DENIAL OF DEDUCTION FOR 50 PERCENT AMOUNTS ALLOWED AS A RESEARCH CREDIT.

SEC. 4008. DENIAL OF DEDUCTION FOR 50 PERCENT AMOUNTS ALLOWED AS A RESEARCH CREDIT. (a) In General.— Section 280C of the 1986 Code (relating to certain expenses for which credits are allowable) is amended by adding at the end thereof the following new subsection: “(c) Credit for Increasing Research Activities.— “(1) In general.— No deduction shall be allowed for that portion of the qualified research expenses (as defined in section 41(b)) or basic research expenses (as defined in section 41(e)(2) otherwise allowable as a deduction for the taxable year which is equal to 50 percent of the amount of the credit determined for such taxable year under section 41(a). “(2) Similar rule where taxpayer capitalizes rather than deducts expenses.— If— “(A) 50 percent of the amount of the credit determined for the taxable year under section 41(a)(1), exceeds “(B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses (determined without regard to paragraph (1)), the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess. “(3) Controlled groups.— Paragraph (3) of subsection (b) shall apply for purposes of this subsection.” (b) Research Credit To Be Elective.— (1) In general.— Section 41 of the 1986 Code is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: “(h) Election To Have Research Credit Not Apply.— “(1) In general.— A taxpayer may elect to have this section not apply for any taxable year. 102 STAT. 3653 “(2) Time for making election.— An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last day prescribed by law for filing the return for such taxable year (determined without regard to extensions). “(3) Manner of making election.— An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.” (2) Deduction for unused research credit.— (A) Subsection (c) of section 196 of the 1986 Code is amended by striking out “and” at the end of paragraph (2), by striking out the period at the end of paragraph (3) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new paragraph: “(4) the research credit determined under section 41(a) for taxable years beginning after December 31, 1988.” (B) Subsection (d) of section 196 of the 1986 Code is amended to read as follows: “(d) Special Rule for Investment Tax Credit and Research Credit.— Subsection (a) shall be applied by substituting an amount equal to 50 percent of for an amount equal to in the case of— “(1) the investment credit determined under section 46(a) (other than a credit to which section 48(q)(3) applies), and “(2) the research credit determined under section 41(a).” (c) Technical Amendments.— (1) Paragraph (1) of section 28(b) of the 1986 Code is amended by striking out “1988” and inserting in lieu thereof “1989”. (2) Subsection (n) of section 6501 of the 1986 Code is amended by striking out “or 51(i)” and inserting in lieu thereof “, 41(h), or 51(j)” (d) Effective Date.— The amendments made by this section shall apply to taxable years beginning after December 31, 1988.