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.

May 11, 2005

Mrs. LOWEY introduced the following bill; which was referred to the Committee on Ways and Means

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.

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 `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.

END