II 

108TH CONGRESS 

1ST SESSION S. 202

To amend the Internal Revenue Code of 1986 to allow as a deduction 

in determining adjusted gross income the deduction for expenses in 

connection with services as a member of a reserve component of the 

Armed Forces of the United States, to allow employers a credit against 

income tax with respect to employees who participate in the military 

reserve components, and to allow a comparable credit for participating 

reserve component self-employed individuals, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 22, 2003

Mr. DEWINE (for himself, Mr. MCCAIN, Mr. LIEBERMAN, Mr. SHELBY, Mr. 

MILLER, Mrs. HUTCHISON, Ms. LANDRIEU, Mr. LOTT, Mr. INOUYE, and 

Mr. COCHRAN) introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL

To amend the Internal Revenue Code of 1986 to allow as 

a deduction in determining adjusted gross income the 

deduction for expenses in connection with services as 

a member of a reserve component of the Armed Forces 

of the United States, to allow employers a credit against 

income tax with respect to employees who participate 

in the military reserve components, and to allow a comparable credit for participating reserve component selfemployed individuals, and for other purposes.
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•S 202 IS 

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 Component 

5 Tax Assistance Act of 2003’’. 

6 SEC. 2. DEDUCTION OF CERTAIN EXPENSES OF MEMBERS 

7 OF THE RESERVE COMPONENT. 

8 (a) DEDUCTION ALLOWED.—Section 162 of the In9 ternal Revenue Code of 1986 (relating to certain trade or 

10 business expenses) is amended by redesignating subsection 

11 (p) as subsection (q) and inserting after subsection (o) the 

12 following new subsection: 

13 ‘‘(p) TREATMENT OF EXPENSES OF MEMBERS OF

14 RESERVE COMPONENT OF ARMED FORCES OF THE

15 UNITED STATES.—For purposes of subsection (a)(2), in 

16 the case of an individual who performs services as a mem17 ber of a reserve component of the Armed Forces of the 

18 United States at any time during the taxable year, such 

19 individual shall be deemed to be away from home in the 

20 pursuit of a trade or business during any period for which 

21 such individual is away from home in connection with such 

22 services.’’. 

23 (b) DEDUCTION ALLOWED WHETHER OR NOT TAX24 PAYER ELECTS TO ITEMIZE.—Section 62(a)(2) of the In25 ternal Revenue Code of 1986 (relating to certain trade and 
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1 business deductions of employees) is amended by adding 

2 at the end the following new subparagraph: 

3 ‘‘(E) CERTAIN EXPENSES OF MEMBERS OF

4 RESERVE COMPONENTS OF THE ARMED FORCES

5 OF THE UNITED STATES.—The deductions al6 lowed by section 162 which consist of expenses 

7 paid or incurred by the taxpayer in connection 

8 with the performance of services by such tax9 payer as a member of a reserve component of 

10 the Armed Forces of the United States.’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to amounts paid or incurred in tax13 able years beginning after December 31, 2002. 

14 SEC. 3. CREDIT FOR EMPLOYMENT OF RESERVE COMPO15 NENT PERSONNEL. 

16 (a) IN GENERAL.—Subpart D of part IV of sub17 chapter A of chapter 1 of the Internal Revenue Code of 

18 1986 (relating to business-related credits) is amended by 

19 adding at the end the following new section: 

20 ‘‘SEC. 45G. RESERVE COMPONENT EMPLOYMENT CREDIT. 

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

22 the reserve component employment credit determined 

23 under this section is an amount equal to the sum of—

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

25 qualified employees of the taxpayer, plus 
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1 ‘‘(2) the self-employment credit of a qualified 

2 self-employed taxpayer. 

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

4 section—

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

6 with respect to a qualified employee of the taxpayer 

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

8 amount of qualified compensation that would have 

9 been paid to the employee with respect to all periods 

10 during which the employee participates in qualified 

11 reserve component duty to the exclusion of normal 

12 employment duties, including time spent in a travel 

13 status had the employee not been participating in 

14 qualified reserve component duty. The employment 

15 credit, with respect to all qualified employees, is 

16 equal to the sum of the employment credits for each 

17 qualified employee under this subsection. 

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

19 with respect to the compensation paid or that would 

20 have been paid to a qualified employee for any pe21 riod during which the employee participates in quali22 fied reserve component duty, the term ‘qualified 

23 compensation’ means compensation—

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

25 employee’s presence for work and which would 
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1 be deductible from the taxpayer’s gross income 

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

3 present and receiving such compensation, and 

4 ‘‘(B) which is not characterized by the tax5 payer as vacation or holiday pay, or as sick 

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

7 a nonspecific leave of absence, and with respect 

8 to which the number of days the employee par9 ticipates in qualified reserve component duty 

10 does not result in any reduction in the amount 

11 of vacation time, sick leave, or other nonspecific 

12 leave previously credited to or earned by the 

13 employee. 

14 ‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali15 fied employee’ means a person who—

16 ‘‘(A) has been an employee of the taxpayer 

17 for the 21-day period immediately preceding the 

18 period during which the employee participates 

19 in qualified reserve component duty, and 

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

21 a reserve component of an Armed Force of the 

22 United States as defined in sections 10142 and 

23 10101 of title 10, United States Code. 

24 ‘‘(c) SELF-EMPLOYMENT CREDIT.—
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1 ‘‘(1) IN GENERAL.—The self-employment credit 

2 of a qualified self-employed taxpayer for any taxable 

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

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

5 daily self-employment income for the taxable 

6 year over 

7 ‘‘(B) the average daily military pay and al8 lowances received by the taxpayer during the 

9 taxable year, while participating in qualified re10 serve component duty to the exclusion of the 

11 taxpayer’s normal self-employment duties for 

12 the number of days the taxpayer participates in 

13 qualified reserve component duty during the 

14 taxable year, including time spent in a travel 

15 status. 

16 ‘‘(2) AVERAGE DAILY SELF-EMPLOYMENT IN17 COME AND AVERAGE DAILY MILITARY PAY AND AL18 LOWANCES.—As used with respect to a self-em19 ployed taxpayer—

20 ‘‘(A) the term ‘average daily self-employ21 ment income’ means the self-employment in22 come (as defined in section 1402) of the tax23 payer for the taxable year divided by the dif24 ference between—

25 ‘‘(i) 365, and 
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1 ‘‘(ii) the number of days the taxpayer 

2 participates in qualified reserve component 

3 duty during the taxable year, including 

4 time spent in a travel status, and 

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

6 and allowances’ means—

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

8 during the taxable year as military pay 

9 and allowances on account of the tax10 payer’s participation in qualified reserve 

11 component duty, divided by

12 ‘‘(ii) the total number of days the tax13 payer participates in qualified reserve com14 ponent duty, including time spent in travel 

15 status. 

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

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

18 taxpayer who—

19 ‘‘(A) has net earnings from self-employ20 ment (as defined in section 1402) for the tax21 able year, and 

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

23 a reserve component of an Armed Force of the 

24 United States. 
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1 ‘‘(d) CREDIT IN ADDITION TO DEDUCTION.—The 

2 employment credit provided in this section is in addition 

3 to any deduction otherwise allowable with respect to com4 pensation actually paid to a qualified employee during any 

5 period the employee participates in qualified reserve com6 ponent duty to the exclusion of normal employment duties. 

7 ‘‘(e) LIMITATIONS.—

8 ‘‘(1) MAXIMUM CREDIT.—

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

10 subsection (a) for the taxable year—

11 ‘‘(i) shall not exceed $7,500 in the ag12 gregate, and 

13 ‘‘(ii) shall not exceed $2,000 with re14 spect to each qualified employee. 

15 ‘‘(B) CONTROLLED GROUPS.—For pur16 poses of applying the limitations in subpara17 graph (A)—

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

19 shall be treated as one taxpayer, and 

20 ‘‘(ii) such limitations shall be allo21 cated among the members of such group in 

22 such manner as the Secretary may pre23 scribe. 

24 For purposes of this subparagraph, all persons 

25 treated as a single employer under subsection 
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1 (a) or (b) of section 52 or subsection (m) or (o) 

2 of section 414 shall be treated as members of 

3 a controlled group. 

4 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

5 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

6 MEMBERS OF THE RESERVE COMPONENTS OF THE

7 ARMED FORCES OF THE UNITED STATES.—No credit

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

9 for—

10 ‘‘(A) any taxable year in which the tax11 payer is under a final order, judgment, or other 

12 process issued or required by a district court of 

13 the United States under section 4323 of title 38 

14 of the United States Code with respect to a vio15 lation of chapter 43 of such title, and 

16 ‘‘(B) the 2 succeeding taxable years. 

17 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER18 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—

19 No credit shall be allowed under subsection (a) to a 

20 taxpayer with respect to any period for which the 

21 person on whose behalf the credit would otherwise be 

22 allowable is called or ordered to active duty for any 

23 of the following types of duty: 

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

25 provision of title 10, United States Code, 
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1 ‘‘(B) training at encampments, maneuvers, 

2 outdoor target practice, or other exercises under 

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

4 ‘‘(C) full-time National Guard duty, as de5 fined in section 101(d)(5) of title 10, United 

6 States Code. 

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

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

9 term ‘military pay’ means pay as that term is de10 fined in section 101(21) of title 37, United States 

11 Code, and the term ‘allowances’ means the allow12 ances payable to a member of the Armed Forces of 

13 the United States under chapter 7 of that title. 

14 ‘‘(2) QUALIFIED RESERVE COMPONENT

15 DUTY.—The term ‘qualified reserve component duty’ 

16 includes only active duty performed, as designated in 

17 the reservist’s military orders, in support of a con18 tingency operation as defined in section 101(a)(13) 

19 of title 10, United States Code. 

20 ‘‘(3) NORMAL EMPLOYMENT AND SELF-EM21 PLOYMENT DUTIES.—A person shall be deemed to 

22 be participating in qualified reserve component duty 

23 to the exclusion of normal employment or self-em24 ployment duties if the person does not engage in or 

25 undertake any substantial activity related to the per-
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1 son’s normal employment or self-employment duties 

2 while participating in qualified reserve component 

3 duty unless in an authorized leave status or other 

4 authorized absence from military duties. If a person 

5 engages in or undertakes any substantial activity re6 lated to the person’s normal employment or self-em7 ployment duties at any time while participating in a 

8 period of qualified reserve component duty, unless 

9 during a period of authorized leave or other author10 ized absence from military duties, the person shall 

11 be deemed to have engaged in or undertaken such 

12 activity for the entire period of qualified reserve 

13 component duty. 

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

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

16 52 shall apply for purposes of this section.’’. 

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

18 the Internal Revenue Code of 1986 (relating to general 

19 business credit) is amended—

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

21 (14), 

22 (2) by striking the period at the end of para23 graph (15) and inserting ‘‘, plus’’, and 

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

25 paragraph: 
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1 ‘‘(16) the reserve component employment credit 

2 determined under section 45G(a).’’. 

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

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

5 of the Internal Revenue Code of 1986 is amended by in6 serting after the item relating to section 45F the following 

7 new item:

‘‘Sec. 45G. Reserve component employment credit.’’.

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2002.

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