RESEARCH CREDIT.

SEC. 1204. RESEARCH CREDIT. (a) In General.— Subsection (h) of section 41 (relating to credit for research activities) is amended to read as follows: “(h) Termination.— “(1) In general.— This section shall not apply to any amount paid or incurred— “(A) after June 30, 1995, and before July 1, 1996, or “(B) after May 31, 1997. Notwithstanding the preceding sentence, in the case of a taxpayer making an election under subsection (c)(4) for its first taxable year beginning after June 30, 1996, and before July 1, 1997, this section shall apply to amounts paid or incurred during the first 11 months of such taxable year. “(2) Computation of base amount.— In the case of any taxable year with respect to which this section applies to a number of days which is less than the total number of days in such taxable year, the base amount with respect to such taxable year shall be the amount which bears the same ratio to the base amount for such year (determined without regard to this paragraph) as the number of days in such taxable year to which this section applies bears to the total number of days in such taxable year.”. (b) Base Amount for Start-Up Companies.— Clause (i) of section 41(c)(3)(B) (relating to start-up companies) is amended to read as follows: 110 STAT. 1774 “(i) Taxpayers to which subparagraph applies.— The fixed-base percentage shall be determined under this subparagraph if— “(I) the first taxable year in which a taxpayer had both gross receipts and qualified research expenses begins after December 31, 1983, or “(II) there are fewer than 3 taxable years beginning after December 31, 1983, and before January 1, 1989, in which the taxpayer had both gross receipts and qualified research expenses.”. (c) Election of Alternative Incremental Credit.— Subsection (c) of section 41 is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6), respectively, and by inserting after paragraph (3) the following new paragraph: “(4) Election of alternative incremental credit.— “(A) In general.— At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to the sum of— “(i) 1.65 percent of so much of the qualified research expenses for the taxable year as exceeds 1 percent of the average described in subsection (c)(1)(B) but does not exceed 1.5 percent of such average, “(ii) 2.2 percent of so much of such expenses as exceeds 1.5 percent of such average but does not exceed 2 percent of such average, and “(iii) 2.75 percent of so much of such expenses as exceeds 2 percent of such average. “(B) Election.— An election under this paragraph may be made only for the first taxable year of the taxpayer beginning after June 30, 1996. Such an election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary.”. (d) Increased Credit for Contract Research Expenses With Respect to Certain Research Consortia.— Paragraph (3) of section 41(b) is amended by adding at the end the following new subparagraph: “(C) Amounts paid to certain research consortia.— “(i) In general.— Subparagraph (A) shall be applied by substituting ‘75 percent’ for ‘65 percent’ with respect to amounts paid or incurred by the taxpayer to a qualified research consortium for qualified research on behalf of the taxpayer and 1 or more unrelated taxpayers. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related taxpayers. “(ii) Qualified research consortium.— The term ‘qualified research consortium’ means any organization which— “(I) is described in section 501(c)(3) or 501(c)(6) and is exempt from tax under section 501(a), “(II) is organized and operated primarily to conduct scientific research, and “(III) is not a private foundation.”. 110 STAT. 1775 (e) Conforming Amendment.— Subparagraph (D) of section 28(b)(1) is amended by inserting “, and before July 1, 1996, and periods after May 31, 1997” after “June 30, 1995”. (f) Effective Dates.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after June 30, 1996. (2) Subsections (c) and (d).— The amendments made by subsections (c) and (d) shall apply to taxable years beginning after June 30, 1996. (3) Estimated tax.— The amendments made by this section shall not be taken into account under section 6654 or 6655 of the Intern.al Revenue Code of 1986 (relating to failure to pay estimated tax) in determining the amount of any installment required to be paid for a taxable year beginning in 1997.