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 self-
employed 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 em-
ployers a credit against income tax with respect to em-
ployees who participate in the military reserves and to
allow a comparable credit for participating self-employed
individuals.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Reserve Employer Tax
Credit Act of 1999’’.
SEC. 2. TAX CREDIT FOR RESERVE FORCES PARTICIPA-
TION.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business-related credits) is amended by
adding at the end the following new section:
‘‘SEC. 45D. RESERVE FORCE PARTICIPATION CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the reserve force participation credit determined under
this section is an amount equal to the sum of—
‘‘(1) the employment credit with respect to all
qualified employees of the taxpayer, plus
‘‘(2) the self-employment credit of a qualified
self-employed taxpayer.
‘‘(b) EMPLOYMENT CREDIT.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The employment credit
with respect to a qualified employee of the taxpayer
for any taxable year is equal to 50 percent of the
amount of qualified compensation that would have
been paid to the employee with respect to all periods
during which the employee participates in qualified
reserve duty to the exclusion of normal employment
duties, including time spent in a travel status had
the employee not been participating in qualified re-
serve duty. The employment credit, with respect to
all qualified employees, is equal to the sum of the
employment credits for each qualified employee
under this subsection.
‘‘(2) QUALIFIED COMPENSATION.—When used
with respect to the compensation paid or that would
have been paid to a qualified employee for any pe-
riod during which the employee participates in quali-
fied reserve duty, the term ‘qualified compensation’
means compensation—
‘‘(A) which is normally contingent on the
employee’s presence for work and which would
be deductible from the taxpayer’s gross income
under section 162(a)(1) if the employee were
present and receiving such compensation, and
‘‘(B) which is not characterized by the tax-
payer as vacation or holiday pay, or as sick
leave or pay, or as any other form of pay for
a nonspecific leave of absence, and with respect
to which the number of days the employee par-
ticipates in qualified reserve duty does not re-
sult in any reduction in the amount of vacation
time, sick leave, or other nonspecific leave pre-
viously credited to or earned by the employee.
‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali-
fied employee’ means a person who—
‘‘(A) has been an employee of the taxpayer
for the 21-day period immediately preceding the
period during which the employee participates
in qualified reserve duty, and
‘‘(B) is a member of the Ready Reserve of
a reserve component of an Armed Force of the
United States as defined in sections 10142 and
10101 of title 10, United States Code.
‘‘(c) SELF-EMPLOYMENT CREDIT.—
‘‘(1) IN GENERAL.—The self-employment credit
of a qualified self-employed taxpayer for any taxable
year is equal to 50 percent of the excess, if any, of—
‘‘(A) the self-employed taxpayer’s average
daily self-employment income for the taxable
year over
‘‘(B) the average daily military pay and al-
lowances received by the taxpayer during the
taxable year, while participating in qualified re-
serve duty to the exclusion of the taxpayer’s
normal self-employment duties for the number
of days the taxpayer participates in qualified re-
serve duty during the taxable year, including
time spent in a travel status.
‘‘(2) AVERAGE
DAILY
SELF-EMPLOYMENT
IN-
COME AND AVERAGE DAILY MILITARY PAY AND AL-
LOWANCES.—As used with respect to a self-em-
ployed taxpayer—
‘‘(A) the term ‘average daily self-employ-
ment income’ means the self-employment in-
come (as defined in section 1402) of the tax-
payer for the taxable year divided by the dif-
ference between—
‘‘(i) 365, and
‘‘(ii) the number of days the taxpayer
participates in qualified reserve duty dur-
ing the taxable year, including time spent
in a travel status, and
‘‘(B) the term ‘average daily military pay
and allowances’ means—
‘‘(i) the amount paid to the taxpayer
during the taxable year as military pay
and allowances on account of the tax-
payer’s participation in qualified reserve
duty, divided by
‘‘(ii) the total number of days the tax-
payer participates in qualified reserve duty,
including time spent in travel status.
‘‘(3) QUALIFIED SELF-EMPLOYED TAXPAYER.—
The term ‘qualified self-employed taxpayer’ means a
taxpayer who—
‘‘(A) has net earnings from self-employ-
ment (as defined in section 1402) for the tax-
able year, and
‘‘(B) is a member of the Ready Reserve of
a reserve component of an Armed Force of the
United States.
‘‘(d) CREDIT IN ADDITION TO DEDUCTION.—The
employment credit provided in this section is in addition
to any deduction otherwise allowable with respect to com-
pensation actually paid to a qualified employee during any
period the employee participates in qualified reserve duty
to the exclusion of normal employment duties.
‘‘(e) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The credit allowed by
subsection (a) for the taxable year—
‘‘(i) shall not exceed $7,500 in the ag-
gregate, and
‘‘(ii) shall not exceed $2,000 with re-
spect to each qualified employee.
‘‘(B) CONTROLLED
GROUPS.—For pur-
poses of applying the limitations in subpara-
graph (A)—
‘‘(i) all members of a controlled group
shall be treated as one taxpayer, and
‘‘(ii) such limitations shall be allo-
cated among the members of such group in
such manner as the Secretary may pre-
scribe.
For purposes of this subparagraph, all persons
treated as a single employer under subsection
(a) or (b) of section 52 or subsection (m) or (o)
of section 414 shall be treated as members of
a controlled group.
‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY
WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF
MEMBERS OF THE RESERVE COMPONENTS OF THE
ARMED FORCES OF THE UNITED STATES.—No credit
shall be allowed under subsection (a) to a taxpayer
for—
‘‘(A) any taxable year in which the tax-
payer is under a final order, judgment, or other
process issued or required by a district court of
the United States under section 4323 of title 38
of the United States Code with respect to a vio-
lation of chapter 43 of such title, and
‘‘(B) the two succeeding taxable years.
‘‘(3) DISALLOWANCE WITH RESPECT TO PER-
SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—
No credit shall be allowed under subsection (a) to a
taxpayer with respect to any period for which the
person on whose behalf the credit would otherwise be
allowable is called or ordered to active duty for any
of the following types of duty:
‘‘(A) active duty for training under any
provision of title 10, United States Code,
‘‘(B) training at encampments, maneuvers,
outdoor target practice, or other exercises under
chapter 5 of title 32, United States Code, or
‘‘(C) full-time National Guard duty, as de-
fined in section 101(d)(5) of title 10, United
States Code.
‘‘(f) GENERAL DEFINITIONS AND SPECIAL RULES.—
‘‘(1) MILITARY
PAY
AND
ALLOWANCES.—The
term ‘military pay’ means pay as that term is de-
fined in section 101(21) of title 37, United States
Code, and the term ‘allowances’ means the allow-
ances payable to a member of the Armed Forces of
the United States under chapter 7 of that title.
‘‘(2) QUALIFIED
RESERVE
DUTY.—The term
‘qualified reserve duty’ includes only active duty per-
formed, as designated in the reservist’s military or-
ders, in support of a contingency operation as de-
fined in section 101(a)(13) of title 10, United States
Code.
‘‘(3) NORMAL
EMPLOYMENT
AND
SELF-EM-
PLOYMENT DUTIES.—A person shall be deemed to
be participating in qualified reserve duty to the ex-
clusion of normal employment or self-employment
duties if the person does not engage in or undertake
any substantial activity related to the person’s nor-
mal employment or self-employment duties while
participating in qualified reserve duty unless in an
authorized leave status or other authorized absence
from military duties. If a person engages in or un-
dertakes any substantial activity related to the per-
son’s normal employment or self-employment duties
at any time while participating in a period of quali-
fied reserve duty, unless during a period of author-
ized leave or other authorized absence from military
duties, the person shall be deemed to have engaged
in or undertaken such activity for the entire period
of qualified reserve duty.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of subsections (c), (d), and (e) of section
52 shall apply for purposes of this section.’’
(b) CONFORMING AMENDMENT.—Section 38(b) of
the Internal Revenue Code of 1986 (relating to general
business credit) is amended—
(1) by striking ‘‘plus’’ at the end of paragraph
(11),
(2) by striking the period at the end of para-
graph (12) and inserting ‘‘, plus’’, and
(3) by adding at the end the following new
paragraph:
‘‘(13) the reserve force participation credit de-
termined under section 45D(a).’’.
(c) CLERICAL 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 in-
serting after the item relating to section 45C the following
new item:
‘‘Sec. 45D. Reserve force participation credit.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the calendar year which includes the date of the enactment
of this Act.
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