Daily Tax Update - March 7, 2016: IRS Issues Work Opportunity Tax Credit Guidance and Transition Relief

IRS Issues Work Opportunity Tax Credit Guidance and Transition Relief:  The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) expanded the definition of “targeted individuals” for whom employers may claim a Work Opportunity Tax Credit (WOTC) to add qualified long-term unemployment recipients, effective January 1, 2016.  Today, the IRS announced in Notice 2016-22 that IRS Form 8850 and ETA Forms 9061 and 9062 are being modified so that they can be used to request WOTC certification for qualified long-term unemployment recipients.  Additionally, because the PATH Act retroactively extended WOTC, the IRS is allowing taxpayers additional time to file IRS Form 8850.  The standard 28-day deadline is extended to June 29, 2016 for long-term unemployment benefit recipients hired between January 1, 2016 and May 31, 2016, and for all other categories of targeted individuals hired between January 1, 2015 and May 31, 2016. 

STARS Transactions Lack Economic Substance Required for Claim of Foreign Tax Credit:  Today, the US Supreme Court denied certiorari in foreign tax generator cases Salem Fin., Inc. v. United States, 786 F.3d 932, 2015 BL 148218 (Fed. Cir. 2015), cert. denied (U.S. 3/7/16) (No. 15-380), and Bank of N.Y. Mellon Corp. v. Commissioner and American International Group Inc. v. Commissioner, 801 F.3d 104, 2015 BL 290907 (2d Cir. 2015), cert. denied (U.S. 3/7/16) (AIG No. 15-478) (BNY No. 15-572) (the AIG and BNY cases were originally consolidated but the taxpayers filed separate cert petitions).  These cases involved structured trust advantaged repackaged securities (STARS) transactions for which the taxpayers claimed foreign tax credits.  In both cases, the lower courts held that the STARS transactions lacked an economic substance because they did not offer the opportunity for profit other than from the anticipated tax benefit.