I
105TH CONGRESS
2D SESSION
H. R. 4728
To amend the Internal Revenue Code of 1986 to provide an increased credit
for medical research.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 7, 1998
Mr. WATKINS 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
an increased credit for medical research.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. INCREASED CREDIT FOR MEDICAL RESEARCH.
(a) IN GENERAL.—Section 41 of the Internal Reve-
nue Code of 1986 (relating to credit for increasing re-
search activities) is amended by adding at the end the fol-
lowing new subsection:
‘‘(i) 
INCREASED
CREDIT
FOR
MEDICAL
RE-
SEARCH.—
‘‘(1) GENERAL RULE.—Subsection (a) of this
section shall be applied by substituting—
‘‘(A) ‘40 percent’ for ‘20 percent’ in para-
graph (1) thereof with respect to qualified med-
ical research expenses, and
‘‘(B) ‘medical research base amount’ for
‘base amount’.
‘‘(2) QUALIFIED
MEDICAL
RESEARCH
EX-
PENSES.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical research expenses’ means qualified re-
search expenses—
‘‘(i) incurred for research in, or rea-
sonably expected to lead to, the develop-
ment of any medical product for the pre-
vention, cure, or alleviation of human dis-
ease, sickness, or injury, and
‘‘(ii) incurred before the earliest of—
‘‘(I) the date on which an appli-
cation with respect to such product is
approved under section 505(b) or
505A of the Federal Food, Drug, and
Cosmetic Act,
‘‘(II) the date on which a license
for such product is approved under
section 351 of the Public Health Serv-
ice Act, or
‘‘(III) the later of the date classi-
fication of such product as intended
for human use is made under section
513 of the Federal Food, Drug, and
Cosmetic Act or the date of approval
of such product as intended for
human use is granted under section
515 of such Act.
‘‘(B) EXCLUSION
OF
RESEARCH
AFTER
COMMERCIAL
PRODUCTION
NOT
TO
APPLY.—
For purposes of this paragraph, the term
‘qualified research expenses’ shall be deter-
mined without regard to subsection (d)(4)(A).
‘‘(C) SPECIAL RULE FOR CERTAIN TEST-
ING.—The term ‘qualified medical research ex-
penses’ includes qualified research expenses for
preclinical and clinical testing occurring after
the earliest date under subparagraph (A)(ii) if
the purpose of such testing is to develop new
functional uses (including pediatric studies as
described in section 355A(g) of the Federal
Food, Drug, and Cosmetic Act), characteristics,
indications, combinations, dosages, or delivery
forms to an existing product.
‘‘(D) PRODUCT.—For purposes of this
paragraph, the term ‘product’ means any drug,
biologic, medical, or diagnostic test, or medical
device.
‘‘(3) MEDICAL RESEARCH BASE AMOUNT.—For
purposes of this subsection—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (C), the term ‘medical research
base amount’ means, with respect to any tax-
able year, the average of the taxpayer’s quali-
fied medical research expenses for those taxable
years in the base period during which the tax-
payer paid or incurred qualified medical re-
search expenses. The Secretary may prescribe
regulations providing that de minimis amounts
of qualified medical research expenses shall be
disregarded under the preceding sentence.
‘‘(B) BASE PERIOD.—For purposes of sub-
paragraph (A), the base period is the period
consisting of—
‘‘(i) the most recent taxable year end-
ing at least 6 months before the taxable
year for which the medical research base
amount is being determined, and
‘‘(ii) the 4 taxable years preceding
such most recent taxable year.
‘‘(C) MEDICAL BASE PERIOD AMOUNT FOR
FIRST 2 TAXABLE YEARS.—For each of the first
2 taxable years during which the taxpayer pays
or incurs qualified medical research expenses,
the term ‘medical research base amount’ means
60 percent of the taxpayer’s qualified medical
research expenses for the taxable year for which
such base period amount is determined.
‘‘(4) RESEARCH CONDUCTED BY ACADEMIC AND
MEDICAL INSTITUTIONS.—
‘‘(A) IN GENERAL.—Subsection (b)(3)(A)
shall be applied—
‘‘(i) by substituting ‘100 percent’ for
‘65 percent’ with respect to amounts paid
to a qualified academic institution for
qualified research described in paragraph
(2), and
‘‘(ii) by substituting ‘85 percent’ for
‘65 percent’ with respect to amounts paid
to a qualified nonprofit medical institution
for qualified research described in para-
graph (2).
‘‘(B) 
QUALIFIED
ACADEMIC
INSTITU-
TION.—For purposes of this paragraph, the
term ‘qualified academic institution’ means any
of the following institutions:
‘‘(i) EDUCATIONAL
INSTITUTIONS.—
Any 
institution 
described 
in 
section
170(b)(1)(A)(ii) or (iii) which is owned or
affiliated with an institution of higher edu-
cation as described in section 3304(f).
‘‘(ii) CANCER
RESEARCH
INSTITU-
TIONS.—Any cancer research institution
which is designated as a cancer center by
the National Cancer Institute, is, or is
owned by, an organization described in sec-
tion 501(c)(3), is exempt from taxation
under section 501(a), and is not a private
foundation.
‘‘(iii) NONPROFIT INDEPENDENT RE-
SEARCH INSTITUTIONS.—Any not-for-prof-
it, independent research institute which is
described in section 501(c)(3), is exempt
from taxation under section 501(a), and is
organized and operated exclusively for sci-
entific or educational purposes.
‘‘(C) QUALIFIED NONPROFIT MEDICAL IN-
STITUTION.—For purposes of this paragraph,
the term ‘qualified nonprofit medical institu-
tion’ means any not-for-profit organization that
is described in section 501(c)(3), is exempt
from taxation under section 501(a) by reason of
its operation of a hospital or medical or health
activity, is not a private foundation, and is not
a qualified academic institution.
‘‘(5) ELECTION
OF
ALTERNATIVE
INCREMEN-
TAL MEDICAL RESEARCH CREDIT.—
‘‘(A) IN GENERAL.—At the election of the
taxpayer, the credit determined under this sub-
section shall be the sum of—
‘‘(i) 1.65 percent of so much of the
taxpayer’s qualified medical research ex-
penses for the taxable year as exceeds 1
percent of the gross receipts of the tax-
payer for the year but does not exceed 1.5
percent of such gross receipts,
‘‘(ii) 2.2 percent of so much of such
expenses as exceeds 1.5 percent of such
gross receipts but does not exceed 2 per-
cent of such gross receipts, and
‘‘(iii) 2.75 percent of so much of such
expenses as exceeds 2 percent of such re-
ceipts.
‘‘(B) ELECTION.—An election under this
subsection shall apply only to the taxable year
for which made.
‘‘(6) 
COORDINATION.—In 
determining 
the
amount of the credit allowed by subsection (a) for
expenses which are not allowed the increased credit
under this subsection—
‘‘(A) the amount of qualified research ex-
penses shall be computed by excluding qualified
medical research expenses for which the in-
creased credit determined under this subsection
is allowed;
‘‘(B) the base amount determined under
paragraph (1) of subsection (c) shall be com-
puted by excluding qualified medical research
expenses for which the increased credit deter-
mined under this subsection is allowed from
qualified research expenses for purposes of that
computation; and
‘‘(C) the alternative incremental credit de-
termined under subsection (c)(4) shall be com-
puted by excluding qualified medical research
expenses for which the increased credit deter-
mined under this subsection is allowed from
qualified research expenses for purposes of that
computation.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
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