A bill to amend title 10, United States Code, to protect the financial condition of members of the reserve components of the Armed Forces who are ordered to long-term active duty in support of a contingency operation, and for other purposes.

Summary: Patriot Penalty Elimination Act of 2005 - Directs the Secretary of the military department concerned to pay income preservation pay to a member of the reserves: (1) who is called or ordered to active duty (other than voluntarily); (2) who serves on such duty outside the United States during at least six out of 12 consecutive months; and (3) whose preservice income exceeds the amount earned from the military service. Provides a formula for determining the appropriate income preservation amount, with a limit of $50,000. Terminates such pay authority five years after the enactment of this Act.

Amends the Internal Revenue Code to allow a Ready Reserve-National Guard employee credit equal to 50 percent of the lesser of the actual compensation amount with respect to the employee for the taxable year, or $30,000. Provides such credit, with respect to such employee, for: (1) active duty outside the United States under a call or order for a period in excess of 179 days or for an indefinite period, in connection with which the employee is entitled to reemployment rights and other benefits or to a leave of absence from employment; and (2) hospitalization incident to such duty. Terminates such credit five years after the enactment of this Act.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Patriot Penalty Elimination Act of 
2005''.

SEC. 2. INCOME PRESERVATION PAY FOR RESERVES SERVING ON ACTIVE DUTY IN 
              SUPPORT OF A CONTINGENCY OPERATION.

    (a) Authority.--Chapter 1209 of title 10, United States Code, is 
amended by inserting after section 12316 the following new section:
``Sec. 12316a. Reserves: income preservation pay
    ``(a) Requirement To Pay.--The Secretary of the military department 
concerned shall pay income preservation pay under this section to an 
eligible member of a reserve component of the armed forces in 
connection with the member's active-duty service as described in 
subsection (b).
    ``(b) Eligible Member.--A member is eligible for income 
preservation pay if--
            ``(1) the member is called or ordered to active duty (other 
        than voluntarily) under a provision of law referred to in 
        section 101(a)(13)(B) of this title;
            ``(2) pursuant to such call or order, the member serves on 
        active duty outside the United States during at least 6 out of 
        12 consecutive months; and
            ``(3) with respect to such active-duty service, the amount 
        of the member's preservice earned income determined under 
        subparagraph (A) of subsection (c)(1) exceeds the amount of the 
        member's military service income determined under subparagraph 
        (B) of such subsection.
    ``(c) Amount.--(1) Subject to paragraph (2), the amount payable 
under this section to a member in connection with active-duty service 
is the amount equal to the excess (if any) of--
            ``(A) the amount computed by multiplying--
                    ``(i) the preservice average monthly earned income 
                of the member, by
                    ``(ii) the total number of the member's service 
                months for such active-duty service, over
            ``(B) the amount computed by multiplying--
                    ``(i) the military service average monthly income 
                of the member, by
                    ``(ii) the total number of months determined under 
                subparagraph (A)(ii).
    ``(2) The total amount of income preservation pay that is paid to a 
member under this section may not exceed $50,000.
    ``(d) Preservice Average Monthly Earned Income.--For the purposes 
of this section, the preservice average monthly earned income of a 
member who serves on active duty as described in subsection (b) shall 
be computed by dividing 12 into the total amount of the member's earned 
income for the 12 months immediately preceding the member's first 
service month of the period for which income preservation pay is to be 
paid to the member under this section.
    ``(e) Military Service Average Monthly Income.--For the purposes of 
this section, the military service average monthly income of a member 
who serves on active duty as described in subsection (b) is the amount 
determined by dividing--
            ``(1) the sum of the total amount of the member's earned 
        income (other than basic pay) and the total amount of the 
        member's basic pay (under section 204 of title 37) for the 
        member's service months for such active-duty service, by
            ``(2) the total number of such months.
    ``(f) Time and Manner of Payment.--(1) Subject to paragraph (2), 
the total amount of income preservation pay that is payable under this 
section to a member in connection with service on active duty is due 
and payable, in one lump sum, not later than 30 days after the date on 
which the member is released from the active duty.
    ``(2) The Secretary concerned may make advance payment of income 
preservation pay in whole or in part under this section to a member, 
under such terms and conditions as the Secretary determines 
appropriate, if it is clear from the circumstances that it is likely 
that the member's active-duty service will satisfy the requirements of 
subsection (b). In any case in which advance payment is made to a 
member whose period of such active-duty service does not satisfy such 
requirements, the Secretary concerned may waive recoupment of the 
advance payment if the Secretary determines that recoupment would be 
against equity and good conscience or would be contrary to the best 
interests of the United States.
    ``(g) Definitions.--In this section:
            ``(1) The term ``earned income'' has the meaning given such 
        term in section 32(c)(2) of the Internal Revenue Code of 1986.
            ``(2) The term `service month', with respect to service of 
        a member of a reserve component of the armed forces on active 
        duty, means a month during any part of which the member serves 
        on active duty.
    ``(h) Termination of Authority.--This section shall cease to be 
effective on the first day of the first month that begins on or after 
the date that is five years after the date of the enactment of the 
Patriot Penalty Elimination Act of 2005.''.
    (b) Recharacterization of Existing Section on Payment of Certain 
Reserves on Active Duty.--The heading of section 12316 of title 10, 
United States Code, is amended to read as follows:
``Sec. 12316. Reserves: payment of other entitlement instead of pay and 
              allowances''.
    (c) Clerical Amendment.--The table of sections at the beginning of 
chapter 1209 of title 10, United States Code, is amended by striking 
the item relating to section 12316 and inserting the following new 
items:

``12316. Reserves: payment of other entitlement instead of pay and 
                            allowances.
``12316a. Reserves: income preservation pay.''.
    (d) Effective Date.--Section 12316a of title 10, United States Code 
(as added by subsection (a)), shall take effect as of January 1, 2003, 
and shall apply with respect to active-duty service that begins on or 
after such date.

SEC. 3. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

    (a) In General.--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 inserting after section 45I the following new 
section:

``SEC. 45J. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the Ready Reserve-
National Guard employee credit determined under this section for any 
taxable year with respect to each Ready Reserve-National Guard employee 
of the taxpayer is an amount equal to 50 percent of the lesser of--
            ``(1) the actual compensation amount with respect to such 
        employee for such taxable year, or
            ``(2) $30,000.
    ``(b) Definition of Actual Compensation Amount.--For purposes of 
this section, the term `actual compensation amount' means the amount of 
compensation paid or incurred by a taxpayer with respect to a Ready 
Reserve-National Guard employee on any day when the employee was absent 
from employment for the purpose of performing qualified active duty.
    ``(c) Limitations.--No credit shall be allowed with respect to any 
day that a Ready Reserve-National Guard employee who performs qualified 
active duty was not scheduled to work (for reason other than to 
participate in qualified active duty).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified active duty.--The term `qualified active 
        duty' means--
                    ``(A) active duty outside the United States under 
                an order or call for a period in excess of 179 days or 
                for an indefinite period, other than the training duty 
                specified in section 10147 of title 10, United States 
                Code (relating to training requirements for the Ready 
                Reserve), or section 502(a) of title 32, United States 
                Code (relating to required drills and field exercises 
                for the National Guard), in connection with which an 
                employee is entitled to reemployment rights and other 
                benefits or to a leave of absence from employment under 
                chapter 43 of title 38, United States Code, and
                    ``(B) hospitalization incident to such duty.
            ``(2) Compensation.--The term `compensation' means any 
        remuneration for employment, whether in cash or in kind, which 
        is paid or incurred by a taxpayer and which is deductible from 
        the taxpayer's gross income under section 162(a)(1).
            ``(3) Ready reserve-national guard employee.--The term 
        `Ready Reserve-National Guard employee' means an employee who 
        is a member of the Ready Reserve of a reserve component of an 
        Armed Force of the United States as described in sections 10142 
        and 10101 of title 10, United States Code.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of section 52 shall apply.
    ``(e) Termination.--This section shall not apply with respect to 
amounts paid or incurred in taxable years that begin more than 5 years 
after the date of enactment of the Patriot Penalty Elimination Act of 
2005.''.
    (b) Credit To Be Part of General Business Credit.--Subsection (b) 
of section 38 of the Internal Revenue Code of 1986 (relating to general 
business credit) is amended by striking ``plus'' at the end of 
paragraph (18), by striking the period at the end of paragraph (19) and 
inserting ``, plus'', and by adding at the end the following:
            ``(20) the Ready Reserve-National Guard employee credit 
        determined under section 45J(a).''.
    (c) Denial of Double Benefit.--Section 280C(a) of the Internal 
Revenue Code of 1986 (relating to rule for employment credits) is 
amended by inserting ``45J(a),'' after ``45A(a),''.
    (d) Conforming Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 45I the 
following:

                              ``Sec. 45J. Ready Reserve-National Guard 
                                        employee credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 2004, in taxable 
years ending after such date.