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, 2004, 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 sub-
chapter 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 deter-
mined 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 re-
spect 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 pur-
poses 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 train-
ing 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 ab-
sence from employment under chapter 43 of 
title 38, United States Code, and 
‘‘(B) hospitalization incident to such duty. 
‘‘(3) COMPENSATION.—The term ‘compensa-
tion’ 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 tax-
payer’s gross income under section 162(a)(1). 
‘‘(4) READY
RESERVE-NATIONAL
GUARD
EM-
PLOYEE.—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. 
‘‘(5) CERTAIN RULES TO APPLY.—Rules similar 
to the rules of section 52 shall apply.’’. 
(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)