text: 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 PARTICIPATION.
  
      (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. 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 reserve 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 period during which the employee 
          participates in qualified 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 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 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 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 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) the term `average daily self-employment 
                  income' means the self-employment income (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, 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 duty, 
                          divided by
                              ``(ii) the total number of days the 
                          taxpayer 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-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) 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.
      ``(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 
                          aggregate, and
                              ``(ii) shall not exceed $2,000 with respect 
                          to each qualified employee.
                      ``(B) Controlled groups.--For purposes of applying 
                  the limitations in subparagraph (A)--
                              ``(i) all members of a controlled group 
                          shall be treated as one taxpayer, and
                              ``(ii) such limitations shall be allocated 
                          among the members of such group in such manner 
                          as the Secretary may prescribe.
                  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 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 two 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 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 defined 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 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, 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.
              ``(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 from 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.
              ``(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 paragraph (13) and 
          inserting ``, plus'', and
              (3) by adding at the end the following new paragraph:
              ``(14) the reserve force participation credit determined 
          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 inserting 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 INCURRED 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 following new subparagraph:
                      ``(D) Certain expenses of members of reserve 
                  components of the armed forces of the united states.--
                  The deductions allowed 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 taxpayer 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 Deductions 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 paragraph (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 section 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 subparagraph (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.
target: Reserve Employer Tax Credit Act of 2001 - Amends the Internal Revenue Code to provide: (1) employers a business tax credit for a portion of compensation that was not paid with respect to members of the military reserves who were absent from work on qualified reserve duty; (2) a comparable credit for participating self-employed individuals; and (3) for the deduction of certain expenses paid or incurred by members of a Reserve component of the armed forces.
feat_title: To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax with respect to employees who participate in the military reserves, to allow a comparable credit for participating self-employed individuals, and to restore the pre-1986 status of deductions incurred in connection with services performed as a member of a Reserve component of the Armed Forces.