article: SECTION 1. RESERVE FORCES PARTICIPATION CREDIT. (a) 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 adding at the end the following new section: ``SEC. 45C. RESERVE FORCES PARTICIPATION CREDIT. ``(a) General Rule.--For purposes of section 38, the reserve forces participation credit determined under this section is an amount equal to the sum of-- ``(1) the aggregate of the employment credits with respect to qualified employees of a taxpayer, plus ``(2) if the taxpayer is a qualified self-employed taxpayer, the self-employment credit. ``(b) Employment Credit.--For purposes of this section-- ``(1) In general.--The employment credit with respect to a qualified employee of a taxpayer for any taxable year is an amount equal to the lesser of-- ``(A) 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 reserve duty, or ``(B) $2,000. ``(2) Qualified compensation.--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 taxpayer as vacation or holiday pay, or as sick leave or pay, or as any other form of pay for a nonspecific leave absence, and with respect to which the number of days the employee participates in qualified reserve duty does not result in any reduction in the amount of vacation time, sick leave, or other nonspecific leave previously credited to or earned by the employee. ``(3) Qualified employee.--The term `qualified employee' means a person who-- ``(A) has been a full-time employee of a 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. ``(4) Credit in addition to deduction.--The employment credit provided in this section is in addition to any deduction otherwise allowable with respect to compensation actually paid to a qualified employee during any period the employee participates in qualified reserve duty to the exclusion of normal employment duties. ``(c) Self-Employment Credit.-- ``(1) In general.--In the case of a qualified self-employed taxpayer, the self-employment credit for any taxable year is equal to 50 percent of the excess (if any) of-- ``(A) the taxpayer's average daily self-employment income for the taxable year over ``(B) the average daily military pay and allowances received by the taxpayer during the taxable year while participating in qualified reserve duty to the exclusion of the taxpayer's normal self-employment duties for the number of days the taxpayer participates in qualified reserve duty during the taxable year, including time spent in a travel status. ``(2) Average daily self-employment income and average daily military pay and allowances.--As used with respect to a self-employed taxpayer-- ``(A) Average daily self-employment income.--The term `average daily self-employment income' means the net earnings from self-employment (as defined in section 1402) of the taxpayer for the taxable year divided by the difference between-- ``(i) 365, and ``(ii) the number of days the taxpayer participates in qualified reserve duty during the taxable year, including time spent in a travel status. ``(B) Average daily military pay and allowances.-- The term `average daily military pay and allowances' means-- ``(i) the amount paid to the taxpayer during a taxable year as military pay on account of the taxpayer's participation in qualified reserve duty, divided by ``(ii) the total number of days the taxpayer participates in qualified reserve duty, including, if applicable, 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-employment (as defined in section 1402) for the taxable year, and ``(B) is a member of the Ready Reserve of a reserve component of an Armed Force of the United States. ``(d) Limitations.-- ``(1) Maximum credit.--The credit determined under subsection (a) for the taxable year shall not exceed $7,500. ``(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 by reason of subsection (a) to a taxpayer for-- ``(A) any taxable year in which the taxpayer complies with 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 ``(B) the two succeeding taxable years. ``(3) Disallowance with respect to persons ordered to active duty for training.--No credit shall be allowed by reason of 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 of the 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 defined in section 101(d)(5) of title 10, United State Code. ``(e) General Definitions.-- ``(1) Military pay and allowances.--The term `military pay' means pay as that term is defined in section 101(21) of title 37, United States Code, and the term `allowances' means the allowances 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 performed in support of, as designated in the reservist's military orders, a contingency operation as defined in section 101(a)(13), of title 10, United States Code. ``(3) Normal employment and self-employment duties.--A person shall be deemed to be participating in qualified reserve duty to the exclusion of normal employment or self-employment duties if the person does not engage in or undertake any substantial activity related to the person's normal employment or self-employment duties while participating in qualified reserve duty unless in an authorized leave status or other authorized absence form military duties. If a person engages in or undertakes any substantial activity related to the person's normal employment or self-employment duties at any time while participating in a period of qualified reserve duty, unless during a period of authorized 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. ``(f) Controlled groups.--All persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as a single employer for purposes of this section.'' (b) Credit to be Part of General Business Credit.--Subsection (b) of section 38 of such Code (relating to general business credit) is amended-- (1) by striking ``plus'' at the end of paragraph (10); (2) by striking the period at the end of paragraph (11) and inserting ``, plus''; and (3) by adding at the end the following new paragraph: ``(12) the reserve forces participation credit determined under section 45C(a).''. (c) Clerical Amendment.--The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item: ``Sec. 45C. Reserve forces participation credit.''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1995.
summary: Amends the Internal Revenue Code to allow a tax credit to employers of members of reserve components of the armed forces and to self-employed individuals who are members of such reserve components.