Page:United States Statutes at Large Volume 103 Part 3.djvu/258

 103 STAT. 2326 PUBLIC LAW 101-239—DEC. 19, 1989 - 26 USC 41 note. (e) EFFECTIVE DATE.—The amendments made by this section (other than subsection (a)) shall apply to taxable years beginning after December 31, 1989. SEC. 7111. ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDI- TURES. Section 864 (relating to definitions and special rule) is amended by adding at the end thereof the following new subsection: " (f) ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDI- TURES. — "(1) IN GENERAL.—For purposes of sections 861(b), 862(b), and 863(b), qualified research and experimental expenditures shall be allocated and apportioned as follows: "(A) Any qualified research and experimental expendi- tures expended solely to meet legal requirements imposed ^ by a political entity with respect to the improvement or marketing of specific products or processes for purposes not 4• reasonably expected to generate gross income (beyond de minimis amounts) outside the jurisdiction of the political entity shall be allocated only to gross income from sources within such jurisdiction. "(B) In the case of any qualified research and experi- mental expenditures (not allocated under subparagraph (A)) to the extent— "(i) that such expenditures are attributable to activi- ties conducted in the United States, 64 percent of such expenditures shall be allocated and apportioned to income from sources within the United States and deducted from such income in determining the amount of taxable income from sources within the United States, and "(ii) that such expenditures are attributable to activi- ties conducted outside the United States, 64 percent of ., such expenditures shall be allocated and apportioned to income from sources outside the United States and deducted from such income in determining the amount of taxable income from sources outside the United States. "(C) The remaining portion of qualified research and experimental expenditures (not allocated under subpara- graphs (A) and (B)) shall be apportioned, at the annual election of the taxpayer, on the oasis of gross sales or gross, income, except that, if the taxpayer elects to apportion on the basis of gross income, the amount apportioned to income from sources outside the United States shall at least be 30 percent of the amount which would be so apportioned on the basis of gross sales. "(2) QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES. — For purposes of this section, the term 'qualified research and experimental expenditures' means amounts which are research and experimental expenditures within the meaning of section 174. For purposes of this paragraph, rules similar to the rules of subsection (c) of section 174 shall apply. Any qualified research and experimental expenditures treated as deferred expenses under subsection (b) of section 174 shall be taken into account under this subsection for the taxable year for which such expenditures are allowed as a deduction under such subsection.

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