SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Reserve Employer Tax
Credit Act of 2001’’.
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. 45E. 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-
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
(12),
(2) by striking the period at the end of para-
graph (13) and inserting ‘‘, plus’’, and
(3) by adding at the end the following new
paragraph:
‘‘(14) the reserve force participation credit de-
termined under section 45E(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 45D the following
new item:
‘‘Sec. 45E. 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.
SEC. 3. DEDUCTION OF CERTAIN EXPENSES PAID OR IN-
CURRED BY MEMBERS OF THE RESERVE
COMPONENTS OF THE ARMED FORCES.
(a) IN GENERAL.—Paragraph (2) of section 62(a) of
the Internal Revenue Code of 1986 (defining adjusted
gross income) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(D) CERTAIN EXPENSES OF MEMBERS OF
RESERVE COMPONENTS OF THE ARMED FORCES
OF THE UNITED STATES.—The deductions al-
lowed by part VI (section 161 and following)
which consist of—
‘‘(i) expenses of travel, meals, and
lodging while away from home, and
‘‘(ii) expenses of transportation,
paid or incurred by the taxpayer in connection
with the performance of services by such tax-
payer as a member of a Reserve component of
the Armed Forces (as defined in section 10101
of title 10, United States Code).’’.
(b) TWO PERCENT FLOOR ON ITEMIZED DEDUC-
TIONS NOT TO APPLY.—Subsection (b) of section 67 of
such Code is amended by striking ‘‘and’’ at the end of
paragraph (11), by striking the period at the end of para-
graph (12) and inserting ‘‘, and’’, and by adding at the
end the following new paragraph:
‘‘(13) the deductions under part VI (section
161 and following) for expenses paid or incurred by
the taxpayer in connection with the performance of
services by such taxpayer as a member of a Reserve
component of the Armed Forces (as defined in sec-
tion 10101 of title 10, United States Code).’’.
(c) 50-PERCENT CEILING ON DEDUCTION FOR MEAL
AND
ENTERTAINMENT, ETC., EXPENSES
NOT
TO
APPLY.—Paragraph (2) of section 274(n) of such Code
is amended by striking ‘‘or’’ at the end of subparagraph
(D), by striking the period at the end of subparagraph
(E) and inserting ‘‘, or’’, and by inserting after subpara-
graph (E) the following new subparagraph:
‘‘(F) any expense in connection with the
performance of services by the taxpayer as a
member of a Reserve component of the Armed
Forces (as defined in section 10101 of title 10,
United States Code).’’.
(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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