I

104TH CONGRESS

1ST SESSION H. R. 1168

To amend the Internal Revenue Code of 1986 to allow a credit against

income tax to employers who employ members of the reserve components

of the Armed Forces of the United States and to self-employed individuals who are members of such reserve components.

IN THE HOUSE OF REPRESENTATIVES

MARCH 8, 1995

Mr. MONTGOMERY 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

credit against income tax to employers who employ members of the reserve components of the Armed Forces

of the United States and to self-employed individuals

who are members of such reserve components.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. RESERVE FORCES PARTICIPATION CREDIT.

4 (a) IN GENERAL.—Subpart D of part IV of sub5 chapter A of chapter 1 of the Internal Revenue Code of

6 1986 (relating to business-related credits) is amended by

7 adding at the end the following new section:
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1 ‘‘SEC. 45C. RESERVE FORCES PARTICIPATION CREDIT.

2 ‘‘(a) GENERAL RULE.—For purposes of section 38,

3 the reserve forces participation credit determined under

4 this section is an amount equal to the sum of—

5 ‘‘(1) the aggregate of the employment credits

6 with respect to qualified employees of a taxpayer,

7 plus

8 ‘‘(2) if the taxpayer is a qualified self-employed

9 taxpayer, the self-employment credit.

10 ‘‘(b) EMPLOYMENT CREDIT.—For purposes of this

11 section—

12 ‘‘(1) IN GENERAL.—The employment credit

13 with respect to a qualified employee of a taxpayer

14 for any taxable year is an amount equal to the lesser

15 of—

16 ‘‘(A) 50 percent of the amount of qualified

17 compensation that would have been paid to the

18 employee with respect to all periods during

19 which the employee participates in qualified re20 serve duty to the exclusion of normal employ21 ment duties, including time spent in a travel

22 status had the employee not been participating

23 in qualified reserve duty, or

24 ‘‘(B) $2,000.

25 ‘‘(2) QUALIFIED COMPENSATION.—The term

26 ‘qualified compensation’ means compensation—
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1 ‘‘(A) which is normally contingent on the

2 employee’s presence for work and which would

3 be deductible from the taxpayer’s gross income

4 under section 162(a)(1) if the employee were

5 present and receiving such compensation; and

6 ‘‘(B) which is not characterized by the tax7 payer as vacation or holiday pay, or as sick

8 leave or pay, or as any other form of pay for

9 a nonspecific leave absence, and with respect to

10 which the number of days the employee partici11 pates in qualified reserve duty does not result

12 in any reduction in the amount of vacation

13 time, sick leave, or other nonspecific leave pre14 viously credited to or earned by the employee.

15 ‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali16 fied employee’ means a person who—

17 ‘‘(A) has been a full-time employee of a

18 taxpayer for the 21-day period immediately pre19 ceding the period during which the employee

20 participates in qualified reserve duty, and

21 ‘‘(B) is a member of the Ready Reserve of

22 a reserve component of an Armed Force of the

23 United States.

24 ‘‘(4) CREDIT IN ADDITION TO DEDUCTION.—

25 The employment credit provided in this section is in
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1 addition to any deduction otherwise allowable with

2 respect to compensation actually paid to a qualified

3 employee during any period the employee partici4 pates in qualified reserve duty to the exclusion of

5 normal employment duties.

6 ‘‘(c) SELF-EMPLOYMENT CREDIT.—

7 ‘‘(1) IN GENERAL.—In the case of a qualified

8 self-employed taxpayer, the self-employment credit

9 for any taxable year is equal to 50 percent of the ex10 cess (if any) of—

11 ‘‘(A) the taxpayer’s average daily self-em12 ployment income for the taxable year over

13 ‘‘(B) the average daily military pay and al14 lowances received by the taxpayer during the

15 taxable year while participating in qualified re16 serve duty to the exclusion of the taxpayer’s

17 normal self-employment duties for the number

18 of days the taxpayer participates in qualified re19 serve duty during the taxable year, including

20 time spent in a travel status.

21 ‘‘(2) AVERAGE DAILY SELF-EMPLOYMENT IN22 COME AND AVERAGE DAILY MILITARY PAY AND AL23 LOWANCES.—As used with respect to a self-em24 ployed taxpayer—
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1 ‘‘(A) AVERAGE DAILY SELF-EMPLOYMENT

2 INCOME.—The term ‘average daily self-employ3 ment income’ means the net earnings from self4 employment (as defined in section 1402) of the

5 taxpayer for the taxable year divided by the dif6 ference between—

7 ‘‘(i) 365, and

8 ‘‘(ii) the number of days the taxpayer

9 participates in qualified reserve duty dur10 ing the taxable year, including time spent

11 in a travel status.

12 ‘‘(B) AVERAGE DAILY MILITARY PAY AND

13 ALLOWANCES.—The term ‘average daily mili14 tary pay and allowances’ means—

15 ‘‘(i) the amount paid to the taxpayer

16 during a taxable year as military pay on

17 account of the taxpayer’s participation in

18 qualified reserve duty, divided by

19 ‘‘(ii) the total number of days the tax20 payer participates in qualified reserve duty,

21 including, if applicable, time spent in travel

22 status.

23 ‘‘(3) QUALIFIED SELF-EMPLOYED TAXPAYER.—

24 The term ‘qualified self-employed taxpayer’ means a

25 taxpayer who—
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1 ‘‘(A) has net earnings from self-employ2 ment (as defined in section 1402) for the tax3 able year, and

4 ‘‘(B) is a member of the Ready Reserve of

5 a reserve component of an Armed Force of the

6 United States.

7 ‘‘(d) LIMITATIONS.—

8 ‘‘(1) MAXIMUM CREDIT.—The credit deter9 mined under subsection (a) for the taxable year shall

10 not exceed $7,500.

11 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

12 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

13 MEMBERS OF THE RESERVE COMPONENTS OF THE

14 ARMED FORCES OF THE UNITED STATES.—No credit

15 shall be allowed by reason of subsection (a) to a tax16 payer for—

17 ‘‘(A) any taxable year in which the tax18 payer complies with a final order, judgment, or

19 other process issued or required by a district

20 court of the United States under section 4323

21 of title 38 of the United States Code with re22 spect to a violation of chapter 43 of such title,

23 and

24 ‘‘(B) the two succeeding taxable years.
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1 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER2 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—

3 No credit shall be allowed by reason of subsection

4 (a) to a taxpayer with respect to any period for

5 which the person on whose behalf the credit would

6 otherwise be allowable is called or ordered to active

7 duty for any of the following types of duty—

8 ‘‘(A) active duty for training under any

9 provision of title 10 of the United States Code;

10 ‘‘(B) training at encampments, maneuvers,

11 outdoor target practice, or other exercises under

12 chapter 5 of title 32, United States Code; or

13 ‘‘(C) full-time National Guard duty, as de14 fined in section 101(d)(5) of title 10, United

15 State Code.

16 ‘‘(e) GENERAL DEFINITIONS.—

17 ‘‘(1) MILITARY PAY AND ALLOWANCES.—The

18 term ‘military pay’ means pay as that term is de19 fined in section 101(21) of title 37, United States

20 Code, and the term ‘allowances’ means the allow21 ances payable to a member of the Armed Forces of

22 the United States under chapter 7 of that title.

23 ‘‘(2) QUALIFIED RESERVE DUTY.—The term

24 ‘qualified reserve duty’ includes only active duty per25 formed in support of, as designated in the reservist’s
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1 military orders, a contingency operation as defined

2 in section 101(a)(13), of title 10, United States

3 Code.

4 ‘‘(3) NORMAL EMPLOYMENT AND SELF-EM5 PLOYMENT DUTIES.—A person shall be deemed to

6 be participating in qualified reserve duty to the ex7 clusion of normal employment or self-employment

8 duties if the person does not engage in or undertake

9 any substantial activity related to the person’s nor10 mal employment or self-employment duties while

11 participating in qualified reserve duty unless in an

12 authorized leave status or other authorized absence

13 form military duties. If a person engages in or un14 dertakes any substantial activity related to the per15 son’s normal employment or self-employment duties

16 at any time while participating in a period of quali17 fied reserve duty, unless during a period of author18 ized leave or other authorized absence from military

19 duties, the person shall be deemed to have engaged

20 in or undertaken such activity for the entire period

21 of qualified reserve duty.

22 ‘‘(f) CONTROLLED GROUPS.—All persons treated as

23 a single employer under subsection (a) or (b) of section

24 52 shall be treated as a single employer for purposes of

25 this section.’’
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1 (b) CREDIT TO BE PART OF GENERAL BUSINESS

2 CREDIT.—Subsection (b) of section 38 of such Code (re3 lating to general business credit) is amended—

4 (1) by striking ‘‘plus’’ at the end of paragraph

5 (10);

6 (2) by striking the period at the end of para7 graph (11) and inserting ‘‘, plus’’; and

8 (3) by adding at the end the following new

9 paragraph:

10 ‘‘(12) the reserve forces participation credit de11 termined under section 45C(a).’’.

12 (c) CLERICAL AMENDMENT.—The table of sections

13 for subpart D of part IV of subchapter A of chapter 1

14 of such Code is amended by adding at the end the follow15 ing new item:

‘‘Sec. 45C. Reserve forces participation credit.’’.

16 (d) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to taxable years beginning after

18 December 31, 1995.

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