Targeted jobs tax credit settlement offer.

• Author: Moore, Philip E.
• Position: IRS Work Opportunity Credit

A new settlement initiative by the IRS may offer certain employers who respond quickly an unexpected refund opportunity. In News Release IR-2000-48, the Service announced a settlement initiative relating to the Targeted Jobs Tax Credit (previously Sec. 51), later replaced by the Work Opportunity Credit. The settlement initiative offers employers an opportunity to settle long-standing refund claims in an expedient manner by accepting 50% of the credit claimed. The purpose of the initiative is to avoid further litigation between the IRS and employers claiming the credit, when the Service has denied the credit because the employer failed to obtain certification from the appropriate state employment agency that its new hires belonged to any of the targeted groups. Of interest to practitioners is that the notice also indicates that the settlement initiative is available to employers who now file timely refund claims.

One of the requirements to claim the credit is that the employer must timely request certification from the responsible state agency that an employee was a member of a targeted group. Many employers, however, were unable to receive the required certifications, for a variety of reasons. One reason cited by the IRS is the discontinuation of the certification process by some state agencies as a result of the expiration of Federal funding in 1994. In 1999, a Maryland district court, in Perdue Farms, Inc., held that Perdue was entitled to a refund of over $2.1 million on Targeted Jobs Tax Credits it had not previously claimed, because it had attempted to obtain certification but was unable to do so when the appropriate state agency had stopped issuing certificates.

A timely request is either a written request submitted to the appropriate state agency on or before the day the individual began work, or, if the individual presented the employer with a written preliminary determination that he is a member of a targeted group, a written request to the state agency no later than five days after start of employment. (Query: What if the appropriate state or local agency did not exist at the time the employee was hired and the certification could not be obtained?)

Only taxpayers satisfying all the credit requirements (except for certification) and having timely claimed the credit are being offered the settlement option. Cases currently in litigation before Federal district courts or Appeals courts are not included in this settlement initiative...