[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2064 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 2064

 To amend the Internal Revenue Code of 1986 to allow a tax credit for 
                          defense conversion.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 11, 1993

   Ms. Harman (for herself, Mr. Matsui, Mr. Brown of California, Mr. 
    McKeon, Mr. Lewis of California, and Mr. Hunter) 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 
                          defense conversion.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Defense Reinvestment and High-Tech 
Job Creation Act of 1993''.

SEC. 2. DEFENSE CONVERSION CREDIT.

    (a) General Rule.--Section 46 of the Internal Revenue Code of 1986 
(relating to amount of investment credit) is amended--
            (1) by striking ``and'' at the end of paragraph (2),
            (2) by striking the period at the end of paragraph (3) and 
        inserting ``, and'', and
            (3) by adding at the end thereof the following new 
        paragraph:
            ``(4) the defense conversion credit.''
    (b) Defense Conversion Credit.--Section 48 of such Code is amended 
by adding at the end thereof the following new subsection:
    ``(c) Defense Conversion Credit.--
            ``(1) In general.--For purposes of section 46, the defense 
        conversion credit for any taxable year is the sum of--
                    ``(A) the defense conversion employment credit for 
                the taxable year, and
                    ``(B) the defense conversion investment credit for 
                the taxable year.
            ``(2) Defense conversion employment credit.--
                    ``(A) In general.--The defense conversion 
                employment credit for any taxable year is 10 percent of 
                the qualified wages paid or incurred by a qualified 
                employer during such year.
                    ``(B) Qualified wages.--For purposes of this 
                subsection--
                            ``(i) In general.--The term `qualified 
                        wages' means the wages (as defined in clause 
                        (ii)) paid or incurred by the qualified 
                        employer during the taxable year to, and 
                        amounts paid or incurred by the qualified 
                        employer to third parties for retraining 
                        expenses with respect to, qualified conversion 
                        employees during the period commencing on July 
                        31, 1993, and ending on December 31, 1995 (`the 
                        qualified period').
                            ``(ii) Wages defined.--Except as provided 
                        in subparagraph (C)(ii), the term `wages' has 
                        the meaning given to such term by subsection 
                        (b) of section 3306 (determined without regard 
                        to any dollar limitation contained in such 
                        section), but the amount of wages during any 
                        taxable year which may be taken into account 
                        with respect to any individual shall not exceed 
                        25 percent of the wages (determined without 
                        regard to this subsection) paid to such 
                        individual during such taxable year or portion 
                        thereof included within the qualified period.
                            ``(iii) Retraining expenses.--The term 
                        `retraining expenses' includes all amounts paid 
                        or incurred with respect to educational or 
                        training programs in which a qualified 
                        conversion employee participates to learn or 
                        improve skills necessary or useful to such 
                        employee's employment in the qualified 
                        employer's nondefense-related business.
                    ``(C) Qualified conversion employees.--
                            ``(i) In general.--For purposes of this 
                        subsection, the term `qualified conversion 
                        employees' means an employee of a qualified 
                        employer who had been employed by the qualified 
                        employer or another employer in a defense-
                        related business and who is employed by the 
                        qualified employer in a nondefense-related 
                        business during the taxable year.
                            ``(ii) Proration in case of dual 
                        employment.--If a qualified conversion employee 
                        is employed by the qualified employer in both a 
                        defense-related business and a nondefense-
                        related business during the taxable year, only 
                        the portion of the employee's wages properly 
                        allocable to employment in the nondefense-
                        related business shall be treated as `wages' 
                        for purposes of subparagraph (B)(ii).
                    ``(D) Qualified employer.--For purposes of this 
                paragraph, a qualified employer is an employer which is 
                engaged in a qualified business (as defined in 
                paragraph (3)(D)).
            ``(3) Defense conversion investment credit.--
                    ``(A) In general.--The defense conversion 
                investment credit for any taxable year is the 
                applicable percentage of the qualified conversion 
                investment by a qualified business during the taxable 
                year.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph--
                            ``(i) In general.--The applicable 
                        percentage shall be 7 percent for all taxable 
                        years ending after December 31, 1992, and on or 
                        before December 31, 1994, and shall be 5 
                        percent for all taxable years ending after 
                        December 31, 1994, and on or before December 
                        31, 1999.
                            ``(ii) Incremental employment incentive 
                        percentage.--The applicable percentage shall be 
                        10 percent for any taxable year ending after 
                        December 31, 1992, and on or before December 
                        31, 1994, and shall be 8 percent for any 
                        taxable year ending after December 31, 1994, 
                        and on or before December 31, 1999, if in such 
                        year the number of employees of the qualified 
                        business increases 4 percent or more over the 
                        average number of employees of the qualified 
                        business during the 3 preceding years (the 
                        `qualifying increase').
                            ``(iii) Recapture in case of decreased 
                        employment.--If a qualified business claims the 
                        benefit of the incremental employment incentive 
                        percentage under clause (ii), and its average 
                        employment during any of the 3 years following 
                        the year in which the benefit of the increased 
                        percentage was claimed falls below the 
                        qualifying increase level (a `disqualifying 
                        decrease'), the qualified business shall 
                        increase its tax liability for the year during 
                        which the disqualifying decrease occurred by 
                        the difference between the credit to which it 
                        would have been entitled under clause (i) and 
                        the credit claimed under clause (ii).
                    ``(C) Qualified conversion investment.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        conversion investment' means the costs paid or 
                        incurred by a qualified business during the 
                        taxable year for the purpose of acquiring, 
                        constructing, creating, or developing any 
                        tangible or intangible assets, in connection 
                        with the conduct of the qualified business' 
                        nondefense-related business, except that such 
                        term shall not include direct production costs 
                        of any property held by the qualified business 
                        for sale to customers in the ordinary course of 
                        its trade or business.
                            ``(ii) Intangible assets.--The term 
                        `intangible assets' includes all `intangible 
                        property' as defined in section 936(h)(3)(B) 
                        (other than literary, musical or artistic 
                        compositions) and specifically includes 
                        processes and products, models, and prototypes.
                    ``(D) Qualified business.--For purposes of this 
                subsection and pursuant to regulations to be prescribed 
                by the Secretary--
                            ``(i) In general.--The term `qualified 
                        business' means any corporation, partnership, 
                        or sole proprietorship or separate unit thereof 
                        in existence on January 1, 1993, which derived 
                        a substantial portion of its gross receipts or 
                        incurred a substantial portion of its gross 
                        costs during the 5 years preceding January 1, 
                        1993, from 1 or more defense-related 
                        businesses, and which derives a significant 
                        portion of its gross receipts from (or incurs a 
                        significant amount of costs in acquiring or 
                        developing) 1 or more nondefense-related 
                        businesses during the taxable year.
                            ``(ii) Defense-related business.--A 
                        `defense-related business' is an activity in 
                        connection with the development or production 
                        (pursuant to a contract or subcontract) of any 
                        property designed, modified, or equipped for 
                        military purposes (including NASA).
                            ``(iii) Nondefense-related business.--A 
                        `nondefense-related business' is any activity 
                        in connection with the development or 
                        production of any property not designed, 
                        modified, or equipped for military purposes 
                        which uses a significant portion of assets and 
                        employees which had been employed in a defense-
                        related business.''
    (c) Accelerated Depreciation of Excess Defense Conversion 
Property.--
            (1) Subsection (b)(3) of section 168 of such Code is 
        amended by adding at the end thereof the following new 
        subparagraph:
                    ``(F) Property described in subsection 
                (e)(3)(B)(vii).''
            (2) Subsection (e)(3)(B) of section 168 of such Code is 
        amended by striking ``and'' at the end of clause (v), by 
        striking the period at the end of clause (vi) and inserting ``, 
        and'', and by adding at the end thereof the following new 
        clause:
                            ``(vii) any qualifying excess defense 
                        conversion property.''
            (3) Subsection (i) of section 168 of such Code is amended 
        by adding at the end thereof the following new paragraph:
            ``(14) Qualifying excess defense conversion property.--
                    ``(A) The term `qualifying excess defense 
                conversion property' means, with respect to property 
                owned or leased by the taxpayer and otherwise subject 
                to depreciation under this section and which is `excess 
                defense conversion property' (as defined in 
                subparagraph (B)), the basis of property (or the 
                portion thereof) constituting excess defense conversion 
                property owned by the taxpayer or the total discounted 
                cost of lease obligations during the remaining term of 
                the lease applicable to excess conversion property 
                leased by the taxpayer.
                    ``(B) The term `excess defense conversion property' 
                means property that--
                            ``(i) has been used by the taxpayer in a 
                        defense-related business (as defined in section 
                        48(c)(3)(D)); and
                            ``(ii) is not being used in the taxable 
                        year, and is not reasonably expected to be used 
                        in the foreseeable future, in a defense-related 
                        business.
                    ``(C) Any deductions claimed by a taxpayer with 
                respect to property reported on its return as 
                qualifying excess defense conversion property and which 
                is later determined as not constituting excess defense 
                conversion property shall be recaptured at the rate of 
                150 percent of the deductions so claimed.
                    ``(D) For purposes of this section, the amount of 
                the property's basis constituting qualifying excess 
                defense conversion property shall be considered to be 
                placed in service on the first day of the taxable year 
                in which the property is determined to constitute 
                qualifying excess defense conversion property.''
    (d) Effective Date.--The amendments made by this section shall take 
effect on July 31, 1993.

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