[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4728 Introduced in House (IH)]







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 Representatives of the 
United States of America in Congress assembled,

SECTION 1. INCREASED CREDIT FOR MEDICAL RESEARCH.

    (a) In General.--Section 41 of the Internal Revenue Code of 1986 
(relating to credit for increasing research activities) is amended by 
adding at the end the following new subsection:
    ``(i) Increased Credit for Medical Research.--
            ``(1) General rule.--Subsection (a) of this section shall 
        be applied by substituting--
                    ``(A) `40 percent' for `20 percent' in paragraph 
                (1) thereof with respect to qualified medical research 
                expenses, and
                    ``(B) `medical research base amount' for `base 
                amount'.
            ``(2) Qualified medical research expenses.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `qualified medical 
                research expenses' means qualified research expenses--
                            ``(i) incurred for research in, or 
                        reasonably expected to lead to, the development 
                        of any medical product for the prevention, 
                        cure, or alleviation of human disease, 
                        sickness, or injury, and
                            ``(ii) incurred before the earliest of--
                                    ``(I) the date on which an 
                                application 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 
                                Service Act, or
                                    ``(III) the later of the date 
                                classification 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 determined without regard to subsection (d)(4)(A).
                    ``(C) Special rule for certain testing.--The term 
                `qualified medical research expenses' 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 taxable year, the 
                average of the taxpayer's qualified medical research 
                expenses for those taxable years in the base period 
                during which the taxpayer paid or incurred qualified 
                medical research 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 subparagraph 
                (A), the base period is the period consisting of--
                            ``(i) the most recent taxable year ending 
                        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 paragraph (2).
                    ``(B) Qualified academic institution.--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 
                        education as described in section 3304(f).
                            ``(ii) Cancer research institutions.--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 section 501(c)(3), is exempt from 
                        taxation under section 501(a), and is not a 
                        private foundation.
                            ``(iii) Nonprofit independent research 
                        institutions.--Any not-for-profit, 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 scientific or 
                        educational purposes.
                    ``(C) Qualified nonprofit medical institution.--For 
                purposes of this paragraph, the term `qualified 
                nonprofit medical institution' 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 incremental medical research 
        credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under this subsection shall be 
                the sum of--
                            ``(i) 1.65 percent of so much of the 
                        taxpayer's qualified medical research expenses 
                        for the taxable year as exceeds 1 percent of 
                        the gross receipts of the taxpayer 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 percent of such 
                        gross receipts, and
                            ``(iii) 2.75 percent of so much of such 
                        expenses as exceeds 2 percent of such receipts.
                    ``(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 expenses 
                shall be computed by excluding qualified medical 
                research expenses for which the increased credit 
                determined under this subsection is allowed;
                    ``(B) the base amount determined under paragraph 
                (1) of subsection (c) shall be computed by excluding 
                qualified medical research expenses for which the 
                increased credit determined under this subsection is 
                allowed from qualified research expenses for purposes 
                of that computation; and
                    ``(C) the alternative incremental credit determined 
                under subsection (c)(4) shall be computed by excluding 
                qualified medical research expenses for which the 
                increased credit determined 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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