text: 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.
target: 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.
feat_title: To amend the Internal Revenue Code of 1986 to allow a credit against income tax to employers who employ members of the reserve components of the Armed Forces of the United States and to self-employed individuals who are members of such reserve components.