[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 515 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 515

To amend the Internal Revenue Code of 1986 to establish a permanent tax 
    incentive for research and development, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 12, 2001

Mr. Domenici (for himself, Mr. Bingaman, Mr. Frist, Mr. Lieberman, Ms. 
   Snowe, Mr. Rockefeller, Mr. Kennedy, and Mr. Bayh) 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 establish a permanent tax 
    incentive for research and development, 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.

    This Act may be cited as the ``Private Sector Research and 
Development Investment Act of 2001''.

SEC. 2. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) In General.--Section 41 of the Internal Revenue Code of 1986 
(relating to credit for increasing research activities) is amended by 
striking subsection (h).
    (b) Conforming Amendment.--Section 45C(b)(1) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (D).
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after June 30, 2001.

SEC. 3. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.

    (a) In General.--Section 41 of the Internal Revenue Code of 1986 
(relating to credit for increasing research activities), as amended by 
section 2, is amended by adding at the end the following new 
subsection:
    ``(h) Election of Alternative Incremental Credit.--
            ``(1) In general.--At the election of the taxpayer, the 
        credit under subsection (a)(1) shall be determined under this 
        section by taking into account the modifications provided by 
        this subsection.
            ``(2) Determination of base amount.--
                    ``(A) In general.--In computing the base amount 
                under subsection (c)--
                            ``(i) notwithstanding subsection (c)(3), 
                        the fixed-base percentage shall be equal to 80 
                        percent of the percentage which the aggregate 
                        qualified research expenses of the taxpayer for 
                        the base period is of the aggregate gross 
                        receipts of the taxpayer for the base period, 
                        and
                            ``(ii) the minimum base amount under 
                        subsection (c)(2) shall not apply.
                    ``(B) Start-up and small taxpayers.--In computing 
                the base amount under subsection (c), the gross 
                receipts of a taxpayer for any taxable year in the base 
                period shall be treated as at least equal to 
                $1,000,000.
                    ``(C) Base period.--For purposes of this 
                subsection, the base period is the 8-taxable year 
                period preceding the taxable year (or, if shorter, the 
                period the taxpayer (and any predecessor) has been in 
                existence).
            ``(3) Election.--An election under this subsection shall 
        apply to the taxable year for which made and all succeeding 
        taxable years unless revoked with the consent of the 
        Secretary.''.
    (b) Conforming Amendment.--Section 41(c) of the Internal Revenue 
Code of 1986 is amended by striking paragraph (4) and by redesignating 
paragraphs (5) and (6) as paragraphs (4) and (5), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 4. MODIFICATIONS TO CREDIT FOR BASIC RESEARCH.

    (a) Elimination of Incremental Requirement.--
            (1) In general.--Paragraph (1) of section 41(e) of the 
        Internal Revenue Code of 1986 (relating to credit allowable 
        with respect to certain payments to qualified organizations for 
        basic research) is amended to read as follows:
            ``(1) In general.--The amount of basic research payments 
        taken into account under subsection (a)(2) shall be determined 
        in accordance with this subsection.''.
            (2) Conforming amendments.--
                    (A) Section 41(a)(2) of such Code is amended by 
                striking ``determined under subsection (e)(1)(A)'' and 
                inserting ``for the taxable year''.
                    (B) Section 41(e) of such Code is amended by 
                striking paragraphs (3), (4), and (5) and by 
                redesignating paragraphs (6) and (7) as paragraphs (3) 
                and (4), respectively.
                    (C) Section 41(e)(4) of such Code, as redesignated 
                by subparagraph (B), is amended by striking 
                subparagraph (B) and by redesignating subparagraphs 
                (C), (D), and (E) as subparagraphs (B), (C), and (D), 
                respectively.
                    (D) Clause (i) of section 170(e)(4)(B) of such Code 
                is amended by striking ``section 41(e)(6)'' and 
                inserting ``section 41(e)(3)''.
    (b) Basic Research.--
            (1) Specific commercial objective.--Section 41(e)(4) of the 
        Internal Revenue Code of 1986 (relating to definitions and 
        special rules), as redesignated by subsection (a)(2)(B), is 
        amended by adding at the end the following new subparagraph:
                    ``(E) Specific commercial objective.--For purposes 
                of subparagraph (A), research shall not be treated as 
                having a specific commercial objective if the results 
                of such research are to be published in a timely manner 
                as to be available to the general public prior to their 
                use for a commercial purpose.''.
            (2) Exclusions from basic research.--Clause (ii) of section 
        41(e)(4)(A) of such Code (relating to definitions and special 
        rules), as redesignated by subsection (a), is amended to read 
        as follows:
                            ``(ii) basic research in the arts and 
                        humanities.''.
    (c) Expansion of Credit to Research Done at Federal Laboratories.--
Section 41(e)(3) of the Internal Revenue Code of 1986, as redesignated 
by subsection (a), is amended by adding at the end the following new 
subparagraph:
                    ``(E) Federal laboratories.--Any organization which 
                is a Federal laboratory (as defined in section 4(6) of 
                the Stevenson-Wydler Technology Innovation Act of 1980 
                (15 U.S.C. 3703(6)).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 5. CREDIT FOR EXPENSES ATTRIBUTABLE TO CERTAIN COLLABORATIVE 
              RESEARCH CONSORTIA.

    (a) Credit for Expenses Attributable to Certain Collaborative 
Research Consortia.--Subsection (a) of section 41 of the Internal 
Revenue Code of 1986 (relating to credit for increasing research 
activities) is amended by striking ``and'' at the end of paragraph (1), 
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 amounts paid or incurred by the 
        taxpayer in carrying on any trade or business of the taxpayer 
        during the taxable year (including as contributions) to a 
        qualified research consortium.''.
    (b) Qualified Research Consortium Defined.--Subsection (f) of 
section 41 of the Internal Revenue Code of 1986 is amended by adding at 
the end the following new paragraph:
            ``(6) Qualified research consortium.--The term `qualified 
        research consortium' means any organization--
                    ``(A) which is--
                            ``(i) described in section 501(c)(3) and is 
                        exempt from tax under section 501(a) and is 
                        organized and operated primarily to conduct 
                        scientific or engineering research, or
                            ``(ii) organized and operated primarily to 
                        conduct scientific or engineering research in 
                        the public interest (within the meaning of 
                        section 501(c)(3)),
                    ``(B) which is not a private foundation,
                    ``(C) to which at least 5 unrelated persons paid or 
                incurred during the calendar year in which the taxable 
                year of the organization begins amounts (including as 
                contributions) to such organization for scientific or 
                engineering research, and
                    ``(D) to which no single person paid or incurred 
                (including as contributions) during such calendar year 
                an amount equal to more than 50 percent of the total 
                amounts received by such organization during such 
                calendar year for scientific or engineering research.
        All persons treated as a single employer under subsection (a) 
        or (b) of section 52 shall be treated as related persons for 
        purposes of subparagraph (C) and as a single person for 
        purposes of subparagraph (D).''.
    (c) Conforming Amendment.--Paragraph (3) of section 41(b) of the 
Internal Revenue Code of 1986 is amended by striking subparagraph (C).
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 6. IMPROVEMENT TO CREDIT FOR SMALL BUSINESSES AND RESEARCH 
              PARTNERSHIPS.

    (a) Assistance to Small and Start-Up Businesses.--The Secretary of 
the Treasury or the Secretary's delegate shall take such actions as are 
appropriate to--
            (1) provide assistance to small and start-up businesses in 
        complying with the requirements of section 41 of the Internal 
        Revenue Code of 1986, and
            (2) reduce the costs of such compliance.
    (b) Repeal of Limitation on Contract Research Expenses Paid to 
Small Businesses, Universities, and Federal Laboratories.--Section 
41(b)(3) of the Internal Revenue Code of 1986, as amended by section 
5(c), is amended by adding at the end the following new subparagraph:
                    ``(C) Amounts paid to eligible small businesses, 
                universities, and federal laboratories.--
                            ``(i) In general.--In the case of amounts 
                        paid by the taxpayer to an eligible small 
                        business, an institution of higher education 
                        (as defined in section 3304(f)), or an 
                        organization which is a Federal laboratory (as 
                        defined in subsection (e)(3)(E)), subparagraph 
                        (A) shall be applied by substituting `100 
                        percent' for `65 percent'.
                            ``(ii) Eligible small business.--For 
                        purposes of this subparagraph, the term 
                        `eligible small business' means a small 
                        business with respect to which the taxpayer 
                        does not own (within the meaning of section 
                        318) 50 percent or more of--
                                    ``(I) in the case of a corporation, 
                                the outstanding stock of the 
                                corporation (either by vote or value), 
                                and
                                    ``(II) in the case of a small 
                                business which is not a corporation, 
                                the capital and profits interests of 
                                the small business.
                            ``(iii) Small business.--For purposes of 
                        this subparagraph--
                                    ``(I) In general.--The term `small 
                                business' means, with respect to any 
                                calendar year, any person if the annual 
                                average number of employees employed by 
                                such person during either of the 2 
                                preceding calendar years was 500 or 
                                fewer. For purposes of the preceding 
                                sentence, a preceding calendar year may 
                                be taken into account only if the 
                                person was in existence throughout the 
                                year.
                                    ``(II) Startups, controlled groups, 
                                and predecessors.--Rules similar to the 
                                rules of subparagraphs (B) and (D) of 
                                section 220(c)(4) shall apply for 
                                purposes of this clause.''.
    (c) Credit for Patent Filing Fees.--Section 41(a) of the Internal 
Revenue Code of 1986, as amended by section 5(a), is amended by 
striking ``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``, and'', and by adding at the 
end the following new paragraph:
            ``(4) 20 percent of the patent filing fees paid or incurred 
        by a small business (as defined in subsection (b)(3)(C)(iii)) 
        to the United States or to any foreign government in carrying 
        on any trade or business.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.
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