article: SECTION 1. INCREASED CREDIT FOR MEDICAL RESEARCH. (a) In General.--Section 41 of the Internal Revenue Code of 1986 (relating to credit for increasing research activities) is amended by adding at the end the following new subsection: ``(i) Increased Credit for Medical Research.-- ``(1) General rule.--Subsection (a) of this section shall be applied by substituting-- ``(A) `40 percent' for `20 percent' in paragraph (1) thereof with respect to qualified medical research expenses, and ``(B) `medical research base amount' for `base amount'. ``(2) Qualified medical research expenses.--For purposes of this subsection-- ``(A) In general.--The term `qualified medical research expenses' means qualified research expenses-- ``(i) incurred for research 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, and ``(ii) incurred before the earliest of-- ``(I) 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, ``(II) the date on which a license for such product is approved under section 351 of the Public Health Service Act, or ``(III) the later of the date classification of such product as intended for human use is made under section 513 of the Federal Food, Drug, and Cosmetic Act or the date of approval of such product as intended for human use is granted under section 515 of such Act. ``(B) Exclusion of research after commercial production not to apply.--For purposes of this paragraph, the term `qualified research expenses' shall be determined without regard to subsection (d)(4)(A). ``(C) Special rule for certain testing.--The term `qualified medical research expenses' includes qualified research expenses for preclinical and clinical testing occurring after the earliest date under subparagraph (A)(ii) 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. ``(D) Product.--For purposes of this paragraph, the term `product' means any drug, biologic, medical, or diagnostic test, or medical device. ``(3) Medical research base amount.--For purposes of this subsection-- ``(A) In general.--Except as provided in subparagraph (C), the term `medical research base amount' means, with respect to any taxable year, the average of the taxpayer's qualified medical research expenses for those taxable years in the base period during which the taxpayer paid or incurred qualified medical research expenses. The Secretary may prescribe regulations providing that de minimis amounts of qualified medical research expenses shall be disregarded under the preceding sentence. ``(B) Base period.--For purposes of subparagraph (A), the base period is the period consisting of-- ``(i) the most recent taxable year ending at least 6 months before the taxable year for which the medical research base amount is being determined, and ``(ii) the 4 taxable years preceding such most recent taxable year. ``(C) Medical base period amount for first 2 taxable years.--For each of the first 2 taxable years during which the taxpayer pays or incurs qualified medical research expenses, the term `medical research base amount' means 60 percent of the taxpayer's qualified medical research expenses for the taxable year for which such base period amount is determined. ``(4) Research conducted by academic and medical institutions.-- ``(A) In general.--Subsection (b)(3)(A) shall be applied-- ``(i) by substituting `100 percent' for `65 percent' with respect to amounts paid to a qualified academic institution for qualified research described in paragraph (2), and ``(ii) by substituting `85 percent' for `65 percent' with respect to amounts paid to a qualified nonprofit medical institution for qualified research described in paragraph (2). ``(B) Qualified academic institution.--For purposes of this paragraph, the term `qualified academic institution' means any of the following institutions: ``(i) Educational institutions.--Any 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). ``(ii) Cancer research institutions.--Any 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. ``(iii) Nonprofit independent research institutions.--Any not-for-profit, independent research institute which is described in section 501(c)(3), is exempt from taxation under section 501(a), and is organized and operated exclusively for scientific or educational purposes. ``(C) Qualified nonprofit medical institution.--For purposes of this paragraph, the term `qualified nonprofit medical institution' means any not-for-profit organization that 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, is not a private foundation, and is not a qualified academic institution. ``(5) Election of alternative incremental medical research credit.-- ``(A) In general.--At the election of the taxpayer, the credit determined under this subsection shall be the sum of-- ``(i) 1.65 percent of so much of the taxpayer's qualified medical research expenses for the taxable year as exceeds 1 percent of the gross receipts of the taxpayer for the year but does not exceed 1.5 percent of such gross receipts, ``(ii) 2.2 percent of so much of such expenses as exceeds 1.5 percent of such gross receipts but does not exceed 2 percent of such gross receipts, and ``(iii) 2.75 percent of so much of such expenses as exceeds 2 percent of such receipts. ``(B) Election.--An election under this subsection shall apply only to the taxable year for which made. ``(6) Coordination.--In determining the amount of the credit allowed by subsection (a) for expenses which are not allowed the increased credit under this subsection-- ``(A) the amount of qualified research expenses shall be computed by excluding qualified medical research expenses for which the increased credit determined under this subsection is allowed; ``(B) the base amount determined under paragraph (1) of subsection (c) shall be computed by excluding qualified medical research expenses for which the increased credit determined under this subsection is allowed from qualified research expenses for purposes of that computation; and ``(C) the alternative incremental credit determined under subsection (c)(4) shall be computed by excluding qualified medical research expenses for which the increased credit determined under this subsection is allowed from qualified research expenses for purposes of that computation.'' (b) Effective Date.--The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
summary: Amends Internal Revenue Code provisions concerning the credit for increasing research activities provisions to provide for an increased credit for qualified medical research expenses.