[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3505 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                H. R. 3505

  To amend the Internal Revenue Code of 1986 to provide for a medical 
                          research tax credit.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           November 18, 1999

 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 for a medical 
                          research tax credit.

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

SECTION 1. CREDIT FOR MEDICAL RESEARCH.

    (a) In General.--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 inserting after section 41 the following new 
section:

``SEC. 41A. CREDIT FOR MEDICAL RESEARCH EXPENSES.

    ``(a) General Rule.--For purposes of section 38, the medical 
research credit determined under this section for the taxable year 
shall be 30 percent of the excess (if any) of--
            ``(1) the qualified medical research expenses for the 
        taxable year, over
            ``(2) the medical research base period amount.
In determining the amount of credit, the special rules set forth in 
section 41(f) shall apply.
    ``(b) Qualified Medical Research Activities.--
            ``(1) Definitions.--The term `qualified medical research 
        activities' means research, including human clinical testing 
        and animal testing, 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 which occurs 
        before--
                    ``(A) 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,
                    ``(B) the date on which a license for such product 
                is approved under section 351 of the Public Health 
                Service Act, or
                    ``(C) the date (or latter of the dates) 
                classification of a device intended for human use is 
                made under section 513 of the Federal Food, Drug, and 
                Cosmetic Act or approval of a device intended for human 
                use is granted under section 515 of such Act.
The term `qualified medical research activities' includes preclinical 
and clinical testing occurring after the dates specified above in this 
subsection 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.
            ``(2) Exclusions.--The term `qualified medical research 
        activities' shall not include--
                    ``(A) any amount to the extent funded by any grant, 
                contract, or otherwise by another person, entity, 
                government, or instrumentality of a government,
                    ``(B) any such activities conducted outside the 
                United States and its possessions,
                    ``(C) except as otherwise permitted by paragraph 
                (1) of this subsection, any research conducted after 
                commercial production of the product,
                    ``(D) market research, testing, or development 
                (including advertising or promotion), or
                    ``(E) routine or ordinary testing or inspection for 
                quality control.
    ``(c) Other Definitions.--For purposes of this section--
            ``(1) Qualified medical research expenses.--The term 
        `qualified medical research expenses' means amounts paid or 
        incurred by the taxpayer for qualified medical research 
        activities which are qualified research expenses within the 
        meaning of section 41(b); except that paragraph (3)(A) of 
        section 41(b) shall be applied for purposes of this section by 
        substituting `100 percent' for `65 percent' with respect to 
        amounts paid to a qualified academic institution and by 
        substituting `85 percent' for `65 percent' with respect to 
        amounts paid to a qualified nonprofit medical institution.
            ``(2) Product.--The term `product' means any drug, 
        biologic, medical or diagnostic test, or medical device.
            ``(3) Qualified academic institution.--The term `qualified 
        academic institution' means any of the following institutions:
                    ``(A) Educational institution.--An 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).
                    ``(B) Cancer research institution.--A 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, or
                    ``(C) Nonprofit independent research 
                institutions.--A not-for-profit, independent research 
                institute organized and operated exclusively for 
                scientific or educational purposes and exempt from 
                taxation under section 501(c)(3).
            ``(4) Qualified nonprofit medical institution.--The term 
        `nonprofit qualified medical institution' means any not-for-
        profit organization which 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, and is 
        not a private foundation and which is not a qualified academic 
        institution.
            ``(5) Medical research base period amount.--The term 
        `medical research base period amount' means the average of the 
        taxpayer's qualified medical research expenses for the most 
        recent consecutive 5 taxable years of the taxpayer which ended 
        6 months before the beginning of the taxable year for which 
        such base period amount is determined.
                    ``(A) If the taxpayer has not paid or incurred 
                expenses for qualified medical research activities for 
                any year during the base period set forth above, the 
                base period amount shall be the average of the 
                taxpayer's expenses for qualified medical research 
                activities for the years during such period in which 
                the taxpayer did pay or incur expenses for qualified 
                medical research activities.
                    ``(B) For each of the first 2 taxable years in 
                which the taxpayer pays or incurs qualified medical 
                research expenses, the medical research base period 
                amount shall be 60 percent of the taxpayer's qualified 
                medical research expenses for the taxable year for 
                which such base period amount is determined.
    ``(d) Coordination With Credit for Increasing Research Expenditures 
and With Credit for Clinical Testing Expenses for Certain Drugs for 
Rare Diseases.--
            ``(1) No credit is allowable under this section for any 
        taxable year for which the taxpayer is allowed the credit under 
        section 41.
            ``(2) Any expenses for qualified medical research expenses 
        for a taxable year to which an election under this section 
        applies shall not be taken into account for purposes of 
        determining the credit allowable under section 45C for such 
        taxable year.''
    (b) General Business Credit.--Section 38(b) of such Code (relating 
to current business year 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 medical research expenses credit determined 
        under section 41A(a).''
    (c) Deduction for Unused Portion of Credit.--Section 196(c) of such 
Code (defining qualified business credits) is amended by striking 
``and'' at the end of paragraph (7), by striking the period at the end 
of paragraph (8) and inserting ``, and'', and by adding at the end the 
following:
            ``(9) the medical research expenses credit determined under 
        section 41A(a).''
    (d) Limitation on Deductions for Expenses for Which Credit Is 
Allowable.--Section 280C of such Code (relating to certain expenses for 
which credits are allowable) is amended by adding at the end the 
following new subsection:
    ``(d) Credit for Increasing Research Activities.--
            ``(1) In general.--No deduction shall be allowed for that 
        portion of the qualified medical research expenses (as defined 
        in section 41A(c)(1)) otherwise allowable as a deduction for 
        the taxable year which is equal to the amount of the credit 
        determined for such taxable year under section 41A(a).
            ``(2) Similar rule where taxpayer capitalizes rather than 
        deducts expenses.--If--
                    ``(A) the amount of the credit determined for the 
                taxable year under section 41A(a), exceeds, and
                    ``(B) the amount allowable as a deduction for such 
                taxable year for qualified medical research expenses 
                (determined without regard to paragraph (1)),
        the amount chargeable to capital account for the taxable year 
        for such expenses shall be reduced by the amount of such 
        excess.
            ``(3) Election of reduced credit.--
                    ``(A) In general.--In the case of any taxable year 
                for which an election is made under this paragraph--
                            ``(i) paragraphs (1) and (2) shall not 
                        apply, and
                            ``(ii) the amount of the credit under 
                        section 41A(a) shall be the amount determined 
                        under subparagraph (B).
                    ``(B) Amount of reduced credit.--The amount of 
                credit determined under this subparagraph for any 
                taxable year shall be the amount equal to the excess 
                of--
                            ``(i) the amount of credit determined under 
                        section 41A(a) without regard to this 
                        paragraph, over
                            ``(ii) the product of--
                                    ``(I) the amount described in 
                                clause (i), and
                                    ``(II) the maximum rate of tax 
                                under section 11(b)(1).
                    ``(C) Election.--An election under this paragraph 
                for any taxable year shall be made no later than the 
                time for filing the return of tax for such year 
                (including extensions), shall be made on such return, 
                and shall be made in such manner as the Secretary may 
                prescribe. Such an election, once made, shall be 
                irrevocable.
            ``(4) Controlled groups.--Paragraph (3) of subsection (b) 
        shall apply for purposes of this subsection.''
    (e) Conforming 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 41 the following:

                              ``Sec. 41A. Credit for medical research 
                                        expenses''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.
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