text: 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.
target: Amends Internal Revenue Code provisions concerning the credit for increasing research activities provisions to provide for an increased credit for qualified medical research expenses.
feat_title: To amend the Internal Revenue Code of 1986 to provide an increased credit for medical research.