[Congressional Record Volume 144, Number 88 (Tuesday, July 7, 1998)]
[Senate]
[Pages S7578-S7579]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BINGAMAN:
  S. 2268. A bill to amend the Internal Revenue Code of 1986 to improve 
the research and experimentation tax credit, and for other purposes; to 
the Committee on Finance.


          research and experimentation tax credit legislation

  Mr. BINGAMAN. Mr. President, last Tuesday, June 30, 1998, the 
research and experimentation tax credit expired, once again. Once 
again, U.S. industry was left in a state of uncertainty as to how to 
value its investments in research and development, which are really 
investments in the economic future of our country. Today, I am 
introducing a bill to extend permanently and improve the research and 
experimentation tax credit. It is the fruit of analysis from the staff 
of the Joint Economic Committee, of which I am the ranking member. It 
is also the product of consultations with a spectrum of groups who 
share my concern for our Nation's future scientific and technological 
strength. The bill would, briefly, make the existing R&E tax credit 
permanent, improve the economic efficiency and practicality of the 
alternative incremental credit, convert the existing basic research 
credit into a flat credit, and accompany the basic research credit 
(which is aimed mostly at research in universities) with a new credit 
for nonprofit research consortia. The bill also makes a number of 
technical and clarifying adjustments to the basic research credit, so 
that it will be easier to use.
  I am not the first Member of this body to propose to make the R&E tax 
credit permanent, or to propose improvements in its functioning. I plan 
to work with other similarly-minded Senators in the days to come to see 
if we can construct an even broader coalition to make these permanent 
improvements in the R&E tax credit a reality this year.
  I ask unanimous consent that the text of this bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2268

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

     SECTION 1. 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).

     SEC. 2. IMPROVED ALTERNATIVE INCREMENTAL CREDIT.

       (a) In General.--Section 41 of the Internal Revenue Code of 
     1986 (as amended by section 1 of this Act) 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 
     subsection 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-based 
     percentage shall be equal to 85 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

[[Page S7579]]

       ``(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) Qualified research.--
       ``(A) In general.--Notwithstanding subsection (d), the term 
     `qualified research' means research with respect to which 
     expenditures are treated as research and development costs 
     for the purposes of a report or statement concerning such 
     taxable year--
       ``(i) to shareholders, partners, or other proprietors, or 
     to beneficiaries, or
       ``(ii) for credit purposes.

     Such term shall not include any research described in 
     subparagraph (F) of (H) of subsection (d)(4).
       ``(B) Financial accounting standards.--
       ``(i) In general.--Subparagraph (A) shall only apply to the 
     extent that the treatment of expenditures as research and 
     development costs is consistent with the Statement of 
     Financial Accounting Standards No. 2 Accounting for Research 
     and Development Costs.
       ``(ii) Significant changes.--If the Secretary determines 
     that there is any significant change in the accounting 
     standards described in clause (i) after the date of enactment 
     of this subsection--
       ``(I) the Secretary shall notify the Committee on Ways and 
     Means of the House of Representatives and the Committee on 
     Finance of the Senate of such change, and
       ``(II) such change shall not be taken into account for any 
     taxable year beginning before the date which is 1 year after 
     the date of notice under subclause (I).
       ``(C) Transition rule.--At the election of the taxpayer, 
     this paragraph shall not apply in computing the base amount 
     for any taxable year in the base period beginning before 
     January 1, 1999.
       ``(4) 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) Assistance to Small and Start-Up Businesses.--The 
     Secretary of the Treasury or his 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.
       (c) Conforming Amendment.--Section 41(c) of the Internal 
     Revenue Code of 1986 is amended by striking paragraph (4) and 
     redesignating paragraphs (5) and (6) as paragraphs (4) and 
     (5), respectively.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 3. 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 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) 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) is amended by adding at the end the following 
     new subparagraph:
       ``(F) Specific commercial objective.--For purposes of 
     subparagraph (A), research shall not be treated as having a 
     specific commercial objective if all results of such research 
     are to be published in such a manner as to be available to 
     the general public prior to their use for a commercial 
     purpose.''
       (2) Exclusions from basic research.--Section 41(e)(4)(A) of 
     the Internal Revenue Code of 1986 (as redesignated by 
     subsection (a)) is amended by striking clause (ii) and 
     inserting the following:
       ``(ii) basic research in the arts or humanities.''
       (c) Expansion of Credit to Research at Federal 
     Laboratories.--Section 41(e)(3) of the Internal Revenue Code 
     of 1986 (as redesignated by subsection (a)(2)(C) of this 
     section) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Federal laboratories.--Any organization which is a 
     federal laboratory within the meaning of that term 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, 
     1998.

     SEC. 4. 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--
       (1) striking ``and'' at the end of paragraph (1);
       (2) striking the period at the end of paragraph (2) and 
     inserting ``, and''; and
       (3) adding at the end the following new paragraph:
       ``(3) 20 percent of the amounts paid or incurred during the 
     taxable year (including as contributions) to a qualified 
     research consortium.''
       (b) Qualified Research Consortium Defined.--Subsection (f) 
     of such Code is amended by adding at the end the following 
     new paragraph:
       ``(6) Qualified research consortium.--The term `qualified 
     research consortium' means any organization which--
       ``(A) is described in section 501(c)(3) and is exempt from 
     tax under section 501(a).
       ``(B) is organized and operated primarily to conduct 
     scientific or engineering research,
       ``(C) is not a private foundation,
       ``(D) to which at least 15 unrelated persons paid or 
     incurred (including as contributions), during the calendar 
     year in which the taxable year of the organization begins, 
     amounts to such organization for scientific or engineering 
     research,
       ``(E) to which no 3 unrelated persons paid or incurred 
     (including as contributions) during such calendar year more 
     than 50 percent of the total amounts received by such 
     organization during such calendar year for scientific or 
     engineering research, and
       ``(F) to which no single person paid or incurred (including 
     as contributions) more than 25 percent of such total amounts.

     All persons treated as a single employer under subsection (a) 
     or (b) of section 52 shall be treated as related persons for 
     purposes of subparagraphs (D) and (E), and as a single person 
     for purposes of subparagraph (F).''
       (c) Conforming Amendment.--Paragraph (3) of section 41(b) 
     of such Code is amended by striking subparagraph (C).
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.
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