2 August 1999 Source: http://www.access.gpo.gov/su_docs/aces/aaces002.html ----------------------------------------------------------------------- [DOCID: f:h2617ih.txt] 106th CONGRESS 1st Session H. R. 2617 To amend the Internal Revenue Code of 1986 to allow a tax credit for development costs of encryption products with plaintext capability without the user's knowledge. _______________________________________________________________________ IN THE HOUSE OF REPRESENTATIVES July 27, 1999 Mr. Goss (for himself, Mr. Lewis of California, Mr. Bass, Mr. Gibbons, and Mr. LaHood) 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 allow a tax credit for development costs of encryption products with plaintext capability without the user's knowledge. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE. This Act may be cited as the ``Tax Relief for Responsible Encryption Act of 1999''. SEC. 2. CREDIT FOR DEVELOPMENT COSTS OF ENCRYPTION PRODUCTS WITH PLAINTEXT CAPABILITY WITHOUT USER'S KNOWLEDGE. 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 adding at the end the following: ``SEC. 45D. DEVELOPMENT COSTS OF ENCRYPTION PRODUCTS WITH PLAINTEXT CAPABILITY WITHOUT USER'S KNOWLEDGE. ``(a) General Rule.--For purposes of section 38, in the case of a developer of computer software, the encrypted product-plaintext capability credit determined under this section is an amount equal to 15 percent of the taxpayer's encrypted product-plaintext development capability costs during the taxable year. ``(b) Encrypted Product-Plaintext Capability Development Costs.-- For purposes of this section-- ``(1) In general.--The term `encrypted product-plaintext capability development costs' means amounts paid or incurred in connection with the development of computer software allowing for a plaintext access capability without the user's knowledge of such access at the time such access occurs through any method, including the following methods: ``(A) Access to fields where plaintext occurs. ``(B) Key recovery. ``(C) Provision of decryption information. ``(D) Any other technique or methodology that may be created that allows timely access to plaintext or decryption information. ``(2) Plaintext access capability.--The term `plaintext access capability' means a technique or methodology by which encrypted information, data, or communications is converted to plaintext or plainvoice, or by which access to decryption information can be obtained. ``(3) Computer software.--The term `computer software' has the meaning given to such term by section 197(e)(3)(B) (without regard to the second sentence thereof). ``(c) Spread of Pre-Effective Date Costs.--For each of the taxable years beginning after December 31, 1991, and before January 1, 2000, in which the taxpayer has encrypted product-plaintext capability development costs, the aggregate amount of such costs shall be treated as a carryforward under section 39 beginning with the first taxable year beginning after December 31, 1999.''. SEC. 3. CURRENT YEAR BUSINESS CREDIT CALCULATION. 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 encrypted product-plaintext capability credit determined under section 45D(a).''. SEC. 4. CREDIT ALLOWED AGAINST REGULAR AND MINIMUM TAX. (a) In General.--Subsection (c) of section 38 of such Code (relating to limitation based on amount of tax) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: ``(3) Special rules for encrypted product-plaintext capability development credit.-- ``(A) In general.--In the case of the encrypted product-plaintext capability credit-- ``(i) this section and section 39 shall be applied separately with respect to the credit, and ``(ii) in applying paragraph (1) to the credit-- ``(I) subparagraph (A) thereof shall not apply, and ``(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the encrypted product-plaintext capability development credit). ``(B) Encrypted product-plaintext capability development credit.--For purposes of this subsection, the term `encrypted product-plaintext capability development credit' means the credit allowable under subsection (a) by reason of section 45D(a).''. (b) Conforming Amendment.--Subclause (II) of section 38(c)(2)(A)(ii) of such Code is amended by inserting ``or the encrypted product-plaintext capability development credit'' after ``employment credit''. SEC. 5. DISALLOWANCE OF DEDUCTION BY AMOUNT OF CREDIT. Section 280C of such Code (relating to certain expenses for which credits are allowable) is amended by adding at the end the following: ``(d) Credit for Encrypted Product-Plaintext Development Capability.--No deduction shall be allowed for that portion of the encrypted product-plaintext capability development costs (as defined in section 45D(b)) made during the taxable year that is equal to the amount of credit determined for the taxable year under section 45D(a). In the case of a corporation which is a member of a controlled group of corporations (within the meaning of section 52(a)) or a trade or business which is treated as being under common control with other trades or businesses (within the meaning of section 52(b)), this subsection shall be applied under rules prescribed by the Secretary similar to the rules applicable under subsections (a) and (b) of section 52.''. SEC. 6. LIMITATION ON CARRYBACK. Subsection (d) of section 39 of such Code (relating to carryback and carryforward of unused credits) is amended by adding at the end the following: ``(9) No carryback of encrypted product-plaintext capability development credit before effective date.--No amount of unused business credit available under section 45D may be carried back to a taxable year beginning before January 1, 2000.''. SEC. 7. CLERICAL AMENDMENT. The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 45C the following: ``Sec. 45D. Development costs of encryption products with plaintext capability without user's knowledge.''. SEC. 8. EFFECTIVE DATE. The amendments made by this Act shall apply to taxable years beginning after December 31, 1999.