On Oct. 10, 2019 the IRS released a LB&I and SB/SE Joint Directive on the Work Opportunity Tax Credit (WOTC) per Internal Revenue Code section 51 (section 51).
In general WOTC provides employers a tax credit for hiring individuals in certain targeted groups. An employer may claim the WOTC upon receipt of a certification that an individual employee is a member of a targeted group. An employer must first submit IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to the State Workforce Agency (SWA) to certify the employee. The Form 8850 is required to be submitted no later than the 28th calendar day after the employee begins to work for the employer. After receipt of the certification from the SWA, employers compute and claim the WOTC in the year in which they paid or incurred certified employees’ qualified wages.
There have been extended delays associated with the WOTC certification process in many States that has prevented some employers from being able to claim the WOTC on the tax return originally filed for the year in which the qualified wages were paid or incurred. This creates a need for employers to file multiple amended federal and state income tax returns, each year, to claim the WOTC in the year the employer paid or incurred the qualified wages. In lieu of filing amended returns, some employers have claimed the WOTC in the year they receive the delayed certifications for the qualified wages they paid or incurred in earlier year(s).
The IRS issued the following planning and examination guidance: To use resources effectively and to reduce administrative burden, the examiners shall not challenge the timing of when a taxpayer claims the WOTC, if the claimed WOTC complies with all requirements of section 51, but the WOTC is claimed in the year the taxpayer receives the delayed certification (Certification Year).
Although this directive is not an official pronouncement of law and cannot be used, cited or relied upon as such, it is an administrative convenience and IRS agents are expected to follow it.