n-12-13.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Section 51 - Work Opportunity Tax Credit; Section 52 – Special Rules;
Section 3111(e) – Credit for Employment of Qualified Veterans

Notice 2012-13

I. PURPOSE

This notice provides guidance on Returning Heroes and Wounded Warriors Work
Opportunity Tax Credits, included as § 261 of the VOW to Hire Heroes Act of 2011, Tit.
II, subtitle D, of Pub. L. No. 112-056 (Act), enacted on November 21, 2011. Section 261
of the Act amended §§ 51, 52, and 3111 of the Internal Revenue Code to provide a
credit for hiring certain qualified veterans. This notice also provides employers who hire
qualified veterans additional time beyond the 28-day deadline in § 51(d)(13) for
submitting Form 8850, Pre-screening Notice and Certification Request for the Work
Opportunity Credit, to Designated Local Agencies (DLAs).

This notice provides additional guidance on electronic signature and electronic
submission of Form 8850 and also informs all employers that the Internal Revenue

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Service (IRS) will allow the signature and submission of Form 8850 by facsimile to
DLAs that choose to accept such submissions.

This notice also requests comments on alternative methods for certification of a
veteran as a qualified veteran described in clause (ii)(II), (iii), or (iv) of § 51(d)(3)(A),

II. BACKGROUND

Section 51 provides for a Work Opportunity Tax Credit (WOTC) for employers
who hire individuals who are members of targeted groups. An employer must obtain
certification that an individual is a targeted group member before the employer may
claim the credit. Certification of an individual’s targeted group status is obtained from a
DLA. A DLA is a State employment security agency established in accordance with 29
U.S.C. §§ 49-49n. An employer must submit Form 8850 to the DLA not later than the
28
th
day after the individual begins work for the employer.

The WOTC applies to certain wages paid or incurred by employers with respect
to a member of a targeted group. Prior to enactment of the Act, § 51(c)(4)(B) provided
that wages paid or incurred with respect to an individual who begins work for the
employer after December 31, 2011, are not taken into account for purposes of the
WOTC. Thus, the credit is not available with respect to wages for persons who begin
work after December 31, 2011, other than qualified veterans. The Act extended the

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credit only with respect to qualified veterans who begin work for the employer on or
before December 31, 2012.

The Act amends § 51(d)(3) to add two new categories to the qualified veteran
targeted group. Under new § 51(d)(3)(A)(iii) and (iv), a qualified veteran is a veteran
certified as having aggregate periods of unemployment of at least 4 weeks but less than
6 months in the year prior to being hired or certified as having aggregate periods of
unemployment of 6 months or more in the year prior to being hired.

The amount of wages that an employer may take into account in computing the
credit differs for the various categories of qualified veterans. The Act amends
§ 51(b)(3), which provides the amount of qualified wages that an employer may take
into account in calculating the WOTC. Section 51(b)(3), as amended, provides that the
amount of qualified wages taken into account is limited to $6,000 per year in the case of
any individual who is a qualified veteran by reason of subsection (d)(3)(A)(i) (a veteran
certified as being a member of a family receiving assistance under a supplemental
nutrition assistance program under the Food and Nutrition Act of 2008 for at least a 3-
month period ending during the 12-month period ending on the hiring date) and
subsection (d)(3)(A)(iii) (a veteran certified as having aggregate periods of
unemployment of at least 4 weeks but less than 6 months in the year prior to being
hired); $12,000 per year in the case of any individual who is a qualified veteran by
reason of subsection (d)(3)(A)(ii)(I) (a disabled veteran who is certified as having a
hiring date which is not more than 1 year after discharge or release from active duty);

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$14,000 per year in the case of any individual who is a qualified veteran by reason of
subsection (d)(3)(A)(iv) (a veteran certified as having aggregate periods of
unemployment of 6 months or more in the year prior to being hired); and $24,000 per
year in the case of any individual who is a qualified veteran by reason of subsection
(d)(3)(A)(ii)(II) (a disabled veteran who is certified as having aggregate periods of
unemployment of 6 months or more in the year prior to being hired).

The Act amends § 51(d)(13)(D) to provide that a veteran will be treated as being
certified as having the requisite aggregate period of unemployment by the DLA if the
veteran is certified as being in receipt of unemployment compensation for the applicable
period. The Act also allows the Secretary of the Treasury to provide, at the Secretary’s
discretion, alternative methods for certification of a veteran as a qualified veteran
described in clause (ii)(II), (iii), or (iv) of § 51(d)(3)(A).

The Act amends § 51(c)(4)(B) to extend the credit and allow an employer to
claim the WOTC for qualified wages paid or incurred by the employer to a qualified
veteran who begins work on or before December 31, 2012.

The Act also amends § 52 and § 3111 to make a credit available to “qualified tax-
exempt organizations” that hire qualified veterans for which the WOTC would have been
allowable under § 51 if the organization were not a qualified tax-exempt organization.
Specifically, the Act adds new § 3111(e), which permits qualified tax-exempt

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organizations that hire qualified veterans on or after November 22, 2011, to claim a
credit against the employer share of social security tax imposed under § 3111(a).

The credit under § 3111(e)(1) is a credit against the tax imposed by § 3111(a) on
wages paid by the qualified tax-exempt organization with respect to employment of all
employees of the organization during the applicable period. Section 3111(e)(4) defines
the “applicable period” as the 1-year period beginning with the day the qualified veteran
begins work for the organization. The amount of the credit under § 3111(e) equals the
amount of the credit determined under § 51 (after application of the modifications under
§ 3111(e)(3)) with respect to wages paid to the qualified veteran during the applicable
period. However, under § 3111(e)(2), the aggregate amount allowed as a credit under
§ 3111(e) for all qualified veterans for any period with respect to which tax is imposed
under § 3111(a) cannot exceed the amount of the employer social security tax imposed
by § 3111(a) on all wages paid by the employer during such period.

As indicated above, the amount of the credit under § 3111(e) is determined
under § 51 but is subject to modifications under § 3111(e)(3). Specifically, § 3111(e)(3)
modifies the amount of the credit available to the qualified tax-exempt organization to
16.25 percent (rather than 25 percent) of the qualified first-year wages for the applicable
period if the veteran performs less than 400 hours but at least 120 hours of service, or
26 percent (rather than 40 percent) of the qualified first-year wages for the applicable
period if the veteran performs at least 400 hours of service for the qualified tax-exempt
organization. Further, to calculate the amount of the credit, the qualified tax-exempt

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organization only takes into account the wages paid to a qualified veteran for services in
furtherance of activities related to the purpose or function constituting the basis of the
organization's exemption under § 501. For example, wages for services in an unrelated
trade or business (as defined in § 513) are not counted for purposes of the credit.
Although wages are defined for purposes of the WOTC under § 51 as wages under the
Federal Unemployment Tax Act, for purposes of the credit available to qualified tax-
exempt organizations under § 3111(e), the term “wages” refers to wages under the
Federal Insurance Contributions Act.

New § 3111(e)(5)(A) defines “qualified tax-exempt organization” as an employer
that is an organization described in § 501(c) and exempt from taxation under § 501(a).
Accordingly, an employer that is an agency or instrumentality of the federal government,
or of a state, local, or Indian tribal government, is not a qualified tax-exempt
organization unless it is an organization described in § 501(c) that is exempt from tax
under § 501(a).

The requirements for certification under § 51, as amended by the Act, apply to
qualified tax-exempt organizations as well as to taxable employers. Accordingly, a
qualified tax-exempt organization must obtain certification, as required under § 51, that
an individual is a qualified veteran before it may claim the credit. The transition relief,
guidance on filing Forms 8850 with electronic signatures, and allowance of signature
and submission of Form 8850 by facsimile provided for in this notice apply to all
employers, including qualified tax-exempt organizations.

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III. TRANSITION RELIEF

Section 51(d)(13)(A) provides that an individual shall not be treated as a member
of a targeted group unless (1) on or before the day the individual begins work, the
employer obtains certification from the DLA that the individual is a member of a targeted
group; or (2) the employer completes a pre-screening notice (Form 8850) 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. Because the
credit, as amended, became effective on the day after enactment, the Treasury
Department and the IRS believe it is appropriate to provide employers with additional
time to file Form 8850 with a DLA. Accordingly, any employer who hires any qualified
veteran described in § 51(d)(3) on or after November 22, 2011, and before May 22,
2012, will be considered to satisfy the requirements of § 51(d)(13)(A)(ii) if the employer
submits the completed pre-screening notice to the DLA to request certification not later
than June 19, 2012.

IV. FILING OF FORM 8850 WITH ELECTRONIC SIGNATURES

Before any employer may claim the WOTC for hiring any member of a targeted
group (or, for qualified tax-exempt organizations, the § 3111(e) credit for hiring a
qualified veteran), that individual must be certified by the DLA as a member of a
targeted group. Section 51(d)(13)(A)(ii)(II) requires that, not later than the 28
th
day after

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the individual begins work for the employer, the employer submit a notice, signed by the
employer and the individual under penalties of perjury, to the DLA as part of a written
request for certification. For purposes of this Section IV, “employer” refers to any
employer required to submit a Form 8850 in order to obtain the WOTC under § 51 or
the equivalent credit under § 3111(e), or an authorized representative of such an
employer.

Employers may submit Form 8850 to the DLA electronically if the employer’s
system satisfies the requirements in Ann. 2002-44, 2002-1 C.B. 809. This Notice
makes available to employers two alternative methods of certification using electronic
signatures in addition to the electronic submission of Form 8850 as provided in Ann.
2002-44. The alternative methods are available to any employer required to submit a
Form 8850 in order to obtain the WOTC for any member of any targeted group under
§ 51 or the equivalent credit under § 3111(e).

First, an employer may print out a paper copy of the Form 8850 that was signed
electronically by both the applicant and the employer in accordance with the
requirements of Ann. 2002-44, and transmit that paper copy to the DLA (by mail or by
facsimile following the rules in Section V of this notice).

Second, an employer may file Form 8850 using a method under which the
applicant signs electronically but the employer signs in ink. More specifically, the
applicant signs Form 8850 electronically and the Form 8850 is transmitted electronically

9
to the employer in accordance with the requirements detailed below. Once received
and printed out, the paper copy of the Form 8850 shows “signed electronically” in the
field for the applicant’s signature. The employer signs that paper copy of that Form
8850 in ink, complying with the signature and jurat requirements on Form 8850 and the
Form 8850 instructions for the paper copy of Form 8850, and transmits that paper copy
to the DLA (by mail or by facsimile following the rules in Section V of this notice). Under
this second alternative method, the employer must satisfy all five of the following
requirements with respect to the Form 8850 that is electronically signed by the
applicant:

(i) In General
. The electronic system must ensure that the information
received is the information sent, and it must document all occasions of
access that result in the transmission of a Form 8850. In addition, the
design and operation of the electronic system, including access
procedures, must make it reasonably certain that the applicant signing the
Form 8850, accessing the system, and submitting the Form 8850 is the
applicant identified in the form.

(ii) Same Information as Paper Form 8850
. The electronically signed
Form 8850 must provide the DLA with exactly the same information as the
paper Form 8850.

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(iii) Jurat and Signature Requirements. The Form 8850 must be signed
electronically by the applicant under penalties of perjury.

(A) Jurat
. The jurat (perjury statement) must contain the language that
appears on the paper Form 8850 for the applicant. The electronic system
must inform the applicant that he or she must make the declaration
contained in the jurat and that the declaration is made by signing the Form
8850. The instructions and the language of the jurat must immediately
follow the information provided by the applicant, and must immediately
precede the applicant’s electronic signature.

(B) Electronic Signature
. The electronic signature must (1) identify the
applicant whose name is on the Form 8850 and the employer submitting
the Form 8850, and (2) authenticate and verify the form. For this purpose,
the terms “authenticate” and “verify” have the same meaning as they do
when applied to a written signature on a paper Form 8850. An electronic
signature can be in any form that satisfies the foregoing requirements.

(iv) Copies of Form 8850
. The employer must be able to supply and,
upon request by the IRS, the employer must supply (1) a paper copy of
the Form 8850 submitted to the DLA, and (2) a statement that, to the best
of the employer's knowledge, the Form 8850 was submitted by the
employer with respect to the named applicant. The paper copy of the

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electronically signed Form 8850 must provide exactly the same
information as, but need not be a facsimile of, the paper Form 8850.

(v) Retention of Forms 8850 by the DLAs and Employers
. Forms 8850
with an applicant’s electronic signature have the same status as paper
Forms 8850. Therefore, guidance that applies to paper Forms 8850 also
applies to these Forms 8850. For example, as is the case for paper
Forms 8850, electronic Forms 8850 are required to be retained by
employers under their established record-keeping systems. For further
information, see Rev. Proc. 98-25, 1998-1 C.B. 689, on information
regarding the retention of records within an Automatic Data Processing
System.

V. ALTERNATIVE METHOD OF FILING OR SIGNING FORM 8850--FILING OR
SIGNING BY FACSIMILE

In addition to the electronic signature method of filing Form 8850 described in
Section IV, the IRS will also allow the facsimile transmission of applicant and employer
signatures on a Form 8850 if the applicable DLA accepts Form 8850 via facsimile, the
applicant and employer intend the signatures on the faxed copy to be their signatures
for purposes of the document, and the requirements of paragraphs (1) and (2) below
are satisfied:

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(1) Same Information as Paper Form 8850. The facsimile submission is a
reproduction of Form 8850 that provides the DLA with exactly the same information as
the paper Form 8850.

(2) Signature and Transmission Requirements.
The Form 8850 is signed by the
applicant and the employer, under penalties of perjury, and transmitted to the DLA in
the following manner:

(i) An original Form 8850 is completed in paper copy and then signed in ink by
the applicant;

(ii) The original Form 8850, signed by the applicant, is delivered to the employer
either in person or by facsimile;

(iii) The employer signs in ink either the paper copy of Form 8850 that was
signed by the applicant or the facsimile of that paper copy; and

(iv) The employer mails or faxes the signed Form 8850 to the DLA within the
time prescribed by § 51(d)(13)(A)(ii) (or within the period authorized under
Section III of this notice).

For purposes of this Section V, “employer” refers to any employer required to
submit a Form 8850 in order to obtain the WOTC for any member of any targeted group

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under § 51 or the equivalent credit under § 3111(e), or an authorized representative of
such an employer.

VI. GUIDANCE FOR TAX-EXEMPT ORGANIZATIONS

Qualified tax-exempt organizations entitled to a credit under § 3111(e) must use
Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring
Qualified Veterans, to claim the credit. Although the credit under § 3111(e) is applied
against the employer social security tax liability for the employment tax period in which
the credit is claimed, the liability reported on the qualified tax-exempt organization’s
employment tax return (e.g., Form 941) is not reduced when that return is filed. Rather,
the IRS will process Form 5884-C separately and refund the amount properly claimed
on Form 5884-C to the qualified tax-exempt organization, subject to the limit of the
amount of employer social security tax liability for the period in which the credit is
claimed. Because Form 5884-C will generally not be processed simultaneously with the
qualified tax-exempt organization’s employment tax return, it is recommended that
qualified tax-exempt organizations not reduce their required deposits in anticipation of
any credit. A qualified tax-exempt organization that reduces its required employment
tax deposits in anticipation of a credit under § 3111(e) may receive a system-generated
notice; however, the balance due, including any related penalties and interest, resulting
from the reduction in deposits to reflect the credit under § 3111(e), will be abated when
the credit is applied, generally without any taxpayer action.

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Form 5884-C is filed separately and should not be attached to any other return
filed by the qualified tax-exempt organization. Form 5884-C should be filed after the
qualified tax-exempt organization files its employment tax return for the tax period for
which the credit is claimed and in accordance with the Form 5884-C instructions. Form
5884-C can be filed immediately after the qualified tax-exempt organization files its
employment tax return and it must be filed within 2 years from the date the tax reported
on the employment tax return was paid, or 3 years from the date the employment tax
return was filed, whichever is later.

The qualified tax-exempt organization using Form 5884-C must calculate the
cumulative credit to which the qualified tax-exempt organization is entitled under
§ 3111(e) for all qualified veterans hired on or after November 22, 2011. The qualified
tax-exempt organization must reduce the cumulative credit by any credits claimed on
any Forms 5884-C filed for prior tax periods. The amount refunded will be limited to the
amount of employer social security tax reported on the employment tax return filed by
the qualified tax-exempt organization for the employment tax period for which the credit
is claimed. Any excess credit (i.e., any credit that exceeds the employer social security
tax for the period the credit is claimed) may be carried forward and will be included in
the qualified tax-exempt organization’s cumulative calculation on Form 5884-C filed for
a subsequent tax period to the extent provided in the instructions to Form 5884-C.

VII. REQUEST FOR COMMENTS

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The Treasury Department and the IRS request comments on alternative methods
for certification of a veteran as a qualified veteran described in § 51(d)(3) in addition to
the methods of signing and filing electronically or by facsimile described in this notice.
In particular, comments related to certification of a veteran as a qualified veteran
described in clause (ii)(II), (iii), or (iv) of § 51(d)(3)(A) are requested. Comments are
also requested on alternative methods of filing Form 8850. Comments must be
submitted by April 12, 2012. All materials submitted will be available for public
inspection and copying. Comments should be submitted to Internal Revenue Service,
CC:PA:LPD:RU (Notice 2012-13), Room 5203, PO Box 7604, Ben Franklin Station,
Washington, DC 20224. Submissions may also be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to the Courier's Desk, 1111 Constitution
Avenue, NW, Washington, DC 20224, Attn: CC:PA:LPD:RU (Notice 2012-13), Room
5203. Submissions may also be sent electronically via the internet to the following
email address: Notice.comments@irscounsel.treas.gov. Include the notice number
(Notice 2012-13) in the subject line.

VIII. EFFECT ON OTHER DOCUMENTS
This Notice supplements Ann. 2002-44, 2002-1 C.B. 809.

EFFECTIVE DATE

Amendments made to § 51, § 52, and § 3111 by the Act are effective for
individuals who begin work for the employer on or after November 22, 2011. As

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described in Section III, any employer who hires any qualified veteran described in
§ 51(d)(3) on or after November 22, 2011, and before May 22, 2012, will be considered
to satisfy the requirements of § 51(d)(13)(A)(ii) if the employer submits the completed
pre-screening notice to the DLA to request certification not later than June 19, 2012.
The alternative methods of signing and filing Forms 8850, as described in Sections IV
and V, are effective for Forms 8850 filed with a DLA on or after March 10, 2012.

DRAFTING INFORMATION

The principal authors of this notice are Robin Ehrenberg and Ligeia Donis of the
Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government
Entities). For further information on the submission of comments or the comments
submitted, contact Regina Johnson at (202) 622-7180 (not a toll-free number). For
further information regarding the WOTC for qualified veterans, electronic filing, and
facsimile submissions, contact Ms. Ehrenberg at (202) 622-6080 (not a toll-free
number). For further information on how to claim the WOTC on behalf of tax-exempt
organizations, contact Ligeia Donis at (202) 622-6040 (not a toll-free number).