September 28 Deadline Approaches For Work Opportunity Tax Credit Certification

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September 27, 2016

The IRS recently reminded employers to certify certain new hires by September 28 to qualify for the newly expanded Work Opportunity Tax Credit (WOTC).  The WOTC is a federal tax credit available to employers who hire eligible workers—e.g., certain veterans, public assistance recipients—who have consistently faced significant barriers to employment.  Congress enacted the Protecting Americans from Tax Hikes (PATH) Act last December, which retroactively extended the WOTC for nine categories of eligible workers hired on or after January 1, 2015, and adding a tenth category for certain long-term unemployment recipients hired on or after January 1, 2016.  Accordingly, the ten categories of eligible workers include:

  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients;
  • Unemployed veterans, including disabled veterans;
  • Ex-felons;
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties;
  • Vocational rehabilitation referrals;
  • Summer youth employees living in Empowerment Zones;
  • Food stamp (SNAP) recipients;
  • Supplemental Security Income (SSI) recipients;
  • Long-term family assistance recipients;
  • Qualified long-term unemployment recipients (who begin work after 2015).

To qualify for the WOTC, an employer normally must first request certification by filing the IRS’s Form 8850 with the applicable state workforce agency within 28 days after the eligible worker begins to work.  Under the transition relief, however, the certification deadline is extended to September 28, 2016, for eligible workers hired between January 1, 2015, and August 31, 2016.  To claim the WOTC when filing its income tax returns, an employer calculates the WOTC on Form 5884, and claims it as a general business credit on Form 3800.

Additional requirements for claiming the WOTC credit can be found in the instructions to Form 8850, Notice 2016-22, and Notice 2016-40.

Another Attempt to Repeal FATCA Is Introduced to Congress

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September 12, 2016

New legislation, H.R. 5935, has been introduced in Congress to repeal the Foreign Account Tax Compliance Act (FATCA), on the basis that FATCA violates Americans’ Fourth Amendment privacy rights.  Rep. Mark Meadows (R-NC) introduced the bill to the House on September 7, along with two original cosponsors.  The alleged privacy violations stem from requirements in FATCA that force foreign financial institutions to report all account holdings and assets of U.S. taxpayers to the IRS, or else face potential penalties in the form of 30% withholding on all U.S. source income.  According to Rep. Meadows’s press release, FATCA “requires a level” of disclosure that violates the Fourth Amendment, though Rep. Meadows offers no specific support for this claim.

If history is any indication, this latest repeal effort will fall flat. Prior attempts have been made to repeal FATCA, such as Senate Amendment 621 and Senate Bill 663, but none have succeeded.  Though S. 663 has not yet been officially defeated, its sponsor, Sen. Rand Paul, has pursued a lawsuit making similar claims without success, as we discussed in a prior post.

Israeli Court Threatens to Undermine FATCA Agreement

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September 8, 2016

Israel was nearing completion of the steps required to comply with the Foreign Account Tax Compliance Act (FATCA), but its attempt to comply may be in sudden jeopardy thanks to a recent Israeli court decision.  FATCA exchanges were to begin on September 1, but Justice Hanan Meltzer issued a temporary injunction that day that prevents FATCA-related regulations that would have permitted the exchange of information with the United States from going into effect.  The injunction was issued in response to a request filed August 8 by a group named Republicans Overseas Israel.  An emergency hearing is scheduled for September 12.

In July 2014, Israel signed an intergovernmental agreement with the United States to implement FATCA, under which it agreed to pass regulations to bring Israel into compliance with the agreement.  The Israeli parliament (Knesset) approved such regulations on August 2, which would have required Israeli financial institutions to report on certain accounts held by U.S. citizens to the Israel tax authority by September 20.  Financial institutions that failed to comply would face monetary penalties, in addition to the penalties that are required under FATCA, including 30% withholding on payments from the United States.

First Friday FATCA Update

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September 2, 2016

Recently, the Treasury released the Model 1A Intergovernmental Agreement (IGA) entered into between the United States and Trinidad and Tobago.

The IRS also released the Competent Authority Agreements (CAAs) implementing the IGAs between the United States and the following treaty partners:

  • Cambodia (Model 1B IGA signed on September 14, 2015);
  • United Arab Emirates (Model 1B IGA signed on June 17, 2015);
  • Turks and Caicos Islands (Model 1B IGA signed on December 1, 2014).

Under FATCA, IGAs come in two forms: Model 1 or Model 2.  Under a Model 1 IGA, the foreign treaty partner agrees to collect information of U.S. accountholders in foreign financial institutions (FFIs) operating within its jurisdiction and transmit the information to the IRS.  Model 1 IGAs are drafted as either reciprocal (Model 1A) agreements or nonreciprocal (Model 1B) agreements.  By contrast, Model 2 IGAs are issued in only a nonreciprocal format and require FFIs to report information directly to the IRS.

A CAA is a bilateral agreement between the United States and the treaty partner to clarify or interpret treaty provisions.  A CAA implementing an IGA typically establishes and prescribes the rules and procedures necessary to implement certain provisions in the IGA and the Tax Information Exchange Agreement, if applicable.  Specific topics include registration of the treaty partner’s financial institutions, time and manner of exchange of information, remediation and enforcement, confidentiality and data safeguards, and cost allocation.  Generally, a CAA becomes operative on the later of (1) the date the IGA enters into force, or (2) the date the CAA is signed by the competent authorities of the United States and the treaty partner.

The Treasury Department website publishes IGAs, and the IRS publishes their implementing CAAs.