To amend the Internal Revenue Code of 1986 to protect the financial stability of activated members of the Ready-Reserve and National Guard while serving abroad.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Guard and Reserve Financial 
Stability Act of 2005''.

SEC. 2. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND READY RESERVE-
              NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.

    (a) Ready Reserve-National Guard Credit.--
            (1) In general.--Subpart D of part IV of subchapter 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, in the case of an 
eligible taxpayer, the Ready Reserve-National Guard employee credit 
determined under this section for any taxable year with respect to each 
Ready Reserve-National Guard employee of such taxpayer is an amount 
equal to 50 percent of the lesser of--
            ``(1) the actual compensation amount with respect 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 an eligible 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 purposes of this 
section--
            ``(1) Eligible taxpayer.--
                    ``(A) In general.--The term `eligible taxpayer' 
                means a small business employer.
                    ``(B) Small business employer.--
                            ``(i) In general.--The term `small business 
                        employer' means, with respect to any taxable 
                        year, any employer who employed an average of 
                        50 or fewer employees on business days during 
                        such taxable year.
                            ``(ii) Controlled groups.--For purposes of 
                        clause (i), all persons treated as a single 
                        employer under subsection (b), (c), (m), or (o) 
                        of section 414 shall be treated as a single 
                        employer.
            ``(2) Qualified active duty.--The term `qualified active 
        duty' means--
                    ``(A) active duty 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 training 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 absence from employment under 
                chapter 43 of title 38, United States Code, and
                    ``(B) hospitalization incident to such duty.
            ``(3) Compensation.--The term `compensation' 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 taxpayer's gross income under section 162(a)(1).
            ``(4) Ready reserve-national guard employee.--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.
    ``(e) Termination.--This section shall not apply to any amount paid 
or incurred after December 31, 2006.''.
            (2) 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) and inserting ``, plus'', 
        and by adding at the end the following:
            ``(20) the Ready Reserve-National Guard employee credit 
        determined under section 45J(a).''.
            (3) Denial of double benefit.--Section 280C(a) of the 
        Internal Revenue Code of 1986 (relating to rule for employment 
        credits) is amended by inserting ``45J(a),'' after ``45A(a),''.
            (4) Conforming 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 inserting after the 
        item relating to section 45I the following:

``Sec. 45J. Ready Reserve-National Guard employee credit.''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after September 30, 
        2004, in taxable years ending after such date.
    (b) Ready Reserve-National Guard Replacement Employee Credit.--
            (1) In general.--Paragraph (1) of section 51(d) of the 
        Internal Revenue Code of 1986 (relating to members of targeted 
        groups) is amended by striking ``or'' at the end of 
        subparagraph (G), by striking the period at the end of 
        subparagraph (H) and inserting ``, or'' and by adding at the 
        end the following new subparagraph:
                    ``(I) a qualified replacement employee.''.
            (2) Qualified replacement employee.--Section 51(d) of the 
        Internal Revenue Code of 1986 is amended by redesignating 
        paragraphs (10), (11), and (12) as paragraphs (11), (12), and 
        (13), respectively, and by inserting after paragraph (9) the 
        following new paragraph:
            ``(10) Qualified replacement employee.--
                    ``(A) In general.--The term `qualified replacement 
                employee' means an individual who is certified by the 
                designated local agency as being hired by an eligible 
                taxpayer to replace a Ready Reserve-National Guard 
                employee of such taxpayer, but only with respect to the 
                period during which such Ready Reserve-National Guard 
                employee participates in qualified active duty, 
                including time spent in travel status.
                    ``(B) General definitions and special rules.--For 
                purposes of this paragraph--
                            ``(i) Eligible taxpayer.--The term 
                        `eligible taxpayer' means a small business 
                        employer.
                            ``(ii) Small business employer.--
                                    ``(I) In general.--The term `small 
                                business employer' means, with respect 
                                to any taxable year, any employer who 
                                employed an average of 50 or fewer 
                                employees on business days during such 
                                taxable year.
                                    ``(II) Controlled groups.--For 
                                purposes of subclause (I), all persons 
                                treated as a single employer under 
                                subsection (b), (c), (m), or (o) of 
                                section 414 shall be treated as a 
                                single employer.
                            ``(iii) Ready reserve-national guard 
                        employee.--The term `Ready Reserve-National 
                        Guard employee' has the meaning given such term 
                        by section 45J(d)(3).
                            ``(iv) Qualified active duty.--The term 
                        `qualified active duty' has the meaning given 
                        such term by section 45J(d)(1).
                    ``(C) 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) by reason of paragraph (1)(I) to a taxpayer for--
                            ``(i) any taxable year, beginning after the 
                        date of the enactment of this section, in which 
                        the taxpayer 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 violation of chapter 43 
                        of such title, and
                            ``(ii) the 2 succeeding taxable years.''.
            (3) Extension of credit with respect to qualified 
        replacement employees.--Subparagraph (B) of section 51(c)(4) of 
        such Code (relating to termination) is amended by inserting 
        ``(December 31, 2006, in the case of amounts paid or incurred 
        to an individual who is a qualified replacement employee)'' 
        after ``2005''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred to an individual who 
        begins work for the employer after September 30, 2004.
    (c) Study by GAO.--
            (1) In general.--The Comptroller General of the United 
        States shall study the following:
                    (A) What, if any, problems exist in recruiting 
                individuals for a reserve component of an Armed Force 
                of the United States.
                    (B) Whether the credit allowed under section 45J of 
                the Internal Revenue Code of 1986 (as added by this 
                section) is an effective incentive for the hiring and 
                retention of employees who are individuals described in 
                subparagraph (A) and whether there exists any 
                compliance problems in the administration of such 
                credit.
            (2) Report.--The Comptroller General of the United States 
        shall report on the results of the study required under 
        paragraph (1) to the Committee on Finance of the Senate and the 
        Committee on Ways and Means of the House of Representatives 
        before December 1, 2005.

Summary: Guard and Reserve Financial Stability Act of 2005 - Amends the Internal Revenue Code to allow small employers (employers with 50 or fewer employees) a business tax credit for 50 percent of the lesser of: (1) actual compensation paid to each Ready Reserve-National Guard employee while on active duty or hospitalized incident to such duty; or (2) $30,000. Terminates such credit after 2006.

Allows employers a work opportunity tax credit for the hiring of temporary employees to replace Ready Reserve-National Guard employees for the period such employees are on active duty.