n-16-40.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

1

Work Opportunity Tax Credit (WOTC) Additional Transition Relief

Notice 2016-40
I. PURPOSE
This notice provides additional transition relief for employers claiming the Work
Opportunity Tax Credit (WOTC) under §§ 51 and 3111(e) of the Internal Revenue Code
(Code), as extended and amended by the Protecting Americans from Tax Hikes Act of
2015, Pub. L. No. 114-113, div. Q (the PATH Act). Specifically, this notice expands and
extends by three months the transition relief provided in Notice 2016-22 (2016-13 IRB
488) for meeting the 28-day deadline in § 51(d)(13)(A)(ii) of the Code. This notice
applies to employers that (1) hire members of targeted groups (other than qualified
long-term unemployment recipients) on or after January 1, 2015, and on or before
August 31, 2016, or (2) hire members of the new targeted group of qualified long-term
unemployment recipients on or after January 1, 2016, and on or before August 31,
2016. This notice does not otherwise modify or add to the guidance provided under
Notice 2016-22.

2

II. BACKGROUND
Section 51(a) of the Code provides the WOTC to employers based on a
percentage of qualified wages paid during the taxable year. Section 51(b) of the Code
defines qualified wages as wages paid or incurred by an employer during the taxable
year to an individual who is a member of a targeted group. Section 51(d)(1) of the Code
lists the targeted groups.
The PATH Act amends § 51(d)(1) of the Code to add qualified long-term
unemployment recipients to the list of targeted groups, effective as of January 1, 2016.
The PATH Act also extends the WOTC through December 31, 2019 for taxable
employers that hire members of a targeted group and for qualified tax-exempt
organizations described in § 501(c) of the Code that hire qualified veterans. For more
information about the definition of qualified long-term unemployment recipients, and
other information concerning the PATH Act extension of the WOTC, see Notice 2016-
22.
Pursuant to § 51(d)(13)(A) of the Code, an individual is not 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 designated local agency (DLA) that the individual
is a member of a targeted group; or (2) the employer completes a pre-screening notice
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. To
request certification from a DLA, an employer submits IRS Form 8850, Pre-Screening
Notice and Certification Request for the Work Opportunity Credit (IRS Form 8850), to
the DLA no later than the 28th day after the day an individual who is a member of a

3

targeted group begins work for the employer. As recognized in Notice 2016-22, the
PATH Act amendments and expansion of the targeted groups described in § 51(d)(1) of
the Code to include long-term unemployment recipients will require changes to forms for
employers to request certification for qualified long-term unemployment recipients hired
on or after January 1, 2016.
In recognition of the new forms and instructions, as well as the retroactive nature
of the extension of the WOTC to certain targeted groups, Notice 2016-22 grants
employers with transition relief for submitting IRS Form 8850 to the DLAs. Depending
on the particular target group, that transition relief applied to individuals hired on or
before May 31, 2016 and on or after either January 1, 2015 or January 1, 2016.
The IRS Form 8850 has been updated. The new targeted group, qualified long-
term unemployment recipients, was added to the list of targeted groups. The updated
IRS Form 8850 and instructions were made available for filers in March 2016 and may
be found at https://www.irs.gov/uac/form-8850-pre-screening-notice-and-certification-
request-for-the-work-opportunity-credit.
The Department of Labor, Employment and Training Administration (ETA)
requires employers to submit ETA Form 9061 (Individual Characteristics Form) or 9062
(Conditional Certification) to the DLA as part of the employer’s certification request. To
reduce burdens and the likelihood of processing delays, employers generally are
encouraged to submit to DLAs the IRS Form 8850 and ETA Forms 9061 or 9062
together in the same submission. The ETA has informed the IRS that it intends to
release the updated ETA forms and processing instructions for the DLAs coincident with
the release of this notice.

4

III. ADDITIONAL TRANSITION RELIEF
The Treasury Department and the IRS, along with the Department of Labor, have
been made aware that due to the timeframe under which the relevant forms and
instructions, and processing instructions, have been released, employers need
additional time to comply with the certification requirements of § 51(d)(13)(A)(ii) of the
Code for employees in the targeted groups. For these reasons, the transition relief
provided in Notice 2016-22 to file IRS Form 8850 with the DLAs is extended, so that:

(1) An employer that hired or hires an individual who is a member of a targeted
group described in § 51(d)(1)(A) through (d)(1)(I) of the Code and who began
or begins work for that employer on or after January 1, 2015, and on or before
August 31, 2016, will be considered to have satisfied the requirements of
§ 51(d)(13)(A)(ii) of the Code if the employer submits the completed IRS
Form 8850 to the DLA to request certification no later than September 28,
2016; and

(2) An employer that hired or hires an individual who is a long-term
unemployment recipient, described in § 51(d)(1)(J) of the Code and Notice
2016-22, and who began or begins work for that employer on or after January
1, 2016, and on or before August 31, 2016, will be considered to have
satisfied the requirements of § 51(d)(13)(A)(ii) of the Code if the employer
submits the completed IRS Form 8850 to the DLA to request certification no
later than September 28, 2016.

5

An employer that hires a member of a targeted group described in § 51(d)(1)(A)
through (d)(1)(J) of the Code, including a long-term unemployment recipient, who
begins work for that employer on or after September 1, 2016, is not eligible for the
transition relief described in this notice with respect to any such new hire.
IV. EFFECT ON OTHER DOCUMENTS
The notice modifies the transition relief provided in section IV.B of Notice 2016-
22, only by extending the period of that transition relief as indicated in section III of this
notice. In all other respects, this notice does not modify the guidance provided in Notice
2016-22, or provide additional guidance to the guidance provided in Notice 2016-22.
V. DRAFTING INFORMATION
The principal author of this notice is R. Lisa Mojiri-Azad of the Office of Associate
Chief Counsel (Tax Exempt and Government Entities). For further information
regarding the WOTC, contact Ms. Mojiri-Azad at (202) 317-5500 (not a toll-free
number).