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IRS further extends due date for employers to claim revived work opportunity tax credit

Notice 2016-40, 2016-27 IRB

A new notice extends previously-existing transitional relief for eligible employers who want to claim the work opportunity tax credit (WOTC), as retroactively extended by the Protecting Americans from Tax Hikes Act of 2015 (the Act, P.L. 114-113). The transitional relief gives employers three extra months—until Sept. 28, 2016—to file the forms necessary to claim the credit for certain eligible workers.

Background. The WOTC allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages. Section 142(a) of the Act amended Code Sec. 51(c) to extend the WOTC through Dec. 31, 2019. Effective as of Jan. 1, 2016, Section 142(b) of the Act amended Code Sec. 51(d) to expand the “targeted groups” of individuals, the employment of whom may qualify the employer for a credit listed in the statute, to include qualified long-term unemployment recipients (as defined in Code Sec. 51(d)(15)).

An individual isn’t treated as a member of a targeted group for WOTC purposes unless:

1. on or before the day the individual begins work, the employer obtains certification from the designated local agency (DLA) that the individual is a member of a targeted group (Code Sec. 51(d)(13)(A)(i)); or
2. the employer completes a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit), on or before the day the individual is offered employment and submits such notice to the DLA to request certification not later than 28 days after the individual begins work (Code Sec. 51(d)(13)(A)(ii)).

An employer also must submit a Department of Labor Employment and Training Administration (ETA) Form 9061 (Individual Characteristics Form) or 9062 (Conditional Certification) to the DLA.

Previously-existing transition relief for otherwise eligible employers. Under Notice 2016-22, 2016-13 IRB 488 (Weekly Alert ¶  42  03/10/2016), which was issued this past March:

…An employer that hired a member of a targeted group other than qualified long-term unemployment recipients and who began or begins work for that employer on or after Jan. 1, 2015, and on or before May 31, 2016, will be considered to have satisfied the requirements of Code Sec. 51(d)(13)(A)(ii) if the employer submits the completed IRS Form 8850 to the DLA to request certification no later than June 29, 2016.
…An employer that hired an individual who is a long-term unemployment recipient described in Code Sec. 51(d)(1)(J) and who began or begins work for that employer on or after Jan. 1, 2016, and on or before May 31, 2016, will be considered to have satisfied the requirements of Code Sec. 51(d)(13)(A)(ii) if the employer submits the completed IRS Form 8850 to the DLA to request certification no later than June 29, 2016.

Notice 2016-22 also provided that IRS Form 8850 and ETA Forms 9061 and 9062 were being modified consistent with the guidance in Notice 2016-22 so that they can be used to request certification by the DLAs for qualified long-term unemployment recipients.

New Notice further extends relief. Notice 2016-40 provides qualifying taxpayers three additional months to meet the requirements described above. It does so by making the following changes to dates in Notice 2016-22:

…replaces May 31, 2016 with Aug. 31, 2016; and
…replaces June 29, 2016 with Sept. 28, 2016.

The extension reflects that, while IRS has completed its update of IRS Form 8850, the ETA has informed IRS that it intends to release the updated ETA forms and processing instructions for the DLAs coincident with the release of Notice 2016-40, and IRS wishes to encourage employers to generally submit to DLAs the IRS Form 8850 and ETA Forms 9061 or 9062 together in the same submission, to reduce burdens and the likelihood of processing delays.

An employer that hires a member of a targeted group, including a long-term unemployment recipient, who begins work for that employer on or after Sept. 1, 2016, is not eligible for the transition relief described in Notice 2016-40 with respect to any such new hire.

Other than extending the period of transition relief, Notice 2016-40 does not modify or add to the guidance provided in Notice 2016-22.

References: For the WOTC, see FTC 2d/FIN ¶  L-17775; United States Tax Reporter ¶  514; TaxDesk ¶  380,700; TG ¶  14976.