Text: H.R.4542 — 105th Congress (1997-1998)All Information (Except Text)

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Introduced in House (09/10/1998)

 
[Congressional Bills 105th Congress]
[From the U.S. Government Printing Office]
[H.R. 4542 Introduced in House (IH)]







105th CONGRESS
  2d Session
                                H. R. 4542

   To amend the Internal Revenue Code of 1986 to reduce the marriage 
   penalty, to encourage health coverage, to allow the nonrefundable 
  personal credits against the alternative minimum tax, and to extend 
   permanently certain expiring provisions, and to amend the Social 
           Security Act to increase the earnings limitation.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 10, 1998

  Mrs. Johnson of Connecticut (for herself, Mr. Sam Johnson of Texas, 
Mrs. Chenoweth, Ms. Granger, Mr. Hostettler, Mr. Lewis of Kentucky, Mr. 
   Gibbons, Mr. Hall of Texas, Mrs. Kelly, Mr. Upton, Mr. Pombo, Mr. 
  Knollenberg, Mr. Coble, Mr. Riggs, Mr. English of Pennsylvania, Mr. 
Kingston, Mr. Shaw, Mr. Bass, Mr. Peterson of Pennsylvania, Mr. Pitts, 
   Mr. Skeen, Mr. Lewis of California, Mr. McKeon, Mr. Sessions, Mr. 
 Rohrabacher, Mr. Packard, Mrs. Wilson, Mr. Manzullo, Mr. Redmond, Mr. 
  Sterns, Mr. Quinn, Mr. Gilman, Mr. Horn, Mr. Castle, Mr. Leach, Mr. 
 Camp, Mr. Boehlert, Mr. LoBiondo, Mr. Shays, Mr. Kolbe, Mr. Fossella, 
and Mr. Foley) 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 reduce the marriage 
   penalty, to encourage health coverage, to allow the nonrefundable 
  personal credits against the alternative minimum tax, and to extend 
   permanently certain expiring provisions, and to amend the Social 
           Security Act to increase the earnings limitation.

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

SECTION 1. SHORT TITLE.

    (a) Short Title.--This Act may be cited as the ``Tax Relief for 
Working Americans Act of 1998''.
    (b) Table of Contents.--

Sec. 1. Short title.
          TITLE I--PROVISIONS PRIMARILY AFFECTING INDIVIDUALS

Sec. 101. Basic standard deduction for married individuals to be twice 
                            the deduction for unmarried individuals.
Sec. 102. Full deduction for health insurance costs of individuals not 
                            eligible to participate in employer-
                            subsidized health plans.
Sec. 103. Nonrefundable personal credits allowed against alternative 
                            minimum tax.
Sec. 104. Adjustment in monthly exempt amount for purposes of the 
                            social security earnings test.
          TITLE II--PROVISIONS PRIMARILY AFFECTING BUSINESSES

  Subtitle A--Certain Expiring Provisions Modified and Made Permanent

Sec. 201. Research credit.
Sec. 202. Work opportunity credit.
Sec. 203. Contributions of stock to private foundations.
Sec. 204. Exemption for active financing income.
Subtitle B--Credit for Clinical Testing Research Expenses Attributable 
to Certain Qualified Academic Institutions Including Teaching Hospitals

Sec. 211. Credit for clinical testing research expenses attributable to 
                            certain qualified academic institutions 
                            including teaching hospitals.

          TITLE I--PROVISIONS PRIMARILY AFFECTING INDIVIDUALS

SEC. 101. BASIC STANDARD DEDUCTION FOR MARRIED INDIVIDUALS TO BE TWICE 
              THE DEDUCTION FOR UNMARRIED INDIVIDUALS.

    (a) In General.--Paragraph (2) of section 63(c) of the Internal 
Revenue Code of 1986 (relating to standard deduction) is amended--
            (1) by striking ``$5,000'' in subparagraph (A) and 
        inserting ``twice the dollar amount in effect under 
        subparagraph (C) for the taxable year'',
            (2) by adding ``or'' at the end of subparagraph (B),
            (3) by striking ``in the case of'' and all that follows in 
        subparagraph (C) and inserting ``in any other case.'', and
            (4) by striking subparagraph (D).
    (b) Technical Amendment.--Subparagraph (B) of section 1(f)(6) of 
such Code is amended by striking ``(other than with'' and all that 
follows through ``shall be applied'' and inserting ``(other than 
sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 102. FULL DEDUCTION FOR HEALTH INSURANCE COSTS OF INDIVIDUALS NOT 
              ELIGIBLE TO PARTICIPATE IN EMPLOYER-SUBSIDIZED HEALTH 
              PLANS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions) is amended by redesignating section 222 as section 223 and 
by inserting after section 221 the following new section:

``SEC. 222. HEALTH INSURANCE COSTS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to the amount paid during the 
taxable year for insurance which constitutes medical care for the 
taxpayer, his spouse, and dependents.
    ``(b) Limitations.--
            ``(1) Other coverage.--Subsection (a) shall not apply to 
        any taxpayer for any calendar month for which the taxpayer is 
        eligible to participate in any subsidized health plan 
        maintained by any employer of the taxpayer or of the spouse of 
        the taxpayer. The preceding sentence shall be applied 
        separately with respect to--
                    ``(A) plans which include primarily coverage for 
                qualified long-term care services (as defined in 
                section 7702B(c)) or are qualified long-term care 
                insurance contracts (as defined in section 7702B(b)), 
                and
                    ``(B) plans which do not include such coverage and 
                are not such contracts.
            ``(2) Long-term care premiums.--In the case of a qualified 
        long-term care insurance contract (as defined in section 
        7702B(b)), only eligible long-term care premiums (as defined in 
        section 213(d)(10)) shall be taken into account under 
        subsection (a).
            ``(3) Medicare premiums.--Subsection (a) shall not apply to 
        amounts paid as premiums under part B of title XVIII of the 
        Social Security Act.
    ``(c) Special Rules.--
            ``(1) Coordination with medical deduction, etc.--Any amount 
        paid by a taxpayer for insurance to which subsection (a) 
        applies shall not be taken into account in computing the amount 
        allowable to the taxpayer as a deduction under section 213(a).
            ``(2) Deduction not allowed for self-employment tax 
        purposes.--The deduction allowable by reason of this section 
        shall not be taken into account in determining an individual's 
        net earnings from self-employment (within the meaning of 
        section 1402(a)) for purposes of chapter 2.''
    (b) Conforming Amendments.--
            (1) Subsection (l) of section 162 of such Code is hereby 
        repealed.
            (2) Subsection (a) of section 62 of such Code is amended by 
        inserting after paragraph (17) the following new paragraph:
            ``(18) Health insurance costs of certain individuals.--The 
        deduction allowed by section 222.''
            (3) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following new items:

                              ``Sec. 222. Health insurance costs.
                              ``Sec. 223. Cross reference.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 103. NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST ALTERNATIVE 
              MINIMUM TAX.

    (a) In General.--Subsection (a) of section 26 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(a) Limitation Based on Amount of Tax.--The aggregate amount of 
credits allowed by this subpart for the taxable year shall not exceed 
the sum of--
            ``(1) the taxpayer's regular tax liability for the taxable 
        year, and
            ``(2) the tax imposed for the taxable year by section 
        55(a).''.
    (b) Conforming Amendment.--Subsection (d) of section 24 of such 
Code is amended by striking paragraph (2) and by redesignating 
paragraph (3) as paragraph (2).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

SEC. 104. ADJUSTMENT IN MONTHLY EXEMPT AMOUNT FOR PURPOSES OF THE 
              SOCIAL SECURITY EARNINGS TEST.

    (a) Increase in Monthly Exempt Amount for Individuals Who Have 
Attained Retirement Age.--Section 203(f)(8)(D) of the Social Security 
Act (42 U.S.C. 403(f)(8)(D)) is amended--
            (1) in clause (iii), by inserting ``and'' at the end; and
            (2) by striking clauses (iv) through (vii) and inserting 
        the following new clause:
                            ``(iv) for each month of any taxable year 
                        ending after 1998 and before 2000, $2,500.''.
    (b) Conforming Amendments.--
            (1) Section 203(f)(8)(B)(ii) of such Act (42 U.S.C. 
        403(f)(8)(B)(ii)) is amended--
                    (A) by striking ``after 2001 and before 2003'' and 
                inserting ``after 1998 and before 2000''; and
                    (B) in subclause (II), by striking ``2000'' and 
                inserting ``1997''.
            (2) The second sentence of section 223(d)(4)(A) of such Act 
        (42 U.S.C. 423(d)(4)(A)) is amended by inserting ``and section 
        104 of the Tax Relief for Working Americans Act of 1998'' after 
        ``1996''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to taxable years beginning after 1998.

          TITLE II--PROVISIONS PRIMARILY AFFECTING BUSINESSES

  Subtitle A--Certain Expiring Provisions Modified and Made Permanent

SEC. 201. RESEARCH CREDIT.

    (a) Credit Made Permanent.--
            (1) In general.--Section 41 of the Internal Revenue Code of 
        1986 (relating to credit for increasing research activities) is 
        amended by striking subsection (h).
            (2) Conforming amendment.--Paragraph (1) section 45C(b) of 
        such Code is amended by striking subparagraph (D).
            (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after June 30, 1998.
    (b) Increase in Percentages Under Alternative Incremental Credit.--
            (1) In general.--Subparagraph (A) of section 41(c)(4) of 
        such Code is amended--
                    (A) by striking ``1.65 percent'' and inserting 
                ``2.65 percent'',
                    (B) by striking ``2.2 percent'' and inserting ``3.2 
                percent'', and
                    (C) by striking ``2.75 percent'' and inserting 
                ``3.75 percent''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after June 30, 1998.

SEC. 202. WORK OPPORTUNITY CREDIT.

    (a) Credit Made Permanent.--
            (1) In general.--Subsection (c) of section 51 of the 
        Internal Revenue Code of 1986 is amended by striking paragraph 
        (4).
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to individuals who begin work for the employer 
        after June 30, 1998.
    (b) Credit Allowed to Tax-Exempt Organizations.--
            (1) In general.--Chapter 25 of such Code (relating to 
        general provisions relating to employment taxes) is amended by 
        inserting after section 3510 the following new section:

``SEC. 3511. TREATMENT OF WORK OPPORTUNITY WAGES AS PAYMENT OF 
              EMPLOYMENT TAX LIABILITY.

    ``(a) General Rule.--For purposes of this title, the amount equal 
to the work opportunity credit amount with respect to any wages paid 
for any calendar quarter by an eligible tax-exempt employer shall be 
treated as a payment by such employer of such employer's employment tax 
liability for such calendar quarter.
    ``(b) Work Opportunity Credit Amount.--For purposes of this 
section, the work opportunity credit amount for any calendar quarter is 
the amount of the credit determined under section 51 (relating to work 
opportunity credit) in accordance with the following:
            ``(1) Applicable percentages.--
                    ``(A) Individuals performing at least 400 hours of 
                services.--In the case of an individual who has 
                completed at least 400 hours of services performed for 
                the eligible tax-exempt employer, subsection (a) of 
                section 51 shall be applied by substituting `30 
                percent' for `40 percent'.
                    ``(B) Quarterly estimate of annual hours of 
                services to be performed.--For purposes of subparagraph 
                (A) and section 51(i)(3), in lieu of the hours of 
                services actually performed by an individual during any 
                of the first 3 quarters of a calendar year, an employer 
                may make an estimate of the hours of services an 
                individual is reasonably expected to perform for the 
                employer in such calendar year. The employer shall 
                adjust the deemed payments in accordance with 
                subsection (c) for the last quarter of such calendar 
                year to reflect the hours of services actually 
                performed by such individual in such calendar year.
            ``(2) Eligible tax-exempt employer.--The term `eligible 
        tax-exempt employer' means any organization which is exempt 
        from tax under subtitle A other than--
                    ``(A) any governmental unit, and
                    ``(B) any agency or instrumentality of a 
                governmental unit.
    ``(c) Coordination With Depository Requirements.--
            ``(1) In general.--Any employer who is entitled to treat 
        any amount as a payment under subsection (a) for any calendar 
        quarter may reduce, in such manner as the Secretary may by 
        regulations prescribe, by a like amount, the amount otherwise 
        required to be deposited during such quarter by reason of the 
        employment tax liability of such employer.
            ``(2) Quarterly determinations.--The amount of reduction 
        permitted under paragraph (1) for any calendar quarter shall be 
        based on a separate estimate for such quarter of the amount of 
        deemed payments to which the employer reasonably expects to be 
        entitled under subsection (a) for the calendar year which 
        includes such quarter and shall be properly adjusted (under 
        regulations prescribed by the Secretary) to reflect the amount 
        by which prior reductions under subsection (a) during such 
        calendar year were in excess of, or less than, the amounts 
        which would be proper under such estimate.
            ``(3) Year-end adjustments.--
                    ``(A) Excess of deemed payments allowable over 
                depository benefit claimed.--If the amount of deemed 
                payments to which an employer is entitled under 
                subsection (a) for any calendar year exceeds the amount 
                claimed by the employer under paragraph (1) during such 
                year, such excess shall be treated for purposes of this 
                title as an overpayment made by such employer. For 
                purposes of determining interest, such overpayment 
                shall be treated as made on January 31 of the following 
                calendar year.
                    ``(B) Depository benefit claimed exceeds deemed 
                payment allowable.--If the amount claimed by the 
                employer under paragraph (1) during the calendar year 
                exceeds the amount of deemed payments to which such 
                employer is entitled under subsection (a) for such 
                year, such excess shall be treated for purposes of this 
                title as an underpayment of the tax imposed by this 
                chapter for such calendar year. For purposes of 
                determining interest, such underpayment shall be 
                allocated ratably among the calendar quarters in such 
                year (or in such other manner as the Secretary may by 
                regulations prescribe).
    ``(d) Payment Treated as Made on Due Date.--Notwithstanding 
subsection (c), for purposes of determining interest, any deemed 
payment under subsection (a) for any calendar quarter shall be treated 
as made on the due date for the return for such quarter.
    ``(e) Employment Tax Liability.--For purposes of this section, the 
term `employment tax liability' means liability for the taxes imposed 
by chapters 21 and 24.
    ``(f) Social Security Trust Funds.--This section shall not be 
construed to affect amounts appropriated under sections 201 and 1817(a) 
of the Social Security Act.''
            (2) Clerical amendment.--The table of sections for chapter 
        25 of such Code is amended by adding at the end the following 
        new item:

                              ``Sec. 3511. Treatment of work 
                                        opportunity wages as payment of 
                                        employment tax liability.''
            (3) Effective date.--The amendments made by this subsection 
        shall apply to individuals who begin work for the employer 
        after the date of the enactment of this Act.

SEC. 203. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Paragraph (5) of section 170(e) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (D).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to contributions made after June 30, 1998.

SEC. 204. EXEMPTION FOR ACTIVE FINANCING INCOME.

    (a) Exemption From Foreign Personal Holding Company Income.--
Section 954 of the Internal Revenue Code of 1986 (as amended by 
subsection (d)) is amended by adding at the end the following new 
subsection:
    ``(h) Special Rule for Income Derived in the Active Conduct of 
Insurance Businesses and Banking, Financing, or Similar Businesses.--
            ``(1) In general.--For purposes of subsection (c)(1), 
        foreign personal holding company income shall not include 
        income which is--
                    ``(A) derived in the active conduct by a controlled 
                foreign corporation of a banking, financing, or similar 
                business, but only if--
                            ``(i) the corporation is predominantly 
                        engaged in the active conduct of such business, 
                        and
                            ``(ii) such income is derived from 
                        transactions--
                                    ``(I) with customers located within 
                                the country under the laws of which the 
                                corporation is created or organized, or
                                    ``(II) with customers not described 
                                in subclause (I), but only if employees 
                                of the corporation which are located in 
                                the country under the laws of which the 
                                corporation is created or organized (or 
                                in the case of a qualified business 
                                unit described in section 989(a) which 
                                both maintains its principal office and 
                                conducts substantial business activity 
                                in a country, employees of such unit 
                                which are located in such country) 
                                materially participate in such 
                                transaction,
                    ``(B) received from a customer by a controlled 
                foreign corporation which is a qualifying insurance 
                company for the issuing or reinsuring of any insurance 
                or annuity contract, but only if the customer is 
                located in the country under the laws of which the 
                controlled foreign corporation is created or organized,
                    ``(C) received from a person other than a related 
                person (within the meaning of subsection (d)(3)) and 
                derived from the investments made by a qualifying 
                insurance company of its reserves or of 80 percent of 
                its unearned premiums (as both are determined in the 
                manner prescribed under paragraph (4)), or
                    ``(D) received from a person other than a related 
                person (within the meaning of subsection (d)(3)) and 
                derived from investments made by a qualifying insurance 
                company of an amount of its assets equal to--
                            ``(i) in the case of property, casualty, or 
                        health insurance contracts, one-third of its 
                        premiums earned on such insurance contracts 
                        during the taxable year (as defined in section 
                        832(b)(4)), and
                            ``(ii) in the case of life insurance or 
                        annuity contracts, 10 percent of the reserves 
                        described in subparagraph (B) for such 
                        contracts.
        Subparagraphs (C) and (D) shall not apply to income allocable 
        to any contract to which subparagraph (B) does not apply 
        (determined after applying paragraph (6)(D)(ii)).
            ``(2) Predominantly engaged.--For purposes of paragraph 
        (1)(A), a controlled foreign corporation shall be deemed 
        predominantly engaged in the active conduct of a banking, 
        financing, or similar business only if--
                    ``(A) more than 70 percent of its gross income is 
                derived from such business from transactions described 
                in subclause (I) or (II) of paragraph (1)(A)(ii), or
                    ``(B) the corporation is--
                            ``(i) engaged in the active conduct of a 
                        banking business and is an institution licensed 
                        to do business as a bank in the United States 
                        (or is any other corporation not so licensed 
                        which is specified by the Secretary in 
                        regulations), or
                            ``(ii) engaged in the active conduct of a 
                        securities business and is registered as a 
                        securities broker or dealer under section 15(a) 
                        of the Securities Exchange Act of 1934 or is 
                        registered as a Government securities broker or 
                        dealer under section 15C(a) of such Act (or is 
                        any other corporation not so registered which 
                        is specified by the Secretary in regulations).
            ``(3) Principles for determining insurance income.--Except 
        as provided by the Secretary, for purposes of subparagraphs (C) 
        and (D) of paragraph (1)--
                    ``(A) in the case of any contract which is a 
                separate account-type contract (including any variable 
                contract not meeting the requirements of section 817), 
                income credited under such contract shall be allocable 
                only to such contract, and
                    ``(B) income not allocable under subparagraph (A) 
                shall be allocated ratably among contracts not 
                described in subparagraph (A).
            ``(4) Methods for determining unearned premiums and 
        reserves.--For purposes of paragraph (1)(C)--
                    ``(A) Property and casualty contracts.--The 
                unearned premiums and reserves of a qualifying 
                insurance company with respect to property, casualty, 
                or health insurance contracts shall be determined using 
                the same methods and interest rates which would be used 
                if such company were subject to tax under subchapter L.
                    ``(B) Life insurance and annuity contracts.--The 
                amount of the reserve of a qualifying insurance company 
                for any life insurance or annuity contract shall be 
                equal to the greater of--
                            ``(i) the net surrender value of such 
                        contract (as defined in section 807(e)(1)(A)), 
                        or
                            ``(ii) the reserve determined under 
                        paragraph (5).
                    ``(C) Limitation on reserves.--In no event shall 
                the reserve determined under this paragraph for any 
                contract as of any time exceed the amount which would 
                be taken into account with respect to such contract as 
                of such time in determining foreign statement reserves 
                (less any catastrophe, deficiency, or similar 
                reserves).
            ``(5) Amount of reserve.--The amount of the reserve 
        determined under this paragraph with respect to any contract 
        shall be determined in the same manner as it would be 
        determined if the qualifying insurance company were subject to 
        tax under
        subchapter L, except that in applying such subchapter--
                    ``(A) the interest rate determined for the foreign 
                country in which such company is created or organized 
                and which, except as provided by the Secretary, is 
                calculated in the same manner as the Federal mid-term 
                rate under section 1274(d) shall be substituted for the 
                applicable Federal interest rate,
                    ``(B) the highest assumed interest rate permitted 
                to be used in determining foreign statement reserves 
                shall be substituted for the prevailing State assumed 
                interest rate, and
                    ``(C) tables for mortality and morbidity which 
                reasonably reflect the current mortality and morbidity 
                risks in the foreign country shall be substituted for 
                the mortality and morbidity tables otherwise used for 
                such subchapter.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Qualifying insurance company.--The term 
                `qualifying insurance company' means any entity which--
                            ``(i) is subject to regulation as an 
                        insurance company by the country under the laws 
                        of which the entity is created or organized, 
                        and
                            ``(ii) is engaged in the active conduct of 
                        an insurance business and would be subject to 
                        tax under subchapter L if it were a domestic 
                        corporation.
                    ``(B) Life insurance or annuity contract.--For 
                purposes of this section and section 953, the 
                determination of whether a contract issued by a 
                controlled foreign corporation is a life insurance 
                contract or an annuity contract shall be made without 
                regard to sections 72(s), 101(f), 817(h), and 7702 if--
                            ``(i) such contract is regulated as a life 
                        insurance or annuity contract by the country 
                        under the laws of which the corporation is 
                        created or organized, and
                            ``(ii) no policyholder, insured, annuitant, 
                        or beneficiary with respect to the contract is 
                        a United States person.
                    ``(C) Noncancellable accident and health insurance 
                contracts.--A noncancellable accident and health 
                insurance contract shall be treated for purposes of 
                this subsection in the same manner as a life insurance 
                contract except that paragraph (4)(B)(i) shall not 
                apply.
                    ``(D) Located.--
                            ``(i) In general.--The determination of 
                        where a customer is located shall be made under 
                        rules prescribed by the Secretary.
                            ``(ii) Special rule for qualified business 
                        units.--Gross income derived by a corporation's 
                        qualified business unit (within the meaning of 
                        section 989(a)) from transactions with 
                        customers which are located in the country in 
                        which the qualified business unit both 
                        maintains its principal office and conducts 
                        substantial business activity shall be treated 
                        as derived from transactions with customers 
                        which are located within the country under the 
                        laws of which the controlled foreign 
                        corporation is created or organized.
                    ``(E) Customer.--
                            ``(i) In general.--The term `customer' 
                        means, with respect to any controlled foreign 
                        corporation, any person which has a customer 
                        relationship with such corporation.
                            ``(ii) Special rules relating to 
                        insurance.--For purposes of paragraph (1)(B)--
                                    ``(I) except as provided in 
                                regulations, the customer shall be the 
                                insured under the insurance or annuity 
                                contract, and
                                    ``(II) income received from a 
                                related person (as defined in 
                                subsection (d)(3)) for a policy of 
                                reinsurance shall not be treated as 
                                income received from a customer unless 
                                the premium would have qualified under 
                                paragraph (1)(B) if the controlled 
                                foreign corporation had received the 
                                premium directly from the party first 
                                insured by the customer.
                            ``(iii) Exception for related, etc. 
                        persons.--A person who is a related person (as 
                        defined in subsection (d)(3)), an officer, a 
                        director, or an employee with respect to any 
                        controlled foreign corporation shall not be 
                        treated as a customer with respect to any 
                        transaction if a principal purpose of such 
                        transaction is to satisfy any requirement of 
                        this subsection or with respect to any 
                        transaction described in paragraph 
                        (1)(A)(ii)(II).
            ``(7) Anti-abuse rules.--For purposes of applying this 
        subsection and subsection (c)(2)(C)(ii), there shall be 
        disregarded any item of income, gain, loss, or deduction with 
        respect to any transaction or series of transactions one of the 
        principal purposes of which is qualifying income or gain for 
        the exclusion under this section, including--
                    ``(A) any change in the method of computing 
                reserves or any other transaction or series of 
                transactions a principal purpose of which is the 
                acceleration or deferral of any item in order to claim 
                the benefits of such exclusion through the application 
                of this subsection, and
                    ``(B) organizing entities to act as customers in 
                order to satisfy any same country requirement under 
                this subsection.''
    (b) Special Rules for Dealers.--Section 954(c)(2)(C) of such Code 
is amended to read as follows:
                    ``(C) Exception for dealers.--Except as provided by 
                regulations, in the case of a regular dealer in 
                property (within the meaning of paragraph (1)(B)), 
                forward contracts, option contracts, or similar 
                financial instruments (including notional principal 
                contracts and all instruments referenced to 
                commodities), there shall not be taken into account in 
                computing foreign personal holding income--
                            ``(i) any item of income, gain, deduction, 
                        or loss (other than any item described in 
                        subparagraph (A), (E), or (G) of paragraph (1)) 
                        from any transaction (including hedging 
                        transactions) entered into in the ordinary 
                        course of such dealer's trade or business as 
                        such a dealer, and
                            ``(ii) if such dealer is a dealer in 
                        securities (within the meaning of section 475), 
                        any interest or dividend or equivalent amount 
                        described in subparagraph (E) or (G) of 
                        paragraph (1) from any transaction (including 
                        any hedging transaction or transaction 
                        described in section 956(c)(2)(J)) entered into 
                        in the ordinary course of such dealer's trade 
                        or business as such a dealer in securities, but 
                        only if employees of the dealer which are 
                        located in the country under the laws of which 
the dealer is created or organized (or in the case of a qualified 
business unit described in section 989(a) which both maintains its 
principal office and conducts substantial business activity in a 
country, employees of such unit which are located in such country) 
materially participate in such transaction.''
    (c) Exemption From Foreign Base Company Services Income.--Paragraph 
(2) of section 954(e) of such Code (as amended by subsection (d)) is 
amended by striking ``or'' at the end of subparagraph (A), by striking 
the period at the end of subparagraph (B) and inserting ``, or'', and 
by adding at the end the following:
                    ``(C)(i) a transaction by the controlled foreign 
                corporation if the income from the transaction is not 
                foreign personal holding company income by reason of 
                subsection (h), or
                    ``(ii) a transaction by the controlled foreign 
                corporation if subsection (c)(2)(C)(ii) applies to such 
                transaction.''
    (d) Repeal of Canceled Provisions.--Section 1175 of the Taxpayer 
Relief Act of 1997, and the amendments made by such section, are hereby 
repealed, and the Internal Revenue Code of 1986 shall be applied and 
administered as if such section (and amendments) had never been 
enacted.

Subtitle B--Credit for Clinical Testing Research Expenses Attributable 
to Certain Qualified Academic Institutions Including Teaching Hospitals

SEC. 211. CREDIT FOR CLINICAL TESTING RESEARCH EXPENSES ATTRIBUTABLE TO 
              CERTAIN QUALIFIED ACADEMIC INSTITUTIONS INCLUDING 
              TEACHING HOSPITALS.

    (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:

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

    ``(a) General Rule.--For purposes of section 38, the medical 
innovation credit determined under this section for the taxable year 
shall be an amount equal to 20 percent of the excess (if any) of--
            ``(1) the qualified medical innovation expenses for the 
        taxable year, over
            ``(2) the medical innovation base period amount.
    ``(b) Qualified Medical Innovation Expenses.--For purposes of this 
section--
            ``(1) In general.--The term `qualified medical innovation 
        expenses' means the amounts which are paid or incurred by the 
        taxpayer during the taxable year directly or indirectly to any 
        qualified academic institution for clinical testing research 
        activities.
            ``(2) Clinical testing research activities.--
                    ``(A) In general.--The term `clinical testing 
                research activities' means human clinical testing 
                conducted at any qualified academic institution in the 
                development of any product, which occurs before--
                            ``(i) the date on which an application with 
                        respect to such product is approved under 
                        section 505(b), 506, or 507 of the Federal 
                        Food, Drug, and Cosmetic Act,
                            ``(ii) the date on which a license for such 
                        product is issued under section 351 of the 
                        Public Health Service Act, or
                            ``(iii) the date classification or approval 
                        of such product which is a device intended for 
                        human use is given under section 513, 514, or 
                        515 of the Federal Food, Drug, and Cosmetic 
                        Act.
                    ``(B) Product.--The term `product' means any drug, 
                biologic, or medical device.
            ``(3) Qualified academic institution.--The term `qualified 
        academic institution' means any of the following institutions:
                    ``(A) Educational institution.--A qualified 
                organization described in section 170(b)(1)(A)(iii) 
                which is owned or affiliated with an institution of 
                higher education as described in section 3304(f).
                    ``(B) Charitable research hospital.--A charitable 
                research hospital which--
                            ``(i) is owned by an organization described 
                        in section 501(c)(3) and exempt from taxation 
                        under section 501(a),
                            ``(ii) is not a private foundation, and
                            ``(iii) is designated as a cancer center by 
                        the National Cancer Institute.
            ``(4) Exclusion for amounts funded by grants, etc.--The 
        term `qualified medical innovation expenses' shall not include 
        any amount to the extent such amount is funded by any grant, 
        contract, or otherwise by another person (or any governmental 
        entity).
    ``(c) Medical Innovation Base Period Amount.--For purposes of this 
section, the term `medical innovation base period amount' means the 
average annual qualified medical innovation expenses paid by the 
taxpayer during the 3-taxable year period ending with the taxable year 
immediately preceding the first taxable year of the taxpayer beginning 
after December 31, 1998.
    ``(d) Special Rules.--
            ``(1) Limitation on foreign testing.--No credit shall be 
        allowed under this section with respect to any clinical testing 
        research activities conducted outside the United States.
            ``(2) Certain rules made applicable.--Rules similar to the 
        rules of subsections (f) and (g) of section 41 shall apply for 
        purposes of this section.
            ``(3) Election.--This section shall apply to any taxpayer 
        for any taxable year only if such taxpayer elects (at such time 
        and in such manner as the Secretary may by regulation 
        prescribe) to have this section apply for such taxable year.
            ``(4) Coordination with credit for increasing research 
        expenditures and with credit for clinical testing expenses for 
        certain drugs for rare diseases.--Any qualified medical 
        innovation expense 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 41 
        or 45C for such taxable year.''
    (b) General Business Credit.--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 medical innovation 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 (6), by striking the period at the end 
of paragraph (7) and inserting ``, and'', and by adding at the end the 
following:
            ``(8) the medical innovation expenses credit determined 
        under section 41A(a).''
    (d) Conforming Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
after the item relating to section 41 the following:

                                  ``Sec. 41A. Credit for medical 
                                        innovation expenses.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.
                                 <all>

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