Rev. Rul. 87-94, Rev. Rul. 87-94 [FN1]

TARGETED JOBS CREDIT; CERTIFICATION REQUIREMENTS

Published: 1987

SECTION 51. -- AMOUNT OF CREDIT, 26 CFR 1.51-1: Amount of credit.

  Targeted jobs credit; certification requirements. An employer may not claim a targeted jobs credit for wages paid to an employee if on or before the date the employee begins work he or she does not receive a written preliminary determination and the employer does not request in writing or receive certification from a designated local agency, as required by section 51(d)(16) of the Code, that the employee is a member of a targeted group. This requirement is unchanged even if the employee was hired during the period from January 1, 1996, through October 21, 1986, the day prior to the enactment of the Tax Reform Act of 1986, during which period no targeted jobs credit was in effect.

ISSUE

  Is an employer entitled to a targeted jobs credit under section 51 of the Internal Revenue Code with respect to an employee hired after December 31, 1985, although the employer on or before the day the employee began work did not receive or request certification that the employee was a member of a targeted group described in section 51(d) of the Code?

FACTS

  Employer X hired individual A after December 31, 1985, but before October 22, 1986. On or before the day A began work for X, X did not request or receive certification from a designated local agency that A was a member of a 'targeted group' described in section 51(d)(1) of the Code. Also, A did not receive a written preliminary determination of A's status as a member of such a group.

LAW AND ANALYSIS

  Section 51 of the Code provides a 'targeted jobs credit' equal to a specified percentage of 'qualified first-year wages' for each year.

  Section 51(b)(1) of the Code defines 'qualified wages' as wages paid or incurred by the employer to individuals who are 'members of a targeted group.'

  Section 51(b)(2) of the Code defines 'qualified first-year wages' as qualified wages attributable to service rendered by an individual during the 1- year period beginning with the day the individual begins work for the employer.

  Section 51(b)(3) of the Code provides that the amount of the qualified first- year wages that may be taken into account with respect to any individual shall not exceed $6,000 per year.

  Section 51(d) of the Code lists nine currently applicable targeted groups, including vocational rehabilitation referrals and qualified summer youth employees.

  Section 51(d)(16) of the Code provides that an individual shall not be

treated as a 'member of a targeted group' unless, on or before the day the individual begins work, the employer has received or requested in writing certification from a designated local agency that the individual is a member of a targeted group. This deadline is extended until 5 days after the individual begins work if the individual receives a preliminary determination of his or her status on or before the day he or she begins work.

  Section 1701 of the Tax Reform Act of 1986 (the Tax Reform Act), 1986- 3 (Vol. 1) C.B. 689, which was signed into law October 22, 1986, made the following changes to section 51:

  (1) An employer may claim a targeted jobs credit only with respect to services rendered during the one-year period beginning with the day the individual in respect of whom the credit is being claimed begins work for the employer; the employer may not claim the credit for wages paid during the second year of employment.

  (2) The credit is limited to 40 percent (rather than 50 percent) of the first $6,000 of wages, although, in the case of qualified summer youth employees, the former credit of 85 percent of up to $3,000 of wages is retained.

  (3) The individual in respect of whom the credit is being claimed must be employed for at least 90 days (14 days in the case of qualified summer youth employees) or perform services for at least 120 hours (20 hours in the case of qualified summer youth employees).

  (4) The period over which the credit is effective is extended. Prior to its amendment, section 51(c) of the Code had provided that the term 'wages' did not include amounts paid to an individual who began work after December 31, 1985. Section 1701 of the Tax Reform Act replaced 'December 31, 1985' with 'December 31, 1988.'

  Although, prior to the Tax Reform Act amendments, the targeted jobs credit did not apply with respect to individuals who began work after December 31, 1985, and the Tax Reform Act was not enacted until October 22, 1986, section 1701(e) of the Tax Reform Act made the amendments to section 51 of the Code retroactive to apply with respect to individuals who began work after December 31, 1985. Accordingly, if an individual began work between December 31, 1985, and October 22, 1986, and the individual's employer met all the conditions precedent to claiming a targeted jobs credit in respect of that individual, the employer can claim the credit.

  As discussed above, among the conditions precedent to claiming a targeted jobs credit is the requirement imposed by section 51(d)(16) of the Code that the employer have timely received or requested in writing certification as to the status of the individual. Congress considered a special rule that would have allowed employers an extended period to request certifications with respect to individuals hired after December 31, 1985 and on or before the 25th day after enactment of the Tax Reform Act, but the rule was not included in the Tax Reform Act. See S. Rep. No. 99-313, 99th Cong., 2d Sess. 881 (1986), 1986- 3 (Vol. 3) C.B. 881; 2 H.R. Rep. No. 99-841, 99th Cong., 2d Sess. II-829 (1986), 1986-3 (Vol. 4) C.B. 829.

  Certification procedures are under the jurisdiction of the Department of Labor. On November 8, 1986, the Department of Labor, in Employment Service Program Letter No. 1-87, indicated that requests for certifications for employees who began work after December 31, 1985, and before October 22, 1986, would be processed by designated local agencies if the request was on file with an agency or if the employer provides clear and convincing documentary evidence that the request was timely filed. Examples of satisfactory evidence include the original written request with postmark, dated certificate of mailing, or designated agency date-stamp, or a photocopy thereof, or, for hand-delivered requests, any dated receipt or designated agency dated log entry.

HOLDING

  Because, on or before the date A started working for X, A did not receive a written preliminary determination and X did not request in writing or receive certification from a designated local agency, as required by section 51(d)(16) of the Code, that A was a member of a targeted group, X may not claim a targeted jobs credit in respect of wages paid to A.

Rev. Rul. 87-94, 1987-2 C.B. 39