HR 1137 IH

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

March 20, 2001

Mrs. WILSON (for herself, Mr. SKEEN, Mr. CROWLEY, Mr. HOLT, Mr. PAUL, and Ms. HOOLEY of Oregon) introduced the following bill; which was referred to the Committee on Ways and Means

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 the date of the enactment of this Act.

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, 2000.

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, 2000.

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, 2000.

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, 2000.

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