection (e)(1)(A).
‘‘(2) 
PERCENT
OF
AGGREGATE
BIO-
TECHNOLOGY RESEARCH EXPENSES.—The sum of—
‘‘(A) 5 percent of the qualified research ex-
penses, determined by substituting ‘100 per-
cent’ for ‘65 percent’ in subsection (b)(3)(A),
and
‘‘(B) 5 percent of the basic research pay-
ments, determined under subsection (e)(2).’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 41(e) of such
Code (relating to basic research credit) is
amended—
(i) by striking ‘‘subsection (a)(2)’’ and
inserting ‘‘subsection (a)(1)(B)’’, and
(ii) by striking ‘‘subsection (a)(1)’’
and inserting ‘‘subsection (a)(1)(A)’’.
(B) Subparagraph (C) of section 41(e)(7)
of such Code (relating to definitions and special
rules) is amended—
(i) by striking ‘‘INCREMENTAL’’ in the
subparagraph 
caption 
and 
inserting
‘‘OTHER’’,
(ii) by striking ‘‘subsection (a)(1)’’
and inserting ‘‘paragraph (1)(A) or (2)(A)
of subsection (a)’’,
(iii) by striking ‘‘subsection (a)(2)’’
and inserting ‘‘paragraph (1)(B) or (2)(B)
of such subsection’’,
(iv) by striking ‘‘subsection (a)(1)(A)’’
and inserting ‘‘paragraph (1)(A)(i) or
(2)(A) of such subsection’’, and
(v) by striking ‘‘subsection (a)(1)(B)’’
and inserting ‘‘paragraph (1)(A)(ii) of
such subsection’’.
(C) 
Subparagraph 
(A) 
of 
section
280C(c)(2) of such Code (relating to disallow-
ance of deduction for expenses for which re-
search credit taken) is amended by striking
‘‘section 41(a)(1)’’ and inserting ‘‘paragraph
(1)(A) or (2)(A) of section 41(a)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act.
(b) PERMANENT EXTENSION OF CREDIT.—
(1) IN GENERAL.—Section 41 of such Code is
amended by striking subsection (h) (relating to ter-
mination).
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 28(b) of such Code (relating to qualified
clinical testing expenses) is amended by striking sub-
paragraph (D).
SEC. 3. VARIABLE CAPITAL GAINS.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 of the Internal Revenue Code of 1986 (relating to treat-
ment of capital gains) is amended by adding at the end
thereof the following new section:
‘‘SEC. 1202. BIOTECHNOLOGY VARIABLE CAPITAL GAINS
DEDUCTION.
‘‘(a) DEDUCTION ALLOWED.—If for any taxable year
a taxpayer other than a biotechnology (as defined in sec-
tion 2(f) of the Biotechnology Competitiveness Act of
1994) corporation has a net capital gain, there shall be
allowed as a deduction from gross income an amount equal
to the sum of—
‘‘(1) 100 percent of the qualified 10-year net
capital gain,
‘‘(2) 90 percent of the qualified 9-year net cap-
ital gain,
‘‘(3) 80 percent of the qualified 8-year net cap-
ital gain,
‘‘(4) 70 percent of the qualified 7-year net cap-
ital gain,
‘‘(5) 60 percent of the qualified 6-year net cap-
ital gain,
‘‘(6) 50 percent of the qualified 5-year net cap-
ital gain,
‘‘(7) 40 percent of the qualified 4-year net cap-
ital gain,
‘‘(8) 30 percent of the qualified 3-year net cap-
ital gain,
‘‘(9) 20 percent of the qualified 2-year net cap-
ital gain, plus
‘‘(10) 10 percent of the qualified 1-year net
capital gain.
‘‘(b) QUALIFIED NET CAPITAL GAIN.—For purposes
of subsection (a)—
‘‘(1) QUALIFIED 10-YEAR NET CAPITAL GAIN.—
The term ‘qualified 10-year net capital gain’ means
the amount of net long-term capital gain which
would be computed for the taxable year if only cap-
ital assets held by the taxpayer for at least 10 years
at the time of the sale or exchange were taken into
account. Such term shall not exceed the amount of
the net capital gain for such taxable year.
‘‘(2) QUALIFIED 9-YEAR NET CAPITAL GAIN.—
The term ‘qualified 9-year net capital gain’ means
the amount of net long-term capital gain which
would be computed for the taxable year if only cap-
ital assets held by the taxpayer for at least 9 years
but less than 10 years at the time of the sale or ex-
change were taken into account. Such term shall not
exceed the amount of the net capital gain for such
taxable year reduced by the amount of the qualified
10-year net capital gain.
‘‘(3) OTHER DEFINITIONS.—The amount of the
qualified 8-year net capital gain, 7-year net capital
gain, 6-year net capital gain, 5-year net capital gain,
4-year net capital gain, 3-year net capital gain,
qualified 2-year net capital gain, and qualified 1-
year net capital gain shall be determined under the
principles of paragraphs (1) and (2).
‘‘(c) ESTATE AND TRUSTS.—In the case of an estate
or trust, the deduction shall be computed by excluding the
portion (if any) of the gains for the taxable year from sales
or exchanges of capital assets which, under sections 652
and 662 (relating to inclusions of amounts in gross income
of beneficiaries of trusts), is includible by the income bene-
ficiaries as gain derived from the sale or exchange of cap-
ital assets.’’.
(b) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 of such Code
is amended by inserting after paragraph (11) the
following new paragraph:
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from
the sale or exchange of a collectible shall be
treated as a short-term capital gain or loss (as
the case may be), without regard to the period
such asset was held. The preceding sentence
shall apply only to the extent the gain or loss
is taken into account in computing taxable in-
come.
‘‘(B) TREATMENT OF CERTAIN SALES OF
INTEREST
IN
PARTNERSHIP, ETC.—For pur-
poses of subparagraph (A), any gain from the
sale or exchange of an interest in a partnership,
S corporation, or trust which is attributable to
unrealized appreciation in the value of collect-
ibles held by such entity shall be treated as gain
from the sale or exchange of a collectible. Rules
similar to the rules of section 751(f) shall apply
for purposes of the preceding sentence.
‘‘(C) COLLECTIBLE.—For purposes of this
paragraph, the term ‘collectible’ means any cap-
ital asset which is a collectible (as defined in
section 408(m) without regard to paragraph (3)
thereof).’’.
(2) 
CHARITABLE
DEDUCTION
NOT
AF-
FECTED.—
(A) Paragraph (1) of section 170(e) of
such Code is amended by adding at the end
thereof the following new sentence: ‘‘For pur-
poses of this paragraph, section 1222 shall be
applied without regard to paragraph (12) there-
of (relating to special rule for collectibles).’’.
(B) Clause (iv) of section 170(b)(1)(C) of
such Code is amended by inserting before the
period at the end thereof the following: ‘‘and
section 1222 shall be applied without regard to
paragraph (12) thereof (relating to special rule
for collectibles)’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 1 of such Code is amended by strik-
ing subsection (h).
(2) Subsection (a) of section 62 of such Code
is amended by inserting after paragraph (13) the
following new paragraph:
‘‘(14) LONG-TERM CAPITAL GAINS.—In the case
of a taxpayer other than a corporation, the deduc-
tion allowed by section 1202.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 4. CAPITAL GAINS EXCLUSION FOR BIOTECHNOLOGY
STARTUP BUSINESS STOCK.
(a) TAXPAYERS OTHER THAN CORPORATIONS.—
Part I of subchapter P of chapter 1 of the Internal Reve-
nue Code of 1986 (relating to treatment of capital gains)
is amended by adding at the end the following new section:
‘‘SEC. 1203. DEDUCTION FOR CAPITAL GAINS ON CERTAIN
BIOTECHNOLOGY 
BUSINESS 
STOCK 
HELD
FOR MORE THAN 2 YEARS.
‘‘(a) GENERAL RULE.—If for any taxable year a tax-
payer other than a corporation has a qualified business
net capital gain, there shall be allowed as a deduction from
gross income an amount equal to 50 percent of the quali-
fied business net capital gain.
‘‘(b) QUALIFIED BUSINESS NET CAPITAL GAIN.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified busi-
ness net capital gain’ means the lesser of—
‘‘(A) the net capital gain for the taxable
year, or
‘‘(B) the net capital gain for the taxable
year determined by taking into account only
gain or loss from qualified business stock with
a holding period of at least 2 years at the time
of the disposition.
‘‘(2) QUALIFIED BUSINESS STOCK.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business stock’ means biotechnology (as defined
in section 2(f) of the Biotechnology Competi-
tiveness Act of 1994) business stock which—
‘‘(i) is first acquired (whether directly
or through an underwriter) from the issuer
by the taxpayer, and
‘‘(ii) is not issued in redemption of (or
otherwise exchanged for) stock.
‘‘(B) EXCEPTION FOR PERSONAL SERVICE
CORPORATIONS.—The term ‘qualified business
stock’ does not include stock issued by a per-
sonal service corporation (within the meaning of
section 269A(b)(1)).
‘‘(c) ESTATES AND TRUSTS.—In the case of an estate
or trust, the deduction under subsection (a) shall be com-
puted by excluding the portion (if any) of the gains for
the taxable year from sales or exchanges of capital assets
which, under sections 652 and 662 (relating to inclusions
of amounts in gross income of beneficiaries of trusts), is
includible by the income beneficiaries as gain derived from
the sale or exchange of capital assets.’’.
(b) CORPORATIONS.—Section 1201 of such Code (re-
lating to alternative tax for corporations) is amended by
redesignating subsection (b) as subsection (c) and by in-
serting after subsection (a) the following new subsection:
‘‘(b) DEDUCTION FOR GAIN ON QUALIFIED BUSI-
NESS STOCK.—
‘‘(1) IN GENERAL.—If for any taxable year a
corporation has a qualified business net capital gain,
there shall be allowed as a deduction from gross in-
come an amount equal to 50 percent of the qualified
business net capital gain.
‘‘(2) 
QUALIFIED
BUSINESS
NET
CAPITAL
GAIN.—For purposes of this subsection, the term
‘qualified business net capital gain’ has the meaning
given such term in section 1203(b).’’.
(c) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1201 of such Code
is amended by inserting after ‘‘net capital gain’’
each place it appears the following: ‘‘(other than
qualified business net capital gain (within the mean-
ing of section 1203(b))’’.
(2) Subsection (a) of section 62 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(15) QUALIFIED
BUSINESS
STOCK
CAPITAL
GAINS.—The deduction allowed by section 1203.’’.
(3)(A) The heading for section 1201 of such
Code is amended to read as follows:
‘‘SEC. 1201. ALTERNATIVE TAX FOR BIOTECHNOLOGY COR-
PORATIONS; 
DEDUCTION 
FOR 
GAIN 
ON
QUALIFIED BUSINESS STOCK.’’.
(B) The item relating to section 1201 in the
table of sections for part I of subchapter P of chap-
ter 1 of such Code is amended to read as follows:
‘‘Sec. 1201. Alternative tax for biotechnology corporations; deduc-
tion for gain on qualified business stock.’’.
(4) The table of sections for part I of sub-
chapter P of chapter 1 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 1203. Deduction for capital gains on certain business stock
held for more than 2 years.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after the date of
the enactment of this Act.
SEC. 5. INDEXING OF CERTAIN CAPITAL ASSETS.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
basis rules of general application) is amended by inserting
after section 1021 the following new section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Except as provided in paragraph
(2), if an indexed asset which has been held for
more than 1 year is sold or otherwise disposed of,
for purposes of this title the indexed basis of the
asset shall be substituted for its adjusted basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deduction for depreciation, depletion, and amor-
tization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) stock in a corporation, and
‘‘(B) tangible property (or any interest
therein), which is a capital asset or property
used in the trade or business (as defined in sec-
tion 1231(b)).
‘‘(2) CERTAIN
PROPERTY
EXCLUDED.—For
purposes of this section, the term ‘indexed asset’
does not include stock in a foreign corporation.
‘‘(c) INDEXED BASIS.—For purposes of this section:
‘‘(1) INDEXED BASIS.—The indexed basis for
any asset is—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the applicable inflation ratio.
‘‘(2) APPLICABLE INFLATION RATIO.—The ap-
plicable inflation ratio for any asset is the percent-
age arrived at by dividing—
‘‘(A) the gross national product deflator
the calendar quarter in which the disposition
takes place, by
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending December 31, 1991).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-tenth of 1 percent.
‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—
The gross national product deflator for any calendar
quarter is the implicit price deflator for the gross
national product for such quarter (as shown in the
first revision thereof).
‘‘(d) SPECIAL RULES.—For purposes of this section:
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) a substantial improvement to prop-
erty,
‘‘(B) in the case of stock of a corporation,
a substantial contribution to capital, and
‘‘(C) any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—
‘‘(A) IN GENERAL.—The applicable infla-
tion ratio shall be appropriately reduced for cal-
endar months at any time during which the
asset was not an indexed asset.
‘‘(B) CERTAIN
SHORT
SALES.—For pur-
poses of applying subparagraph (A), an asset
shall be treated as not an indexed asset for any
short sale period during which the taxpayer or
the taxpayer’s spouse sells short property sub-
stantially identical to the asset. For purposes of
the preceding sentence, the short sale period be-
gins on the day after the substantially identical
property is sold and ends on the closing date
for the sale.
‘‘(3) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR
APPLICATION
OF
SUBSECTION
(a)(1)
WITH RESPECT TO THE TAXPAYER.—If there has
been a prior application of subsection (a)(1) to an
asset while such asset was held by the taxpayer, the
date of acquisition of such asset by the taxpayer
shall be treated as not earlier than the date of the
most recent such prior application.
‘‘(e) CERTAIN CONDUIT ENTITIES.—
‘‘(1) REGULATED
INVESTMENT
COMPANIES;
REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST
FUNDS.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 90 percent or more, such
ratio for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(E) QUALIFIED INVESTMENT ENTITY.—
For purposes of this paragraph, the term
‘qualified investment entity’ means—
‘‘(i) a regulated investment company
(within the meaning of section 851),
‘‘(ii) a real estate investment trust
(within the meaning of section 856), and
‘‘(iii) a common trust fund (within the
meaning of section 584).
‘‘(2) PARTNERSHIPS.—In the case of a partner-
ship, the adjustment made under subsection (a) at
the partnership level shall be passed through to the
partners.
‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT.—If any person transfers cash, debt, or any other
property to another person and the principal purpose of
such transfer is to secure or increase an adjustment under
subsection (a), the Secretary may disallow part or all of
such adjustment or increase.
‘‘(h) DEFINITION OF STOCK.—For purposes of this
section, the term ‘stock in a corporation’ includes any in-
terest in a common trust fund (as defined in section
584(a)).
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 312 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(3) EFFECT ON EARNINGS AND PROFITS OF
INDEXED BASIS.—
‘‘For substitution of indexed basis for adjusted
basis in the case of the disposition of certain assets,
see section 1022(a)(1).’’.
(2) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by
inserting after the item relating to section 1021 the
following new item:
‘‘Sec. 1022. Indexing of certain assets for purposes of determining
gain or loss.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to dispositions after the date of
the enactment of this Act.
SEC. 6. SENSE OF CONGRESS REGARDING EFFECT OF CER-
TAIN NEW ACCOUNTING STANDARDS ON BIO-
TECHNOLOGY BUSINESSES.
It is the sense of the Congress that—
(1) the accounting standards proposed by the
Financial Accounting Standards Board will have