[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 240 Introduced in Senate (IS)]







109th CONGRESS
  1st Session
                                 S. 240

  To amend the Internal Revenue Code of 1986 to allow small business 
  employers a credit against income tax with respect to employees who 
participate in the military reserve components and are called to active 
     duty and with respect to replacement employees and to allow a 
   comparable credit for activated military reservists who are self-
             employed individuals, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 1, 2005

 Mr. Kerry (for himself, Mr. Leahy, Mrs. Murray, Mr. Rockefeller, Mr. 
  Durbin, Mr. Pryor, and Ms. Stabenow) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to allow small business 
  employers a credit against income tax with respect to employees who 
participate in the military reserve components and are called to active 
     duty and with respect to replacement employees and to allow a 
   comparable credit for activated military reservists who are self-
             employed individuals, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Military Reservist 
Tax Credit Act''.

SEC. 2. CREDIT FOR INCOME DIFFERENTIAL FOR EMPLOYMENT OF ACTIVATED 
              MILITARY RESERVIST AND REPLACEMENT PERSONNEL.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.) is amended by adding at the end the following new section:

``SEC. 30B. EMPLOYER WAGE CREDIT FOR ACTIVATED MILITARY RESERVISTS.

    ``(a) General Rule.--There shall be allowed as a credit against the 
tax imposed by this chapter for the taxable year an amount equal to the 
sum of--
            ``(1) in the case of a small business employer, the 
        employment credit with respect to all qualified employees and 
        qualified replacement 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) Qualified employees.--
                    ``(A) 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 lesser of--
                            ``(i) the excess, if any, of--
                                    ``(I) the qualified employee's 
                                average daily qualified compensation 
                                for the taxable year, over
                                    ``(II) the average daily military 
                                pay and allowances received by the 
                                qualified employee during the taxable 
                                year, while participating in qualified 
                                reserve component duty to the exclusion 
                                of the qualified employee's normal 
                                employment duties for the number of 
                                days the qualified employee 
                                participates in qualified reserve 
                                component duty during the taxable year, 
                                including time spent in a travel 
                                status, or
                            ``(ii) $30,000.
                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.
                    ``(B) Average daily qualified compensation and 
                average daily military pay and allowances.--As used 
                with respect to a qualified employee--
                            ``(i) the term `average daily qualified 
                        compensation' means the qualified compensation 
                        of the qualified employee for the taxable year 
                        divided by the difference between--
                                    ``(I) 365, and
                                    ``(II) the number of days the 
                                qualified employee participates in 
                                qualified reserve component duty during 
                                the taxable year, including time spent 
                                in a travel status, and
                            ``(ii) the term `average daily military pay 
                        and allowances' means--
                                    ``(I) the amount paid to the 
                                qualified employee during the taxable 
                                year as military pay and allowances on 
                                account of the qualified employee's 
                                participation in qualified reserve 
                                component duty, divided by
                                    ``(II) the total number of days the 
                                qualified employee participates in 
                                qualified reserve component duty, 
                                including time spent in travel status.
                    ``(C) Qualified compensation.--When used with 
                respect to the compensation paid or that would have 
                been paid to a qualified employee for any period during 
                which the qualified employee participates in qualified 
                reserve component duty, the term `qualified 
                compensation' means--
                            ``(i) compensation which is normally 
                        contingent on the qualified employee's presence 
                        for work and which would be deductible from the 
                        taxpayer's gross income under section 162(a)(1) 
                        if the qualified employee were present and 
                        receiving such compensation,
                            ``(ii) compensation 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 of 
                        absence, and with respect to which the number 
                        of days the qualified employee participates in 
                        qualified reserve component 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 
                        qualified employee, and
                            ``(iii) group health plan costs (if any) 
                        with respect to the qualified employee.
                    ``(D) Qualified employee.--The term `qualified 
                employee' means a person who--
                            ``(i) has been an employee of the taxpayer 
                        for the 91-day period immediately preceding the 
                        period during which the employee participates 
                        in qualified reserve component duty, and
                            ``(ii) 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.
            ``(2) Qualified replacement employees.--
                    ``(A) In general.--The employment credit with 
                respect to a qualified replacement employee of the 
                taxpayer for any taxable year is equal to 50 percent of 
                the lesser of--
                            ``(i) the individual's qualified 
                        compensation attributable to service rendered 
                        as a qualified replacement employee, or
                            ``(ii) $12,000.
                The employment credit, with respect to all qualified 
                replacement employees, is equal to the sum of the 
                employment credits for each qualified replacement 
                employee under this subsection.
                    ``(B) Qualified compensation.--When used with 
                respect to the compensation paid to a qualified 
                replacement employee, the term `qualified compensation' 
                means--
                            ``(i) compensation which is normally 
                        contingent on the qualified replacement 
                        employee's presence for work and which is 
                        deductible from the taxpayer's gross income 
                        under section 162(a)(1),
                            ``(ii) compensation 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 of 
                        absence, and
                            ``(iii) group health plan costs (if any) 
                        with respect to the qualified replacement 
                        employee.
                    ``(C) Qualified replacement employee.--The term 
                `qualified replacement employee' means an individual 
                who is hired to replace a qualified employee or a 
                qualified self-employed taxpayer, but only with respect 
                to the period during which such employee or taxpayer 
                participates in qualified reserve component duty, 
                including time spent in travel status.
    ``(c) Self-Employment Credit.--For purposes of this section--
            ``(1) In general.--The self-employment credit of a 
        qualified self-employed taxpayer for any taxable year is equal 
        to 50 percent of the lesser of--
                    ``(A) the excess, if any, of--
                            ``(i) the self-employed taxpayer's average 
                        daily self-employment income for the taxable 
                        year over
                            ``(ii) the average daily military pay and 
                        allowances received by the taxpayer during the 
                        taxable year, while participating in qualified 
                        reserve component duty to the exclusion of the 
                        taxpayer's normal self-employment duties for 
                        the number of days the taxpayer participates in 
                        qualified reserve component duty during the 
                        taxable year, including time spent in a travel 
                        status, or
                    ``(B) $30,000.
            ``(2) Average daily self-employment income and average 
        daily military pay and allowances.--As used with respect to a 
        self-employed taxpayer--
                    ``(A) the term `average daily self-employment 
                income' means the self-employment income (as defined in 
                section 1402(b)) of the taxpayer for the taxable year 
                plus the amount paid for insurance which constitutes 
                medical care for the taxpayer for such year (within the 
                meaning of section 162(l)) divided by the difference 
                between--
                            ``(i) 365, and
                            ``(ii) the number of days the taxpayer 
                        participates in qualified reserve component 
                        duty during 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 taxpayer's 
                        participation in qualified reserve component 
                        duty, divided by
                            ``(ii) the total number of days the 
                        taxpayer participates in qualified reserve 
                        component 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-employment (as 
                defined in section 1402(a)) 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) Credit in Addition to Deduction.--The employment credit or 
the self-employment credit provided in this section is in addition to 
any deduction otherwise allowable with respect to compensation actually 
paid to a qualified employee, qualified replacement employee, or 
qualified self-employed taxpayer during any period the qualified 
employee or qualified self-employed taxpayer participates in qualified 
reserve component duty to the exclusion of normal employment duties.
    ``(e) Coordination With Other Credits.--The amount of credit 
otherwise allowable under sections 51(a) and 1396(a) with respect to 
any employee shall be reduced by the credit allowed by this section 
with respect to such employee.
    ``(f) Limitations.--
            ``(1) Application with other credits.--The credit allowed 
        under subsection (a) for any taxable year shall not exceed the 
        excess (if any) of--
                    ``(A) the regular tax for the taxable year reduced 
                by the sum of the credits allowable under subpart A and 
                sections 27, 29, and 30, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(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, 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
                    ``(B) the 2 succeeding taxable years.
            ``(3) Disallowance with respect to persons ordered to 
        active duty for training.--No credit shall be allowed under 
        subsection (a) to a taxpayer with respect to any period by 
        taking into account any person who 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.
                    ``(C) Full-time National Guard duty, as defined in 
                section 101(d)(5) of title 10, United States Code.
    ``(g) General Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Small business employer.--
                    ``(A) 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.
                    ``(B) Controlled groups.--For purposes of 
                subparagraph (A), 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) 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.
            ``(3) Qualified reserve component duty.--The term 
        `qualified reserve component duty' includes only active duty 
        performed, as designated in the reservist's military orders, in 
        support of a contingency operation as defined in section 
        101(a)(13) of title 10, United States Code.
            ``(4) Special rules for certain manufacturers.--
                    ``(A) In general.--In the case of any qualified 
                manufacturer--
                            ``(i) subsections (b)(1)(A)(ii) and 
                        (c)(1)(B) shall be applied by substituting 
                        `$40,000' for `$30,000',
                            ``(ii) subsection (b)(2)(A)(ii) shall be 
                        applied by substituting `$20,000' for 
                        `$12,000', and
                            ``(iii) paragraph (1)(A) of this subsection 
                        shall be applied by substituting `100' for 
                        `50'.
                    ``(B) Qualified manufacturer.--For purposes of this 
                paragraph, the term `qualified manufacturer' means any 
                person if--
                            ``(i) the primary business of such person 
                        is classified in sector 31, 32, or 33 of the 
                        North American Industrial Classification 
                        System, and
                            ``(ii) all of such person's facilities 
                        which are used for production in such business 
                        are located in the United States.
            ``(5) Carryback and carryforward allowed.--
                    ``(A) In general.--If the credit allowable under 
                subsection (a) for a taxable year exceeds the amount of 
                the limitation under subsection (f)(1) for such taxable 
                year (in this paragraph referred to as the `unused 
                credit year'), such excess shall be a credit carryback 
                to each of the 3 taxable years preceding the unused 
                credit year and a credit carryforward to each of the 20 
                taxable years following the unused credit year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryback and 
                credit carryforward under subparagraph (A).
            ``(6) Certain rules to apply.--Rules similar to the rules 
        of subsections (c), (d), and (e) of section 52 shall apply.''.
    (b) Conforming Amendment.--Section 55(c)(2) of the Internal Revenue 
Code of 1986 is amended by inserting ``30B(f)(1),'' after 
``30(b)(3),''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end of 30A the following new item:

``Sec. 30B. Employer wage credit for activated military reservists''.
    (d) Effective Date; Special Rule.--
            (1) Effective date.--The amendments made by this section 
        shall apply to amounts paid after September 11, 2001, in 
        taxable years ending after such date.
            (2) Waiver of limitations.--If refund or credit of any 
        overpayment of tax resulting from the amendments made by this 
        section is prevented at any time before the close of the 1-year 
        period beginning on the date of the enactment of this Act by 
        the operation of any law or rule of law (including res 
        judicata), such refund or credit may nevertheless be made or 
        allowed if claim therefor is filed before the close of such 
        period.
                                 <all>