[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 666 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 666

 To amend the Internal Revenue Code of 1986 to permanently extend and 
  modify the credit for increasing research activities, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               March 26 (legislative day, March 3), 1993

  Mr. Danforth (for himself and Mr. Baucus) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to permanently extend and 
  modify the credit for increasing research activities, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Research and 
Development Enhancement Act of 1993''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. PERMANENT EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

    (a) Permanent Extension.--
            (1) In general.--Section 41 (relating to credit for 
        increasing research activities) is amended by striking 
        subsection (h).
            (2) Conforming amendment.--Section 28(b)(1) (relating to 
        qualified clinical testing expenses) is amended by striking 
        subparagraph (D).
            (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after June 30, 1992.
    (b) Credit May Offset 50 Percent of Minimum Tax.--Section 38(c) 
(relating to limitation based on amount of tax) is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Research credit may offset 50 percent of minimum 
        tax.--
                    ``(A) In general.--In the case of the research 
                credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to such credit, 
                        and
                            ``(ii) for purposes of applying paragraph 
                        (1) to such credit--
                                    ``(I) 50 percent of the tentative 
                                minimum tax shall be substituted for 
                                the tentative minimum tax under 
                                subparagraph (A) thereof, and
                                    ``(II) the net income tax and net 
                                regular tax liability shall be reduced 
                                by the credit under subsection (a) 
                                (other than the research credit), 
                                determined after the application of 
                                paragraph (1).
                    ``(B) Research credit.--For purposes of this 
                paragraph, the term `research credit' means the portion 
                of the credit under subsection (a) which is 
                attributable to the research credit determined under 
                section 41(a).
                    ``(C) Limitation.--In no event shall this paragraph 
                permit the allowance of a credit which would result in 
                a net chapter 1 tax less than an amount equal to 10 
                percent of the amount determined under section 
                55(b)(1)(A) without regard to the alternative tax net 
                operating loss deduction. For purposes of the preceding 
                sentence, the term `net chapter 1 tax' means the sum of 
                the regular tax liability for the taxable year and the 
                tax imposed by section 55 for the taxable year, reduced 
                by the sum of the credits allowable under this part for 
                the taxable year (other than under section 34).''
    (c) Fixed-Base Percentage Liberalized.--
            (1) In general.--Subparagraph (A) of section 41(c)(3) 
        (relating to fixed-base percentage) is amended to read as 
        follows:
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the fixed-base percentage is the lowest 
                percentage which the aggregate qualified research 
                expenses of the taxpayer for any 4 consecutive taxable 
                years beginning after December 31, 1983, and before 
                January 1, 1993, is of the aggregate gross receipts of 
                the taxpayer for such taxable years.''
            (2) Start-up and fresh-start companies.--
                    (A) In general.--Clauses (i) and (ii) of section 
                41(c)(3)(B) (relating to start-up companies) are 
                amended to read as follows:
                            ``(i) Taxpayers to which subparagraph 
                        applies.--The fixed-base percentage shall be 
                        determined under this subparagraph if either--
                                    ``(I) the first taxable year in 
                                which the taxpayer had both gross 
                                receipts and qualified research 
                                expenses occurred in a taxable year 
                                beginning after December 31, 1983, or
                                    ``(II) there are 3 consecutive 
                                taxable years beginning after December 
                                31, 1992, during which the taxpayer's 
                                qualified research expenses for each 
                                such year do not exceed the taxpayer's 
                                base amount for such year, but do 
                                exceed the average amount of such 
                                expenses during the 3-taxable year 
                                period immediately preceding such year.
                            ``(ii) Fixed-base percentage.--In a case to 
                        which this subparagraph applies, the fixed-base 
                        percentage is--
                                    ``(I) 3 percent for each of the 
                                taxpayer's 1st 5 taxable years for 
                                which the taxpayer has qualified 
                                research expenses in the phase-in 
                                period,
                                    ``(II) in the case of the 
                                taxpayer's 6th such taxable year in the 
                                phase-in period, \1/6\ of the 
                                percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 4th and 5th such 
                                taxable years is of the aggregate gross 
                                receipts of the taxpayer for such 
                                years,
                                    ``(III) in the case of the 
                                taxpayer's 7th such taxable year in the 
                                phase-in period, \1/3\ of the 
                                percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 5th and 6th such 
                                taxable years is of the aggregate gross 
                                receipts of the taxpayer for such 
                                years,
                                    ``(IV) in the case of the 
                                taxpayer's 8th such taxable year in the 
                                phase-in period, \1/2\ of the 
                                percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 5th, 6th, and 7th such 
                                taxable years is of the aggregate gross 
                                receipts of the taxpayer for such 
                                years,
                                    ``(V) in the case of the taxpayer's 
                                9th such taxable year in the phase-in 
                                period, \2/3\ of the percentage which 
                                the aggregate qualified research 
                                expenses of the taxpayer for the 5th, 
                                6th, 7th, and 8th such taxable years is 
                                of the aggregate gross receipts of the 
                                taxpayer for such years,
                                    ``(VI) in the case of the 
                                taxpayer's 10th such taxable year in 
                                the phase-in period, \5/6\ of the 
                                percentage which the aggregate 
                                qualified research expenses of the 
                                taxpayer for the 5th, 6th, 7th, 8th, 
                                and 9th such taxable years is of the 
                                aggregate gross receipts of the 
                                taxpayer for such years, and
                                    ``(VII) for such taxable years 
                                thereafter, the percentage which the 
                                aggregate qualified research expenses 
                                for 4 consecutive taxable years 
                                selected by the taxpayer from the 5th 
                                through 10th such taxable years is of 
                                the aggregate gross receipts of the 
                                taxpayer for such years.
                            ``(iii) Phase-in period.--For purposes of 
                        this subparagraph, the term `phase-in period' 
                        means the period of taxable years beginning 
                        with--
                                    ``(I) in the case of a taxpayer 
                                described in clause (i)(I), the taxable 
                                year described in such clause, and
                                    ``(II) in the case of a taxpayer 
                                described in clause (i)(II), the first 
                                taxable year following the 3-
                                consecutive taxable year period 
                                described in such clause.''
                    (B) Conforming amendment.--The heading for 
                subparagraph (B) of section 41(c) is amended by 
                inserting ``and fresh-start'' after ``Start-up''.
    (d) Flat Credit for Small Businesses.--
            (1) In general.--Paragraph (1) of section 41(a) is amended 
        to read as follows:
            ``(1) either--
                    ``(A) in the case of a taxpayer not described in 
                subparagraph (B), 20 percent of the excess (if any) 
                of--
                            ``(i) the qualified research expenses for 
                        the taxable year, over
                            ``(ii) the base amount, or
                    ``(B) in the case of an eligible small business, 10 
                percent of the qualified research expenses for the 
                taxable year, and''.
            (2) Eligible small business.--Section 41(f) (relating to 
        special rules) is amended by adding at the end the following 
        new paragraph:
            ``(6) Eligible small business.--The term `eligible small 
        business' means, with respect to any taxable year, a taxpayer 
        with gross receipts (within the meaning of the first sentence 
        of subsection (c)(5)) for the preceding taxable year not 
        greater than $100,000,000.''
    (e) Special Rules for Defense and Aerospace Industries.--Section 
41(f) (relating to special rules), as amended by subsection (d)(2), is 
amended by redesignating paragraphs (4), (5), and (6) as paragraphs 
(5), (6), and (7), respectively, and by inserting after paragraph (3) 
the following new paragraph:
            ``(4) Defense and aerospace industries.--
                    ``(A) In general.--At the election of the taxpayer, 
                this section may be applied separately with respect to 
                the taxpayer's qualified research expenses and gross 
                receipts attributable to the defense-related activities 
                of such taxpayer. If the taxpayer makes the election 
                under this subparagraph, the base amount for--
                            ``(i) the taxpayer's defense-related 
                        activities shall be determined as if the 
                        taxpayer's other activities had been disposed 
                        of by the taxpayer, and
                            ``(ii) the taxpayer's other activities 
                        shall be determined as if the taxpayer's 
                        defense-related activities had been disposed of 
                        by the taxpayer.
                    ``(B) Defense-related activities.--For purposes of 
                this paragraph, the term `defense-related activities' 
                means any activity in connection with the development 
                and production pursuant to a contract (or subcontract 
                thereof) of--
                            ``(i) an arm, ammunition, or implement of 
                        war designated in the munitions list published 
                        pursuant to section 38 of the Arms Export 
                        Control Act (22 U.S.C. 2778), but only to the 
                        extent such property is specifically designed, 
                        modified, or equipped for military purposes, or
                            ``(ii) equipment for the National 
                        Aeronautics and Space Administration.''
    (f) Minimum Basic Research Amount Determination Simplified.--
Subparagraph (A) of section 41(e)(4) (defining minimum basic research 
amount) is amended to read as follows:
                    ``(A) In general.--The term `minimum basic research 
                amount' means an amount equal to the amounts treated as 
                contract research expenses during the base period by 
                reason of this subsection (as in effect during the base 
                period).''
    (g) Cooperative Research Activities.--
            (1) In general.--Subsection (a) of section 41 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 qualified cooperative research 
        expenditures (as defined in subsection (h)) for the taxable 
        year.'
            (2) Qualified cooperative research expenditures defined.--
        Section 41 is amended by redesignating subsection (h) as 
        subsection (i) and by adding after subsection (g) the following 
        new subsection:
    ``(h) Qualified Cooperative Research Expenditures.--For purposes of 
this section--
            ``(1) In general.--The term `qualified cooperative research 
        expenditures' means the aggregate amount of qualified 
        contributions to qualified cooperative research consortia for 
        qualified research.
            ``(2) Qualified contributions.--For purposes of this 
        subsection--
                    ``(A) In general.--Subject to the limitations of 
                subparagraphs (B), (C), and (D), the term `qualified 
                contributions' means all contributions to qualified 
                cooperative research consortia for qualified research 
                with respect to which the taxpayer elects to have this 
                subsection apply.
                    ``(B) Private source funding limitation.--
                            ``(i) In general.--Qualified contributions 
                        of a taxpayer shall not exceed the amount which 
                        bears the same ratio to such qualified 
                        contributions (determined without regard to 
                        this subparagraph) as the private source 
                        funding ratio.
                            ``(ii) Private source funding ratio.--For 
                        purposes of clause (i), the private source 
                        funding ratio is the sum of--
                                    ``(I) 50 percent of the ratio which 
                                the gross receipts of the organization 
                                (not including the amount of any 
                                governmental support) for the preceding 
                                taxable year bears to the total gross 
                                receipts of the organization for such 
                                taxable year, plus
                                    ``(II) 30 percent of such ratio for 
                                the second preceding taxable year, plus
                                    ``(III) 20 percent of such ratio 
                                for the third preceding taxable year.
                    ``(C) Limitations.--For purposes of this 
                subsection, the following shall not be taken into 
                account in determining qualified contributions:
                            ``(i) The excess of noncash contributions 
                        over cash contributions.
                            ``(ii) Contributions representing overhead 
                        allocated to services performed by a taxpayer's 
                        employees to the extent such overhead exceeds 
                        25 percent of the salary and benefit amounts 
                        allocated to such services.
                            ``(iii) Contributions by a taxpayer to a 
                        qualified cooperative research consortium to 
                        the extent they exceed one-third of the 
                        consortium's total nongovernmental support for 
                        the consortium's taxable year with or within 
                        which the taxpayer's taxable year ends.
                    ``(D) Consortium with fewer than 5 participants.--
                If a qualified cooperative research consortium has less 
                than 5 persons making nongovernmental contributions, 
                the qualified contributions of each such person 
                (determined without regard to this subparagraph or 
                subparagraph (B)) shall be reduced--
                            ``(i) by 20 percent if there are 4 such 
                        persons, or
                            ``(ii) by 40 percent if there are 3 such 
                        persons.
            ``(3) Qualified cooperative research consortium.--The term 
        `qualified cooperative research consortium' means any 
        organization--
                    ``(A) which is registered under the National 
                Cooperative Research Act of 1984, but only if such 
                registration has been published (and is in effect) on 
                the last day of the organization's taxable year with or 
                within which the taxpayer's taxable year ends, and
                    ``(B) which during such taxable year--
                            ``(i) had at least 5 contributors, but only 
                        if--
                                    ``(I) no 3 members contributed more 
                                than 80 percent of total 
                                nongovernmental contributions, and
                                    ``(II) no single member contributed 
                                more than 50 percent of total 
                                nongovernmental contributions, or
                            ``(ii) had either 3 or 4 contributors, but 
                        only if--
                                    ``(I) no single member contributed 
                                more than 50 percent (and no 2 members 
                                contributed more than 85 percent) of 
                                the total nongovernmental 
                                contributions, and
                                    ``(II) the contributors are engaged 
                                in the same trade or business.
            ``(4) Special rules.--For purposes of this subsection--
                    ``(A) Noncash contributions.--Qualified 
                contributions other than cash (including services 
                provided by a taxpayer's employees) shall be taken into 
                account at their cost (or such other basis determined 
                under regulations).
                    ``(B) Overhead.--The cost of services provided by a 
                taxpayer's employees shall include overhead properly 
                allocable to such services.
            ``(5) No double benefit.--Amounts taken into account under 
        this subsection in computing qualified cooperative research 
        expenditures shall not be taken into account under paragraph 
        (1) or (2) of subsection (a).
            ``(6) Prepaid amounts.--If any contributions paid or 
        incurred during the taxable year to qualified cooperative 
        research consortia are attributable to qualified research to be 
        conducted after the close of the taxable year, such amount 
        shall be treated as paid or incurred during the period which 
        the qualified research is conducted.
            ``(7) Reports.--Each qualified cooperative research 
        consortium shall provide to the Secretary a report containing--
                    ``(A) its certification as such an organization,
                    ``(B) its private source funding ratio for the 
                taxable year,
                    ``(C) its qualified research expenditures for such 
                taxable year, and
                    ``(D) such other information as the Secretary may 
                require.
        Each consortium shall provide a copy of the report to each 
        contributor.''
    (h) University Affiliated Hospitals Eligible for Basic Research 
Credit.--Section 41(e)(6) (defining qualified organization) is amended 
by adding at the end the following new subparagraph:
                    ``(E) University affiliated hospitals.--Any 
                organization not otherwise described in this paragraph 
                which is an organization described in section 
                170(b)(1)(A)(iii) and affiliated with an organization 
                described in subparagraph (A).''
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

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