[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2617 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                H. R. 2617

 To amend the Internal Revenue Code of 1986 to allow a tax credit for 
  development costs of encryption products with plaintext capability 
                     without the user's knowledge.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 27, 1999

Mr. Goss (for himself, Mr. Lewis of California, Mr. Bass, Mr. Gibbons, 
 and Mr. LaHood) 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 
  development costs of encryption products with plaintext capability 
                     without the user's knowledge.

    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 ``Tax Relief for Responsible 
Encryption Act of 1999''.

SEC. 2. CREDIT FOR DEVELOPMENT COSTS OF ENCRYPTION PRODUCTS WITH 
              PLAINTEXT CAPABILITY WITHOUT USER'S KNOWLEDGE.

    Subpart D of part IV of subchapter A of chapter 1 of the Internal 
Revenue Code of 1986 (relating to business related credits) is amended 
by adding at the end the following:

``SEC. 45D. DEVELOPMENT COSTS OF ENCRYPTION PRODUCTS WITH PLAINTEXT 
              CAPABILITY WITHOUT USER'S KNOWLEDGE.

    ``(a) General Rule.--For purposes of section 38, in the case of a 
developer of computer software, the encrypted product-plaintext 
capability credit determined under this section is an amount equal to 
15 percent of the taxpayer's encrypted product-plaintext development 
capability costs during the taxable year.
    ``(b) Encrypted Product-Plaintext Capability Development Costs.--
For purposes of this section--
            ``(1) In general.--The term `encrypted product-plaintext 
        capability development costs' means amounts paid or incurred in 
        connection with the development of computer software allowing 
        for a plaintext access capability without the user's knowledge 
        of such access at the time such access occurs through any 
        method, including the following methods:
                    ``(A) Access to fields where plaintext occurs.
                    ``(B) Key recovery.
                    ``(C) Provision of decryption information.
                    ``(D) Any other technique or methodology that may 
                be created that allows timely access to plaintext or 
                decryption information.
            ``(2) Plaintext access capability.--The term `plaintext 
        access capability' means a technique or methodology by which 
        encrypted information, data, or communications is converted to 
        plaintext or plainvoice, or by which access to decryption 
        information can be obtained.
            ``(3) Computer software.--The term `computer software' has 
        the meaning given to such term by section 197(e)(3)(B) (without 
        regard to the second sentence thereof).
    ``(c) Spread of Pre-Effective Date Costs.--For each of the taxable 
years beginning after December 31, 1991, and before January 1, 2000, in 
which the taxpayer has encrypted product-plaintext capability 
development costs, the aggregate amount of such costs shall be treated 
as a carryforward under section 39 beginning with the first taxable 
year beginning after December 31, 1999.''.

SEC. 3. CURRENT YEAR BUSINESS CREDIT CALCULATION.

    Section 38(b) of such Code (relating to current year business 
credit) is amended by striking ``plus'' at the end of paragraph (11), 
by striking the period at the end of paragraph (12) and inserting ``, 
plus'', and by adding at the end the following:
            ``(13) the encrypted product-plaintext capability credit 
        determined under section 45D(a).''.

SEC. 4. CREDIT ALLOWED AGAINST REGULAR AND MINIMUM TAX.

    (a) In General.--Subsection (c) of section 38 of such Code 
(relating to limitation based on amount of tax) is amended by 
redesignating paragraph (3) as paragraph (4) and by inserting after 
paragraph (2) the following new paragraph:
            ``(3) Special rules for encrypted product-plaintext 
        capability development credit.--
                    ``(A) In general.--In the case of the encrypted 
                product-plaintext capability credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to the credit, 
                        and
                            ``(ii) in applying paragraph (1) to the 
                        credit--
                                    ``(I) subparagraph (A) thereof 
                                shall not apply, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the encrypted 
                                product-plaintext capability 
                                development credit).
                    ``(B) Encrypted product-plaintext capability 
                development credit.--For purposes of this subsection, 
                the term `encrypted product-plaintext capability 
                development credit' means the credit allowable under 
                subsection (a) by reason of section 45D(a).''.
    (b) Conforming Amendment.--Subclause (II) of section 
38(c)(2)(A)(ii) of such Code is amended by inserting ``or the encrypted 
product-plaintext capability development credit'' after ``employment 
credit''.

SEC. 5. DISALLOWANCE OF DEDUCTION BY AMOUNT OF CREDIT.

    Section 280C of such Code (relating to certain expenses for which 
credits are allowable) is amended by adding at the end the following:
    ``(d) Credit for Encrypted Product-Plaintext Development 
Capability.--No deduction shall be allowed for that portion of the 
encrypted product-plaintext capability development costs (as defined in 
section 45D(b)) made during the taxable year that is equal to the 
amount of credit determined for the taxable year under section 45D(a). 
In the case of a corporation which is a member of a controlled group of 
corporations (within the meaning of section 52(a)) or a trade or 
business which is treated as being under common control with other 
trades or businesses (within the meaning of section 52(b)), this 
subsection shall be applied under rules prescribed by the Secretary 
similar to the rules applicable under subsections (a) and (b) of 
section 52.''.

SEC. 6. LIMITATION ON CARRYBACK.

    Subsection (d) of section 39 of such Code (relating to carryback 
and carryforward of unused credits) is amended by adding at the end the 
following:
            ``(9) No carryback of encrypted product-plaintext 
        capability development credit before effective date.--No amount 
        of unused business credit available under section 45D may be 
        carried back to a taxable year beginning before January 1, 
        2000.''.

SEC. 7. CLERICAL AMENDMENT.

    The table of sections for subpart D of part IV of subchapter A of 
chapter 1 of such Code is amended by inserting after the item relating 
to section 45C the following:

                              ``Sec. 45D. Development costs of 
                                        encryption products with 
                                        plaintext capability without 
                                        user's knowledge.''.

SEC. 8. EFFECTIVE DATE.

    The amendments made by this Act shall apply to taxable years 
beginning after December 31, 1999.
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