April 2010: Hiring Incentives to Restore Employment (HIRE) Act

8/7/2019 April 2010: Hiring Incentives to Restore Employment (HIRE) Act

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Hiring Incentives toRestore Employment

(HIRE) Act



APRIL 2010

With all the ocus on Health Care legislation, not everyone got the message that on March 18, 2010, President Obama signed into

law the Hiring Incentives to Restore Employment Act (“HIRE”). While intended to spur job growth via tax breaks to businesses that

add employees and invest in equipment, it also (among other things) imposes new disclosure requirements related to oreign

investments. An overview o the more widely-applicable provisions ollows. For more detailed inormation (and we do mean detailed),

readers can reer to these ofcial sources:

• The text o H.R. 2847

• The Joint Committee on Taxation’s technical explanation

Payroll Tax Forgiveness or Hiring Unemployed Workers

Eliminates the employer’s share o OASDI paid by a qualifed employer attributable to wages paid to a qualifed individual (starting

with the date immediately ater enactment, i.e., 3/19/10) through 12/31/10, subject to minor adjustment or wages paid through

3/31/10.

“OASDI” is the old age, survivors, and disability insurance tax equal to 6.2% o covered wages up to the taxable wage base

($106,800 in 2010), providing a maximum potential beneft to the employer o approximately $6,600.

A qualifed employer is any non-governmental employer (but does include public higher education institutions).

A qualifed individual is anyone who (1) begins work or a qualifed employer ater 2/3/10 and beore 1/1/11; (2) certifes by

signed afdavit that he or she was not employed or a total o 40 hours or less during the 60-day period ending on the date such

employment began; (3) is not employed to replace another employee o the employer unless such employee separated rom employ-

ment voluntarily or or cause; and (4) is not a related party with respect to the employer. Coordination with the Work Opportunity

Hiring Incentives to RestoreEmployment (HIRE) Act

An Overview of the Provisions Signed Into Law By President Obama

HIRING AND RETENTION INCENTIVES



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Tax Credit (“WOTC”) - Qualifed employers may not receive the WOTC with respect to wages paid to a qualifed individual during

the 1-year period starting with the employee’s hire date i such wages qualiy under this provision unless the employer expressly

elects to orgo the benefts o this provision or that person.

Business Credit or Retention o Certain Newly Hired Individuals in 2010

Provides a general business tax credit or each retained “qualifed individual” (as defned above) who (1) is employed on any dateduring the taxable year; (2) remains employed or a period o not less than 52 consecutive weeks; and (3) receives wages during

the last 26 weeks o such period that are least 80% o the wages received during the frst 26 weeks o that period. The amount

o this credit is the lesser o

• $1,000 or

• 6.2% o the wages paid by the taxpayer to the retained worker during the 52 consecutive week period reerred to above

The retention credit may not be carried back to a taxable year that begins prior to the date o enactment o this provision.

This provision is eective rom the date o enactment (i.e., 3/18/10).

Extends or one year the $250,000 maximum section 179 deduction (and the $800,000 phase out limit) that would otherwise

have dropped to $125,000 (and $500,000) in the absence o this legislation.

This provision is eective or taxable years beginning ater 12/31/09.

Permits tax credit bond issuers (o Clean Renewable Energy Bonds, Qualifed Energy Conservation Bonds, Qualifed Zone Acad-

emy Bonds, and Qualifed School Construction Bonds) to elect to treat such bonds issued ater 3/18/10 as Build America Bonds

and qualiying or tax credits to be paid to the issuer instead o the holders o such bonds. While primarily applicable to state and

local governments, potential purchasers o such bonds should be aware o this provision i they are considering these invest-

ments and were counting on possible credits coming to them.

SECTION 179 EXPENSING

QUALIFIED TAX CREDIT BONDS



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FOREIGN ACCOUNT TAX COMPLIANCE

Reporting and withholding on certain oreign accounts

Adds a new chapter 4 to the Internal Revenue Code (comprising 4 new sections) that impose withholding and reporting require-

ments on persons making specifed types o payments to certain oreign fnancial institutions and other oreign entities. The

general rules are as ollows:

• The statutory withholding rate or withholdable payments to an applicable oreign fnancial institution or other covered

oreign entity is 30%.

• Withholdable payments generally include “(i) any payment o interest (including any original issue discount), dividends,

rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fxed or determin-

able annual or periodical gains, profts, and income, i such payment is rom sources within the United States, and (ii) any

gross proceeds rom the sale or other disposition o any property o a type which can produce interest or dividends rom

sources within the United States.” However, this term excludes any item o income that represents income connected with

the conduct o a U.S. trade or business.

• Withholding agents are those “persons, in whatever capacity acting, having the control, receipt, custody, disposal, or pay-

ment o any withholdable payment.”

• Covered oreign fnancial institutions are those that do not have an agreement with the U.S. Treasury or the collection,

verifcation, maintenance, and reporting o inormation about direct or indirect U.S. owners o fnancial accounts held by

that institution.

• Covered other oreign entities are those that are not covered “oreign fnancial institutions” as noted above and (1) the

benefcial owner o the payment is either that entity or another non-fnancial oreign entity and (2) the recipient does not

qualiy or a waiver o withholding. A withholding waiver is generally available i the payee provides the withholding agentwith either (a) certifcation that the benefcial owner does not have substantial U.S. owners or (b) the name, address, and

taxpayer ID number o the benefcial owner. In addition, the withholding agent must not know or have reason to know that

the inormation provided is incorrect and must also report the above inormation to the IRS.

This provision is generally eective or payments made ater 12/31/12.

Repeal o certain oreign exceptions to registered bond requirements

This provision actually consists o several changes related to oreign-targeted bonds and the corresponding (1) exclusion rom

REVENUE RAISERS



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withholding on, and (2) deduction o, the interest payments on those bonds i certain tests are met:

• Repeal o exception to denial o deduction or interest on non-registered bonds - Repeals the exception to the

denial o a deduction or interest on bonds not issued in registered orm. As a result, interest deductions are disallowed

attributable to obligations not issued in registered orm, unless (1) issued by a natural person, (2) it has a maturity o one

year or less, or (3) is not o a type oered to the public.

An obligation is considered issued in registered orm i (1) it is registered with its issuer (or agent) and may only be

transerred by surrendering the old instrument and either (a) the reissuance to the new holder or (b) the issuance o a new

instrument to the new holder, (2) the right to principal and interest may only be transerred through a book entry system

maintained by the issuer (or agent), or (3) it is registered with the issuer (or agent) and may be transerred through both o

the oregoing methods.

• Repeal o treatment as portolio interest - Repeals the portolio interest exception to withholding on interest rom

bonds that are not issued in registered orm.

Portolio interest means any interest (including OID) that is (1) paid on a registered-orm obligation and or which the ben-

efcial owner has provided the U.S. withholding agent a statement certiying that the benefcial owner is not a U.S. person,

or (2) paid on a nonregistered orm obligation that meets the oreign targeting requirements o the code. However, it does

not include interest received by a 10% shareholder, certain contingent interest, interest received by a controlled oreign

corporation rom a related person, or certain interest received by a bank on an extension o credit.

• Dematerialized book-entry systems treated as registered orm - Permits a debt obligation held through a demate-

rialized book entry system, or other specifed book entry system, to be treated as being held through a book entry system

or the purpose o treating the obligation as being in registered orm. A dematerialized book entry system is one that

tracks instruments (usually electronically) without the use o physical certifcates.

Eective or debt obligations issued ater the date which is two years ater the date o enactment (i.e., starting 3/19/12).

Disclosure o inormation with respect to oreign fnancial assets

Imposes a disclosure requirement on individuals with an interest in a “specifed oreign fnancial asset.” This requirement is

met through a statement attached to their tax return or any year in which the aggregate value o all such assets is greater than



FEBRUARY 2011

$50,000. “Specifed oreign fnancial assets” are specifed accounts at oreign fnancial institutions. However, the ollowing

constitute such assets even i not held in an account at a fnancial institution: (1) stocks or securities issued by oreign persons,

(2) fnancial instruments or contracts held or investment issued by (or having) a non-U.S. counterparty, and (3) any interest in a

oreign entity. However, individuals are not required to disclose interests that are held in a custodial account with a U.S. fnan-

cial institution. While the penalty is substantial ($10,000 plus additional amounts or continued ailures, up to a maximum o

$50,000 or each applicable taxable period), the penalty may be waived i the individual can establish the ailure was due toreasonable cause and not willul neglect.

Eective or taxable years beginning ater 3/18/10.

Penalties or underpayments attributable to undisclosed oreign fnancial assets

Adds a new 40% penalty on tax understatements related to undisclosed oreign fnancial assets. Applicable assets are those

subject to mandatory inormation reporting where the disclosure requirements were not met. Applicable understatements are

those attributable to any transaction involving such assets.


Modifcation o statute o limitations or signifcant omission o income in connection with

oreign assets

Provides or an extended, 6-year, statute o limitations period within which the IRS can assess additional tax on understated

income attributable to oreign fnancial assets. This provision applies i gross income in excess o $5,000 is omitted rom an

income tax return and that gross income is rom assets or which oreign fnancial asset disclosure is required.

Eective or returns fled ater 3/18/10 as well as or any other return or which the assessment period has not yet expired as o

3/18/10.

Reporting o activities with respect to passive oreign investment companies (“PFICs”)

Imposes an inormation disclosure requirement on U.S. persons who are PFIC shareholders. A PFIC is any oreign corporation i

(1) 75% or more o the gross income o the corporation or the taxable year is passive income, or (2) the average percentage o

assets held by such corporation during the taxable year which produce passive income or which are held or the production o



FEBRUARY 2011

passive income is at least 50%. Passive income generally includes dividends, interest, royalties, rents, annuities, and net gains

on assets that give rise to those types o income.

Eective rom 3/18/10.

Clarifcations with respect to oreign trusts which are treated as having a United States benefciary

Clarifes, or purposes o determining whether a oreign trust is treated as having a U.S. benefciary, that amounts should be

treated as accumulated or a U.S. person’s beneft even i that person’s trust interest is contingent on a uture event. Also clari-

fes that discretion to identiy benefciaries may also cause the trust to be treated as having a U.S. benefciary. This is important

in light o disclosure requirements (as noted below).

Eective rom 3/18/10.

Presumption that oreign trust has United States benefciary

Generally creates a presumption that a oreign trust has a U.S. benefciary i a U.S. person directly or indirectly transers property

to a oreign trust, unless the transeror provides satisactory inormation to the contrary to the IRS.

Eective or property transers ater 3/18/10.

Uncompensated use o trust property

Provides that the use o trust property, including cash, by (1) the U.S. grantor, (2) U.S. benefciary

or (3) any U.S. person related to either o those two must be treated as a distribution to theextent o the air market value o the property’s use to the U.S. grantor or U.S. benefciary, unless

the air market value o that use is paid to the trust within a reasonable amount o time.

The provision applies to loans made and uses o property ater 3/18/10.

Reporting requirement o United States owners o oreign trusts

Requires any U.S. person treated as the owner o any portion o a oreign trust to submit IRS required inormation and ensure

that the trust fle a return o its activities and provide such inormation to its owners and distributees.



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Minimum penalty with respect to ailure to report on certain oreign trusts

Increases the minimum penalty or ailure to provide timely and complete disclosure on oreign trusts to the greater o $10,000

or 35% o the amount that should have been reported. In the case o ailure to properly disclose by the U.S. owner o a oreign

trust o the year-end value, the minimum penalty would be the greater o $10,000 or 5% o the amount that should have been

reported.

Eective or notices and returns required to be fled ater December 31, 2009.

Substitute dividends and dividend equivalent payments received by oreign persons treated as dividends

Treats substitute dividends and dividend equivalents as i they were U.S.-source dividends or purposes o withholding on pay-

ments to oreign persons. Substitute dividends and dividend equivalent payments are those payments that are economically the

same as dividends made with respect to the underlying stock in the context o a securities lending or sale-repurchase transac-

tion.

Eective or payments made on or ater the date that is 180 days ater 3/18/10 (i.e., starting 9/14/10).

DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST

Delays the availability date o the one-time election or an afliated group’s domestic members to allocate and apportion interest

expense and a worldwide group basis or purposes o determining oreign source income in the context o the oreign tax credit.

Election may not be made beore tax years beginning ater 12/31/20.

TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX

Accelerates the timing o required corporate estimated tax payments due in July, August, or September o 2014, 2015, and 2019.

This provision applies to corporations with assets o at least $1 billion as o the end o the preceding year.

________________________________________________________________________________________________________________



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Thank you or your time and continued support o the Enterprise Zone program

As always, please call i you would like to discuss any o these items urther.

Your Tax Partners,

Mark G. Cook, Partner Richard A. Linder, Partner Jon Widdowson, PartnerSteven J. Cupingood, Partner David Neighbors, Partner Michael Wu, Partner

John A. Eckweiler, Partner Todd Northrup, Partner Don Leve, Partner

Dan B. Faulk, Partner Javier Ramirez, Partner

Andrew L. Gantman, Partner Thomas E. Wendler, Partner

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inorm you that any U.S. tax advice contained in thiscommunication (including attachments) is not intended or written to be used, and cannot be used, or the purpose o (i) avoiding penalties under theInternal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.Notice: Opinions, conclusions, and other inormation in this message are not intended to represent recommendations or advice to you or any otherperson. Each person’s circumstances are unique, and we strongly suggest you discuss your specifc situation with your proessional advisor beoretaking any action based on the inormation herein or inormation to which this message reers.

Documents

April 2010: Hiring Incentives to Restore Employment (HIRE) Act