Payroll Processor Recommends Project for Priority Guidance Plan
Payroll Processor Recommends Project for Priority Guidance Plan
- Institutional AuthorsADP TotalSource
- Cross-Reference
Responding to Notice 2020-47.
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2021-6535
- Tax Analysts Electronic Citation2021 TNTF 33-34
February 4, 2021
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2020-47)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Re: Recommendation for 2020-2021 Priority Guidance Plan Pursuant to Notice 2020-47
To Whom It May Concern:
Pursuant to the Request for Comments contained in Notice 2020-47, ADP respectfully submits the following recommendation for an item to add to the current 2020-2021 Priority Guidance Plan (the “Plan”) relating to the Work Opportunity Tax Credit (“WOTC”).
I. Overview
Automatic Data Processing (“ADP”) is the nation's largest payroll and human resources service provider, paying roughly one out of every six workers in the United States. ADP provides a range of solutions to over 800,000 clients in the U.S., which enable employers of all types and sizes to manage their employment responsibilities from recruitment to retirement, including payroll, employment tax administration, human resource management, benefits administration, time and attendance, retirement plans, and talent management. ADP's core value — “Integrity is Everything” — permeates all of ADP's operations, products and services, including in the area of tax compliance.
ADP assists many employers with tax credit compliance services, including the WOTC program. Such software and services include, for example, systems of record designed to prompt employers to consider WOTC classifications in the hiring process and administer the requisite screening questions of applicants. ADP believes in the value of the WOTC program to encourage the targeted hiring and retention of certain categories of job applicants that otherwise could be disadvantaged in the pursuit of employment while also benefiting society by reducing the burden on government-sponsored support programs. The impact of the WOTC program is significant — the WOTC program provides qualifying employers in excess of $1 billion in tax credits annually for hiring approximately 2 million eligible employees1 each year. WOTC will continue to provide considerable benefits as it was recently renewed for an additional five years.
However, to ensure the integrity of how the WOTC program is utilized, we believe the Internal Revenue Service (“IRS”) needs to clarify one critical aspect of the program — the issue of what constitutes an “offer” of employment before which an employer must conduct the WOTC prescreening to determine whether a job applicant meets one of the categories eligible for the tax credit. As described below, the WOTC program requires an employer to obtain the pre-screening information set forth in the Form 8850 “on or before" the job offer date. This requirement helps to ensure that employers' hiring decisions can be influenced by an applicant's WOTC eligibility. Contrary to this requirement, some service providers that assist employers with securing credits under the WOTC program advocate screening practices that result in screening job applicants who have already effectively been offered employment and have begun the job onboarding process. ADP believes that these service providers may rationalize such practices based on the flawed argument that an offer is not extended under the WOTC program until pre-employment conditions, such as a background check, have been met. ADP further believes that these practices that are inconsistent with the intent of the WOTC program have been ongoing for years and may account for billions of dollars in credits extended to employers who made hiring decisions of applicants without knowing if they were eligible under the WOTC program.
The IRS should clarify what constitutes an “offer” to help ensure that employers pre-screen applicants before extending any offer, including a conditional or contingent offer. By doing so, the IRS would ensure the uniform administration of WOTC tax credits, ensure equal and proper tax administration, increase tax compliance, satisfy the original Congressional intent of encouraging offers of employment for members of the WOTC targeted groups and ensure a level playing field for providers of WOTC tax credit services.
II. Background
A. Offer of Employment — IRC Section 51(d)(13) and Form 8850
Under the WOTC program, employers must utilize the Form 8850 Pre-Screening Notice and Certification Request for the Work Opportunity Credit (“Form 8850”) as the pre-screening notice. The express language of Internal Revenue Code (“IRC”) Section 51 (d)(13) and Form 8850 requires, without exception, the pre-screening information must be provided “on or before the day the individual is offered employment.” The Instructions to Form 8850 state “The job applicant gives information to the employer on or before the day a job offer is made."
Neither IRC section 51(d)(13), nor the related Treasury regulations, define “offered employment," and Form 8850 similarly does not define a “job offer." There is also no published guidance as to when an individual is considered to have been “offered employment for purposes of IRC Section 51(d)(13)(A)(ii)(l) or as to when a “job offer has been made" for purposes of the Instructions to the Form 8850.
B. WOTC Form 8850 Pre-Screening Practices
We believe that ADP has appropriately interpreted WOTC tax credit compliance to require prescreening of the categories set forth in Form 8850 before an employer makes any job offer, consistent with the clear public policy intent to incentivize employers to hire job applicants who fall within one or more of the eligible categories. Accordingly, ADP has designed its WOTC processes for pre-screening and provided guidance to WOTC clients to help ensure that the information required by Form 8850 is obtained on or before the date of any job offer, regardless of whether that offer is oral, contingent or otherwise.
ADP's interpretation is consistent with the recognition by the Congressional Research Service that the WOTC program is intended to incentive employers to hire WOTC-eligible applicants based on such eligibility, not to provide credits to employers simply because they hired applicants who also happened to fall within such categories. As set forth in a paper published by the Congressional Research Service:
“The WOTC is designed to incentivize the hiring of employees with certain characteristics by subsidizing a portion of the qualified worker's wage. If an employer has a choice between hiring two identical applicants, one of whom is eligible for the WOTC and one of whom is not, the employer may opt to hire the WOTC-eligible applicant because employing that worker will have a lower after-tax cost.
The credit is structured to provide an advantage to workers from WOTC target groups seeking employment; it is not designed to stimulate the creation of new jobs.”2
In contrast, ADP is aware that many WOTC service providers, tax professionals and employers conduct the Form 8850 pre-screening on a date after an oral, conditional or “non-firm” job offer is made, taking the position such offers do not trigger the Form 8850 screening requirement until contingencies of the offer have been satisfied by the applicant. As a result, screening happens in many cases during on-boarding (i.e., after acceptance of the offer by the applicant) and in some instances even on the date the employee begins work. While the relevant IRC sections and Form 8850 instructions do not define an “offer” of employment, they also do not endorse the conclusion that verbal, contingent or conditional offers do not trigger the Form 8850 screening requirement. Moreover, as a factual matter, an employer cannot be incentivized to hire job applicants who fall within one of the eligible categories if the employer has no ability to know whether the job applicant does so before making a job offer.
In many instances, these practices effectively result in only screening persons after they are offered and accept employment. In effect, screening job applicants for WOTC categories after making the contingent or conditional job offer could allow employers windfall benefits from tax credits for hiring decisions that they would have made regardless of the availability of the WOTC program. ADP believes these practices violate both the intent and letter of the WOTC program, undermining the public policy underlying the WOTC program.
If the IRS does not clarify what constitutes a job “offer” under the WOTC program, service providers will continue to be incented to screen only those applicants to whom employers have already made some form of informal, contingent or conditional offer, because doing so significantly reduces the time and resources necessary to manage a WOTC program and allows collection of the Form 8850 certifications from only a small subset of an employer's overall applicant population. In contrast, providers, such as ADP, that recognize that an offer is an offer, and that the intent of the WOTC program is to incentivize employers to extend offers to applicants falling within one of the eligible categories, will face a competitive disadvantage that will lead to the continual erosion of the integrity of the overall WOTC program.
III. Recommendation for addition of a matter to the current Plan — Proposed changes to Form 8850 Instructions
A. Recommendations if the IRS agrees that pre-screening must occur before any job offer, regardless of whether verbal, conditional or contingent
ADP respectfully requests the IRS consider adding to the Plan the issue of what constitutes an “offer of employment” in the context of WOTG Form 8850 screening timing, to ensure that employers are truly conducting the required pre-screening on or before the date of an actual job offer. ADP believes that the IRS can make this clarification with a simple modification to the Form 8850 instructions to make clear that any offer of employment triggers the pre-screening requirement.
ADP believes that the IRS could clarify that pre-screening must occur before any job offer through one of several possible modifications to the existing Form 8850 Instructions. The following proposed options are ordered from the option providing the highest to lowest level of needed clarity (proposed changes are italicized and underlined).
Option 1: The job applicant gives information to the employer on or before the day a job offer is made. For purposes of this requirement, a “job offer" includes a formal written offer, verbal offer, conditional or contingent offer, and any other form of offer of employment.
Option 2: The job applicant gives information to the employer on or before the day any form of lob offer is made (regardless of whether such offer is written, verbal, conditional, contingent, or otherwise).
Option 3: The job applicant gives information to the employer on or before the day any form of job offer is made.
ADP believes that any of these options would serve the core purpose of incentivizing an employer to extend offers of employment to applicants after it has a reason to believe such applicants may be WOTC qualifying.
B. Recommendations if the IRS concludes that pre-screening does not need to occur on or before the date of a verbal, conditional or contingent job offer
We believe that the IRS will agree that the pre-screening must occur before any job offer is extended, regardless of whether the job offer is verbal, conditional or contingent. However, should the IRS disagree, ADP respectfully recommends that the IRS modify the Form 8850 instructions to make clear that the Form 8850 pre-screening timing need not occur until all conditions to a conditional or contingent offer have been satisfied. At a minimum, the IRS should provide clarity to allow all service providers and employers to operate under a clear and consistent definition of “job offer" without concern that practices violate the IRC or WOTG Form 8850 instructions.
Should the IRS disagree with ADP's view of what constitutes a job offer under the WOTG program, ADP respectfully submits the following as one possible modification to the Form 8850 instructions (proposed changes are italicized and underlined):
The job applicant gives information to the employer on or before the day a job offer is made. For purposes of this requirement, a conditional or contingent offer of employment will not constitute a “job offer” unless and until all of the applicable conditions and contingencies of such offer have been satisfied or lapsed (which may include, without limitation, successful completion by the applicant of a backoround check, drug test, reference check, and/or employer onboarding process).
IV. Closing
Thank you for the opportunity to propose an additional item to include in the 2020-2021 Priority Guidance Plan. We are confident that the proposed clarifications would resolve longstanding concerns about the efficacy of the WOTC program and reinforce sound tax policy and Congressional intent in more effectively incentivizing hiring decisions in favor of the intended disadvantaged populations. We would welcome the chance to meet to discuss the above comments in greater detail or to answer any questions that you may have.
Respectfully submitted,
Michael A. Bonarti
General Counsel & Corporate Secretary
Automatic Data Processing, Inc.
Roselan, NJ
- Institutional AuthorsADP TotalSource
- Cross-Reference
Responding to Notice 2020-47.
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2021-6535
- Tax Analysts Electronic Citation2021 TNTF 33-34