Protecting Americans from Tax Hikes Act of 2015

On the evening of December 15, 2015, the House released the text of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of House amendment #2 to the Senate amendment to H.R. 2029, Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2016).  Nickname is the PATH Act.

The Act is expected to be put up for a vote as early as Thursday, December 17.   The 233-page full text can be found at http://waysandmeans.house.gov/wp-content/uploads/2015/12/PATH_Act_xml.pdf (pdf) and http://docs.house.gov/billsthisweek/20151214/R121515.006.xml (text) and a 20-page section-by-section summary can be found on the Ways and Means Committee's website at https://rules.house.gov/sites/republicans.rules.house.gov/files/114/PDF/114-SAHR2029Ex-SxS.pdf.

I recommend reviewing the Ways and Means summary, but the outline is as follows.  Further review to come...

• DIVISION Q—PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015
• Sec. 1. Short title, etc.
• TITLE I—EXTENDERS
• Subtitle A—Permanent extensions
• PART 1—TAX RELIEF FOR FAMILIES AND INDIVIDUALS
• Sec. 101. Enhanced child tax credit made permanent.
• Sec. 102. Enhanced American opportunity tax credit made permanent.
• Sec. 103. Enhanced earned income tax credit made permanent.
• Sec. 104. Extension and modification of deduction for certain expenses of elementary and secondary school teachers.
• Sec. 105. Extension of parity for exclusion from income for employer-provided mass transit and parking benefits.
• Sec. 106. Extension of deduction of State and local general sales taxes.
• PART 2—INCENTIVES FOR CHARITABLE GIVING
• Sec. 111. Extension and modification of special rule for contributions of capital gain real property made for conservation purposes.
• Sec. 112. Extension of tax-free distributions from individual retirement plans for charitable purposes.
• Sec. 113. Extension and modification of charitable deduction for contributions of food inventory.
• Sec. 114. Extension of modification of tax treatment of certain payments to controlling exempt organizations.
• Sec. 115. Extension of basis adjustment to stock of S corporations making charitable contributions of property.
• PART 3—INCENTIVES FOR GROWTH, JOBS, INVESTMENT, AND INNOVATION
• Sec. 121. Extension and modification of research credit.
• Sec. 122. Extension and modification of employer wage credit for employees who are active duty members of the uniformed services.
• Sec. 123. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
• Sec. 124. Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property.
• Sec. 125. Extension of treatment of certain dividends of regulated investment companies.
• Sec. 126. Extension of exclusion of 100 percent of gain on certain small business stock.
• Sec. 127. Extension of reduction in S-corporation recognition period for built-in gains tax.
• Sec. 128. Extension of subpart F exception for active financing income.
• PART 4—INCENTIVES FOR REAL ESTATE INVESTMENT
• Sec. 131. Extension of minimum low-income housing tax credit rate for non-Federally subsidized buildings.
• Sec. 132. Extension of military housing allowance exclusion for determining whether a tenant in certain counties is low-income.
• Sec. 133. Extension of RIC qualified investment entity treatment under FIRPTA.
• Subtitle B—Extensions through 2019
• Sec. 141. Extension of new markets tax credit.
• Sec. 142. Extension and modification of work opportunity tax credit.
• Sec. 143. Extension and modification of bonus depreciation.
• Sec. 144. Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.
• Subtitle C—Extensions through 2016
• PART 1—TAX RELIEF FOR FAMILIES AND INDIVIDUALS
• Sec. 151. Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness.
• Sec. 152. Extension of mortgage insurance premiums treated as qualified residence interest.
• Sec. 153. Extension of above-the-line deduction for qualified tuition and related expenses.
• PART 2—INCENTIVES FOR GROWTH, JOBS, INVESTMENT, AND INNOVATION
• Sec. 161. Extension of Indian employment tax credit.
• Sec. 162. Extension and modification of railroad track maintenance credit.
• Sec. 163. Extension of mine rescue team training credit.
• Sec. 164. Extension of qualified zone academy bonds.
• Sec. 165. Extension of classification of certain race horses as 3-year property.
• Sec. 166. Extension of 7-year recovery period for motorsports entertainment complexes.
• Sec. 167. Extension and modification of accelerated depreciation for business property on an Indian reservation.
• Sec. 168. Extension of election to expense mine safety equipment.
• Sec. 169. Extension of special expensing rules for certain film and television productions; special expensing for live theatrical productions.
• Sec. 170. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
• Sec. 171. Extension and modification of empowerment zone tax incentives.
• Sec. 172. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.
• Sec. 173. Extension of American Samoa economic development credit.
• Sec. 174. Moratorium on medical device excise tax.
• PART 3—INCENTIVES FOR ENERGY PRODUCTION AND CONSERVATION
• Sec. 181. Extension and modification of credit for nonbusiness energy property.
• Sec. 182. Extension of credit for alternative fuel vehicle refueling property.
• Sec. 183. Extension of credit for 2-wheeled plug-in electric vehicles.
• Sec. 184. Extension of second generation biofuel producer credit.
• Sec. 185. Extension of biodiesel and renewable diesel incentives.
• Sec. 186. Extension and modification of production credit for Indian coal facilities.
• Sec. 187. Extension of credits with respect to facilities producing energy from certain renewable resources.
• Sec. 188. Extension of credit for energy-efficient new homes.
• Sec. 189. Extension of special allowance for second generation biofuel plant property.
• Sec. 190. Extension of energy efficient commercial buildings deduction.
• Sec. 191. Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities.
• Sec. 192. Extension of excise tax credits relating to alternative fuels.
• Sec. 193. Extension of credit for new qualified fuel cell motor vehicles.
• TITLE II—PROGRAM INTEGRITY
• Sec. 201. Modification of filing dates of returns and statements relating to employee wage information and nonemployee compensation to improve compliance.
• Sec. 202. Safe harbor for de minimis errors on information returns and payee statements.
• Sec. 203. Requirements for the issuance of ITINs.
• Sec. 204. Prevention of retroactive claims of earned income credit after issuance of social security number.
• Sec. 205. Prevention of retroactive claims of child tax credit.
• Sec. 206. Prevention of retroactive claims of American opportunity tax credit.
• Sec. 207. Procedures to reduce improper claims.
• Sec. 208. Restrictions on taxpayers who improperly claimed credits in prior year.
• Sec. 209. Treatment of credits for purposes of certain penalties.
• Sec. 210. Increase the penalty applicable to paid tax preparers who engage in willful or reckless conduct.
• Sec. 211. Employer identification number required for American opportunity tax credit.
• Sec. 212. Higher education information reporting only to include qualified tuition and related expenses actually paid.
• TITLE III—MISCELLANEOUS PROVISIONS
• Subtitle A—Family tax relief
• Sec. 301. Exclusion for amounts received under the Work Colleges Program.
• Sec. 302. Improvements to section 529 accounts.
• Sec. 303. Elimination of residency requirement for qualified ABLE programs.
• Sec. 304. Exclusion for wrongfully incarcerated individuals.
• Sec. 305. Clarification of special rule for certain governmental plans.
• Sec. 306. Rollovers permitted from other retirement plans into simple retirement accounts.
• Sec. 307. Technical amendment relating to rollover of certain airline payment amounts.
• Sec. 308. Treatment of early retirement distributions for nuclear materials couriers, United States Capitol Police, Supreme Court Police, and diplomatic security special agents.
• Sec. 309. Prevention of extension of tax collection period for members of the Armed Forces who are hospitalized as a result of combat zone injuries.
• Subtitle B—Real estate investment trusts
• Sec. 311. Restriction on tax-free spinoffs involving REITs.
• Sec. 312. Reduction in percentage limitation on assets of REIT which may be taxable REIT subsidiaries.
• Sec. 313. Prohibited transaction safe harbors.
• Sec. 314. Repeal of preferential dividend rule for publicly offered REITs.
• Sec. 315. Authority for alternative remedies to address certain REIT distribution failures.
• Sec. 316. Limitations on designation of dividends by REITs.
• Sec. 317. Debt instruments of publicly offered REITs and mortgages treated as real estate assets.
• Sec. 318. Asset and income test clarification regarding ancillary personal property.
• Sec. 319. Hedging provisions.
• Sec. 320. Modification of REIT earnings and profits calculation to avoid duplicate taxation.
• Sec. 321. Treatment of certain services provided by taxable REIT subsidiaries.
• Sec. 322. Exception from FIRPTA for certain stock of REITs.
• Sec. 323. Exception for interests held by foreign retirement or pension funds.
• Sec. 324. Increase in rate of withholding of tax on dispositions of United States real property interests.
• Sec. 325. Interests in RICs and REITs not excluded from definition of United States real property interests.
• Sec. 326. Dividends derived from RICs and REITs ineligible for deduction for United States source portion of dividends from certain foreign corporations.
• Subtitle C—Additional provisions
• Sec. 331. Deductibility of charitable contributions to agricultural research organizations.
• Sec. 332. Removal of bond requirements and extending filing periods for certain taxpayers with limited excise tax liability.
• Sec. 333. Modifications to alternative tax for certain small insurance companies.
• Sec. 334. Treatment of timber gains.
• Sec. 335. Modification of definition of hard cider.
• Sec. 336. Church plan clarification.
• Subtitle D—Revenue Provisions
• Sec. 341. Updated ASHRAE standards for energy efficient commercial buildings deduction.
• Sec. 342. Excise tax credit equivalency for liquified petroleum gas and liquified natural gas.
• Sec. 343. Exclusion from gross income of certain clean coal power grants to non-corporate taxpayers.
• Sec. 344. Clarification of valuation rule for early termination of certain charitable remainder unitrusts.
• Sec. 345. Prevention of transfer of certain losses from tax indifferent parties.
• Sec. 346. Treatment of certain persons as employers with respect to motion picture projects.
• TITLE IV—TAX ADMINISTRATION
• Subtitle A—Internal Revenue Service reforms
• Sec. 401. Duty to ensure that Internal Revenue Service employees are familiar with and act in accord with certain taxpayer rights.
• Sec. 402. IRS employees prohibited from using personal email accounts for official business.
• Sec. 403. Release of information regarding the status of certain investigations.
• Sec. 404. Administrative appeal relating to adverse determinations of tax-exempt status of certain organizations.
• Sec. 405. Organizations required to notify Secretary of intent to operate under 501(c)(4).
• Sec. 406. Declaratory judgments for 501(c)(4) and other exempt organizations.
• Sec. 407. Termination of employment of Internal Revenue Service employees for taking official actions for political purposes.
• Sec. 408. Gift tax not to apply to contributions to certain exempt organizations.
• Sec. 409. Extend Internal Revenue Service authority to require truncated Social Security numbers on Form W–2.
• Sec. 410. Clarification of enrolled agent credentials.
• Sec. 411. Partnership audit rules.
• Subtitle B—United States Tax Court
• PART 1—TAXPAYER ACCESS TO UNITED STATES TAX COURT
• Sec. 421. Filing period for interest abatement cases.
• Sec. 422. Small tax case election for interest abatement cases.
• Sec. 423. Venue for appeal of spousal relief and collection cases.
• Sec. 424. Suspension of running of period for filing petition of spousal relief and collection cases.
• Sec. 425. Application of Federal rules of evidence.
• PART 2—UNITED STATES TAX COURT ADMINISTRATION
• Sec. 431. Judicial conduct and disability procedures.
• Sec. 432. Administration, judicial conference, and fees.
• PART 3—CLARIFICATION RELATING TO UNITED STATES TAX COURT
• Sec. 441. Clarification relating to United States Tax Court.
• TITLE V—TRADE-RELATED PROVISIONS
• Sec. 501. Modification of effective date of provisions relating to tariff classification of recreational performance outerwear.
• Sec. 502. Agreement by Asia-Pacific Economic Cooperation members to reduce rates of duty on certain environmental goods.
• TITLE VI—BUDGETARY EFFECTS
• Sec. 601. Budgetary effects.

Enhanced Federal Research Tax Credits? Hopefully, but not quite yet...

By now, many have already heard about how President Obama signed the Small Business Jobs Act of 2010 into law on September 27.  Rather than go into a detailed discussion of the Act, I'd like to clarify two particular items that seem to be widely misreported.

In short, the federal research tax credit does not (under current law) qualify for either of the following provisions in the new law:

• Five-year carryback of general business credit of eligible small business - This provision extends the carryback period for eligible small business tax credits from one to five years for eligible small business taxpayers.  However, this provision is only effective for credits determined (i.e., generated) in the taxpayer's first taxable year beginning after December 31, 2009.  And since the federal research tax credit has (under current law as of the time of this writing) expired for qualified expenditures paid/incurred after December 31, 2009, there are no federal research tax credits to be determined during that period.

• General business credit of eligible small business not subject to alternative minimum tax - This provision effectively allows eligible small business tax credits to offset an eligible small business taxpayer's AMT liability.  However (similar to the 5-year carryback provision), this provision is only effective for credits determined (i.e., generated) in the taxpayer's first taxable year beginning after December 31, 2009.  Again, since the federal research tax credit has (under current law as of the time of this writing) expired for qualified expenditures paid/incurred after December 31, 2009, there are no federal research tax credits to be determined during that period.

Despite this bad (and hopefully temporary) news, there is still hope that Congress will extend the federal research tax credit retroactively from January 1, 2010, but we'll have to wait and see about that.  As for my personal thoughts on the prospects of a retroactive extension, I think there's a good chance of it for the following reasons:

• President Obama on September 8 has already identified the federal research tax credit as an important item (see http://tax-fishing-and-other.blogspot.com/2010/09/white-house-releases-research-tax.html).
• The House (albeit back in January 2009) introduced H.R. 422 which would (1) extend the regular federal research tax credit through December 31, 2010, (2) increase the Alternative Simplified Credit ("ASC") method of computing the federal research tax credit to 20%, and (3) make the ASC permanent.  So there is (or at least was) clearly some support in the House as it was introduced with 105 co-sponsors.
• The Senate (albeit back in June 2009) introduced S. 1203, which effectively mirrors H.R. 422. So there is (or at least was) clearly some support in the Senate as it was introduced with 22 co-sponsors.

Note: The Act was passed by Congress as H.R. 5297 and became Public Law No. 111-240 when it was signed into law.

Links:

• Joint Committee on Taxation's writeup (JCX-47-10)
• H.R. 5297 on Thomas (at the Library of Congress)
• H.R. 422 on Thomas (at the Library of Congress)
• S. 1203 on Thomas (at the Library of Congress)

White House releases research tax credit proposal

The White House today released the following (original pdf at http://bit.ly/9Dy8XU).  While it *is* just a proposal at this point (and would still need to get through Congress), it would arguably make it easier for businesses to make use of the research tax credit.

Also, as I suspected, the proposal expressly seems to eliminate the traditional 1984 - 1988 "base period" that in my experience has caused some serious headaches for businesses that hadn't kept records going back that far.  Next step, Congress!

EXPANDED, SIMPLIFIED AND PERMANENT RESEARCH AND EXPERIMENTATION TAX CREDIT

The President proposes to expand, simplify, and permanently extend the Research and Experimentation Tax Credit in order to help companies create good jobs in America now while increasing future productivity and growth. This is a win-win—encouraging job growth and investment now that will pay off with stronger economic growth in the future.

Specifically, the President proposes to:

• Expand the R&E credit by about 20 percent. This would be the largest increase in the credit in its history. In total, the expanded credit would devote about $100 billion over the next 10 years to leverage additional R&D investment. Like the current credit, eligible research and experimentation needs to be performed in the United States, keeping high-skilled jobs in America.
• Simplify the credit. Currently, businesses must choose between using a complex formula for calculating their R&E credit that provides a 20 percent credit rate for investments over a certain base and a much simpler one that provides a 14 percent credit in excess of a base amount. The complex formula is, in fact, so outdated that it takes into account the amount of a business’s R&D expenses from 1984 to 1988. The Administration proposes to increase the rate of the simpler credit to 17 percent, which would make it more attractive and simplify tax filing for businesses. Simplifying the credit in this manner will increase its salience and impact on encouraging investment in research in the United States.
• Permanent credit. The President would make the credit permanent so that businesses could make investments and create jobs today confident that they will continue to benefit from the credit in the future. The President supports fully paying for this permanent tax policy, for example with the over $300 billion in loophole closers and other measures proposed in the FY 2011 Budget.

An expanded, simplified, and permanent R&E credit will help keep the U.S. economy at the cutting-edge of 21st century technologies, while expanding high-tech jobs, encouraging innovation, and increasing future productivity and growth:

• Increasing business certainty. The credit has been extended 13 times since its creation in 1981, with some extensions lasting just 6 months, and has also been allowed to lapse since the end of last year. However, although Republicans have supported extension in the past, they have voted against it multiple times this year, and are now blocking legislation that would renew this credit, creating uncertainty with two-thirds of the year already complete. Making this provision permanent would avoid this type of outcome and give businesses the certainty they need to accelerate R&E investments to create jobs today and in the future.
• 80 percent of the benefit directly supports jobs in the United States, and every dollar spent encourages U.S.-based investment. Four-fifths of tax credits are attributable to salaries of U.S. workers performing U.S.-based research—meaning that the credit helps create high-skilled jobs, as well as encouraging new innovations and future productivity. The entire credit goes to research and experimentation in the United States, with additional spillover benefits for jobs.
• Increase competitiveness to prevent the United States from falling further behind other countries in tax incentives for R&E. Increasing the R&E tax credit will strengthen innovation at home and make the United States more competitive abroad—helping us to reach our goal of bringing total R&D to 3 percent of GDP. In the 1980s, the United States was the leader in generous tax treatment of R&D; however, today many nations now provide far more generous tax incentives for research than does the United States. By 2008, we had fallen to 17th in generosity for general R&D amongst OECD nations. (Information Technology and Innovation Foundation) Among nations with tax incentives for R&D, the United States now provides one of the weakest incentives, below our neighbors Canada and Mexico, and behind many Asian and European nations. Leverage—each $1 spent on the tax credit creates $2 of benefits for the economy. Studies have shown that every dollar of tax benefit stimulates as much as an additional dollar of private R&D spending in the short run and two dollars in the long run. Every $1 of R & D adds about $2 of benefit to our economy and society as a whole.

What Outside Voices Say about the R&E Credit

• Chamber of Commerce: “The R&D tax credit creates high-wage, American jobs….Extension and expansion of the R&D tax credit will encourage investment in R&D in the United States that will enhance high-wage job growth and contribute to the revitalization of the American economy.” (Chamber website)
• Rob Atkinson, President of the Information Technology and Innovation Foundation: “If the United States is to remain the world’s preeminent location for technological innovation (and the high paying jobs that result), Congress will need to significantly expand and reform the Research and Experimentation Tax Credit.” (Foundation papers)
• Kevin Hassett, American Enterprise Institute: The R&E credit is “one of the most successful government tax provisions on the books….If the credit were to become permanent, then the benefits could well be higher, since the uncertainty surrounding its renewal would be removed.” (testimony)
• Douglas Holtz-Eakin (when John McCain’s top economic adviser): “Give companies a permanent R&D credit because we know if the R&D is done here, the manufacturing is more likely to be done here, according to the research literature.” (US News and World Report)

President Obama to reportedly outline a proposal to make Research Tax Credit permanent

According to numerous sources, President Obama will ask Congress on Wednesday to both expand, and make permanent, the research tax credit under section 41.  Under current law, the federal research credit expired for qualified expenses (as defined under section 41(b)) paid or incurred after December 31, 2009.

While details are still scarce, here is what I've seen so far.  Please note that until something official comes out, these are just unconfirmed rumors.

• Would expand the credit percentage under the Alternative Simplified Method (under section 41(c)(5)) from the generally-applicable pre-2010 amount of 14% to 17%.
• The $100 billion proposal will be announced at a speech in Cleveland on September 8, as part of a discussion on the economy.
• Of the $100 billion, $85 billion represents the 10-year cost of making the credit permanent.  The other $15 billion is the reported cost of expanding it.
• I have seen no mention of whether these proposals would apply retroactively (i.e., starting January 1, 2010).  My personal expectation is that it would, especially in light of the upcoming midterm elections, but we're likely to find out on Wednesday.
• No information is available regarding the standard computation method, but if House Bill 422 and Senate Bill 1203 are any indication (and which seem to have substantial bipartisan support), I suspect that the standard computation method will not be brought back.  Observation:  The standard method is a thorn in many sides due to taxpayers generally being required to base their research credit computations in part on their activities during the 1984 - 1988 time frame.  Not surprisingly, many taxpayers don't have information (much less documentation) going back that far.

Sources:

• New York Times:  http://nyti.ms/alAYBQ
• Washington Post (via Associated Press):  http://bit.ly/c7oEKq

More to come...

Therapeutic Discovery Project Tax Credit / Grant - IRS Releases Form 8942, Instructions, and Additional Guidance

More information to follow as soon as I've had a chance to review, but in the interim:

• Form 8942: http://bit.ly/cNFF2Y
• Form 8942 instructions: http://bit.ly/9hdjI9
• IRS Q&A: http://bit.ly/depaMx

Let me know if you have any questions, I'd love to help!

 

IRS News Release IR-2010-69 reminds taxpayers of several recent tax incentives for small business

Pretty self-explanatory, but worth reviewing in case your business might be able to take advantage of one or more of these incentives.  Original release at http://bit.ly/bAEW2J

Recent Legislation Offers Special Tax Incentives for Small Businesses to Provide Health Care, Hire New Workers


Videos
HIRE Act: English
Small Business Health Care Tax Credit: English


IR-2010-69, May 28, 2010


WASHINGTON — In recognition of National Small Business Week, the Internal Revenue Service encourages small businesses to take advantage of tax-saving opportunities included in recently enacted federal legislation.


A variety of business tax deductions and credits were created, extended and expanded by the American Recovery and Reinvestment Act of 2009 (ARRA), this year’s Hiring Incentives to Restore Employment (HIRE) Act and the Affordable Care Act. Because some of these changes are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a rundown of some of the key provisions.


New Health Care Tax Credit Helps Small Employers


The small business health care tax credit, created under the Affordable Care Act, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.


The credit takes effect this year and is generally available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small employers that primarily employ low- and moderate-income workers.


For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers. The maximum credit goes to smaller employers ­­–– those with 10 or fewer full-time equivalent (FTE) employees ––­­ paying annual average wages of $25,000 or less. The credit is completely phased out for employers with more than 25 FTEs or with average wages of more than $50,000.


Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the IRS website.


Two New Benefits for Employers that Hire and Retain Recently Unemployed


Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer’s share of Social Security tax on wages paid to these workers after March 18. In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return.


These tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives generally do not qualify.


Employers must get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. IRS Form W-11 can be used to meet this requirement. Further details, including answers to frequently asked questions, are posted on IRS.gov.


Work Opportunity Tax Credit Aids Employers That Hire Certain Workers


The work opportunity tax credit (WOTC) offers tax savings to businesses that hire employees belonging to various targeted groups. These groups include people ages 18 to 39 living in designated communities in 43 states and the District of Columbia, recipients of various types of public assistance, certain veterans, ex-felons and certain youth workers. The instructions for Form 8850 detail the requirements for each of these groups.


Certification by the state workforce agency is generally required. Normally, a business must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work.


An eligible employer can claim both the WOTC and the new hire retention credit for the same employee. However, an employer may not claim both the payroll tax exemption and the WOTC for the same employee. Therefore, any employer that chooses to apply the exemption to wages paid to a qualified employee may not receive the WOTC on any wages paid to that employee during the one-year period beginning on the employee’s hiring date.


Exclusion of Gain on the Sale of Certain Small Business Stock


An extra incentive is now available to individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009, and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.


COBRA Credit


Employers that provide the 65 percent COBRA premium subsidy to eligible former employees can claim credit for this subsidy on their quarterly or annual payroll tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their payroll tax deposits by the amount of the credit. For details, see the instructions for Form 941.


Small business owners can find a variety of helpful on-line resources in the Small Business and Self-Employed Tax Center on IRS.gov.