I

106TH CONGRESS

1ST SESSION H. R. 803

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

against income tax with respect to employees who participate in the

military reserves and to allow a comparable credit for participating selfemployed individuals.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 23, 1999

Mr. NETHERCUTT 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 employers a credit against income tax with respect to employees who participate in the military reserves and to

allow a comparable credit for participating self-employed

individuals.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Reserve Employer Tax

5 Credit Act of 1999’’.
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1 SEC. 2. TAX CREDIT FOR RESERVE FORCES PARTICIPA2 TION.

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of

5 1986 (relating to business-related credits) is amended by

6 adding at the end the following new section:

7 ‘‘SEC. 45D. RESERVE FORCE PARTICIPATION CREDIT.

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

9 the reserve force participation credit determined under

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

11 ‘‘(1) the employment credit with respect to all

12 qualified employees of the taxpayer, plus

13 ‘‘(2) the self-employment credit of a qualified

14 self-employed taxpayer.

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

16 section—

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

18 with respect to a qualified employee of the taxpayer

19 for any taxable year is equal to 50 percent of the

20 amount of qualified compensation that would have

21 been paid to the employee with respect to all periods

22 during which the employee participates in qualified

23 reserve duty to the exclusion of normal employment

24 duties, including time spent in a travel status had

25 the employee not been participating in qualified re26 serve duty. The employment credit, with respect to
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1 all qualified employees, is equal to the sum of the

2 employment credits for each qualified employee

3 under this subsection.

4 ‘‘(2) QUALIFIED COMPENSATION.—When used

5 with respect to the compensation paid or that would

6 have been paid to a qualified employee for any pe7 riod during which the employee participates in quali8 fied reserve duty, the term ‘qualified compensation’

9 means compensation—

10 ‘‘(A) which is normally contingent on the

11 employee’s presence for work and which would

12 be deductible from the taxpayer’s gross income

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

14 present and receiving such compensation, and

15 ‘‘(B) which is not characterized by the tax16 payer as vacation or holiday pay, or as sick

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

18 a nonspecific leave of absence, and with respect

19 to which the number of days the employee par20 ticipates in qualified reserve duty does not re21 sult in any reduction in the amount of vacation

22 time, sick leave, or other nonspecific leave pre23 viously credited to or earned by the employee.

24 ‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali25 fied employee’ means a person who—
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1 ‘‘(A) has been an employee of the taxpayer

2 for the 21-day period immediately preceding the

3 period during which the employee participates

4 in qualified reserve duty, and

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

6 a reserve component of an Armed Force of the

7 United States as defined in sections 10142 and

8 10101 of title 10, United States Code.

9 ‘‘(c) SELF-EMPLOYMENT CREDIT.—

10 ‘‘(1) IN GENERAL.—The self-employment credit

11 of a qualified self-employed taxpayer for any taxable

12 year is equal to 50 percent of the excess, if any, of—

13 ‘‘(A) the self-employed taxpayer’s average

14 daily self-employment income for the taxable

15 year over

16 ‘‘(B) the average daily military pay and al17 lowances received by the taxpayer during the

18 taxable year, while participating in qualified re19 serve duty to the exclusion of the taxpayer’s

20 normal self-employment duties for the number

21 of days the taxpayer participates in qualified re22 serve duty during the taxable year, including

23 time spent in a travel status.

24 ‘‘(2) AVERAGE DAILY SELF-EMPLOYMENT IN25 COME AND AVERAGE DAILY MILITARY PAY AND AL-
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1 LOWANCES.—As used with respect to a self-em2 ployed taxpayer—

3 ‘‘(A) the term ‘average daily self-employ4 ment income’ means the self-employment in5 come (as defined in section 1402) of the tax6 payer for the taxable year divided by the dif7 ference between—

8 ‘‘(i) 365, and

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

10 participates in qualified reserve duty dur11 ing the taxable year, including time spent

12 in a travel status, and

13 ‘‘(B) the term ‘average daily military pay

14 and allowances’ means—

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

16 during the taxable year as military pay

17 and allowances on account of the tax18 payer’s participation in qualified reserve

19 duty, divided by

20 ‘‘(ii) the total number of days the tax21 payer participates in qualified reserve duty,

22 including time spent in travel 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) CREDIT IN ADDITION TO DEDUCTION.—The

8 employment credit provided in this section is in addition

9 to any deduction otherwise allowable with respect to com10 pensation actually paid to a qualified employee during any

11 period the employee participates in qualified reserve duty

12 to the exclusion of normal employment duties.

13 ‘‘(e) LIMITATIONS.—

14 ‘‘(1) MAXIMUM CREDIT.—

15 ‘‘(A) IN GENERAL.—The credit allowed by

16 subsection (a) for the taxable year—

17 ‘‘(i) shall not exceed $7,500 in the ag18 gregate, and

19 ‘‘(ii) shall not exceed $2,000 with re20 spect to each qualified employee.

21 ‘‘(B) CONTROLLED GROUPS.—For pur22 poses of applying the limitations in subpara23 graph (A)—

24 ‘‘(i) all members of a controlled group

25 shall be treated as one taxpayer, and
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1 ‘‘(ii) such limitations shall be allo2 cated among the members of such group in

3 such manner as the Secretary may pre4 scribe.

5 For purposes of this subparagraph, all persons

6 treated as a single employer under subsection

7 (a) or (b) of section 52 or subsection (m) or (o)

8 of section 414 shall be treated as members of

9 a controlled group.

10 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

11 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

12 MEMBERS OF THE RESERVE COMPONENTS OF THE

13 ARMED FORCES OF THE UNITED STATES.—No credit

14 shall be allowed under subsection (a) to a taxpayer

15 for—

16 ‘‘(A) any taxable year in which the tax17 payer is under a final order, judgment, or other

18 process issued or required by a district court of

19 the United States under section 4323 of title 38

20 of the United States Code with respect to a vio21 lation of chapter 43 of such title, and

22 ‘‘(B) the two succeeding taxable years.

23 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER24 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—

25 No credit shall be allowed under subsection (a) to a
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1 taxpayer with respect to any period for which the

2 person on whose behalf the credit would otherwise be

3 allowable is called or ordered to active duty for any

4 of the following types of duty:

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

6 provision of title 10, United States Code,

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

8 outdoor target practice, or other exercises under

9 chapter 5 of title 32, United States Code, or

10 ‘‘(C) full-time National Guard duty, as de11 fined in section 101(d)(5) of title 10, United

12 States Code.

13 ‘‘(f) GENERAL DEFINITIONS AND SPECIAL RULES.—

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

15 term ‘military pay’ means pay as that term is de16 fined in section 101(21) of title 37, United States

17 Code, and the term ‘allowances’ means the allow18 ances payable to a member of the Armed Forces of

19 the United States under chapter 7 of that title.

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

21 ‘qualified reserve duty’ includes only active duty per22 formed, as designated in the reservist’s military or23 ders, in support of a contingency operation as de24 fined in section 101(a)(13) of title 10, United States

25 Code.
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1 ‘‘(3) NORMAL EMPLOYMENT AND SELF-EM2 PLOYMENT DUTIES.—A person shall be deemed to

3 be participating in qualified reserve duty to the ex4 clusion of normal employment or self-employment

5 duties if the person does not engage in or undertake

6 any substantial activity related to the person’s nor7 mal employment or self-employment duties while

8 participating in qualified reserve duty unless in an

9 authorized leave status or other authorized absence

10 from military duties. If a person engages in or un11 dertakes any substantial activity related to the per12 son’s normal employment or self-employment duties

13 at any time while participating in a period of quali14 fied reserve duty, unless during a period of author15 ized leave or other authorized absence from military

16 duties, the person shall be deemed to have engaged

17 in or undertaken such activity for the entire period

18 of qualified reserve duty.

19 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar

20 to the rules of subsections (c), (d), and (e) of section

21 52 shall apply for purposes of this section.’’

22 (b) CONFORMING AMENDMENT.—Section 38(b) of

23 the Internal Revenue Code of 1986 (relating to general

24 business credit) is amended—
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1 (1) by striking ‘‘plus’’ at the end of paragraph

2 (11),

3 (2) by striking the period at the end of para4 graph (12) and inserting ‘‘, plus’’, and

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

6 paragraph:

7 ‘‘(13) the reserve force participation credit de8 termined under section 45D(a).’’.

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

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

11 of the Internal Revenue Code of 1986 is amended by in12 serting after the item relating to section 45C the following

13 new item:

‘‘Sec. 45D. Reserve force participation credit.’’.

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

15 this section shall apply to taxable years beginning after

16 the calendar year which includes the date of the enactment

17 of this Act.

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