Accessibility Skip to Top Navigation Skip to Main Content Home  |  Change Text Size  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 21. Customer Account Services

Chapter 7. Business Tax Returns and Non-Master File Accounts

Section 4. Income Taxes/Information Returns (Cont. 3)

21.7.4  Income Taxes/Information Returns (Cont. 3)

21.7.4.4 
Income and Information Returns Procedures

21.7.4.4.7 
Form 8752,

21.7.4.4.7.3  (10-07-2010)
Penalties (Form 8752)

  1. Failure to File (TC 16X) and Failure to Pay (TC 27X) penalties under IRC 6651 do not apply to Section 7519 underpayments. If either penalty has been manually assessed on a Form 8752 account, abate the penalties.

  2. IRC 7519(f)(4)(a) provides for a 10-percent underpayment penalty on payments made after the payment due date of May 15. They are identified by TC 246, reference code 684. For tax years beginning prior to August 5, 1997, the penalty is not subject to reasonable cause. However, for tax years beginning after August 5, 1997, the TPRA of 1997 provided reasonable cause exception to this penalty. See IRM 20.1.10.17, IRC 7519, Required Payment for Entities Electing Not to Have Required Taxable Year, for more information.

  3. First-time abatement does not apply to the 10-percent underpayment penalty. Normal reasonable cause criteria must be met in order to abate the penalty. See IRM 20.1.1.3, Criteria for Relief from Penalties, for reasonable cause criteria for abatement.

21.7.4.4.7.4  (01-01-2005)
Posting of the Payment (Form 8752)

  1. The required payment (line 9a) posts as the TC 150 amount. The system credits the payment and automatically rolls that amount forward to the following year’s account. It posts on the following year’s account as a TC 766. (There will not be a corresponding debit for that amount.) When the following year’s return posts, one of three situations occur. See the examples below.

    Example:

    Excess credit:

    1. TC 150 is $5,000.

    2. TC 766 is $8,000.

    3. The system rolls over $5,000 to the following year and issues a refund of $3,000.

    Example:

    Balance due:

    1. TC 150 is $8,000.

    2. TC 766 is $5,000.

    If Then
    Balance due is paid with the return (TC 610 for $3,000) The system rolls over credit of $8,000.
    Balance due is not paid with the return A balance due notice is issued for $3,000 plus penalty and interest. The system rolls over the credit of $5,000 and, when paid, an additional credit of $3,000 rolls over.

    Example:

    Zero balance:

    1. TC 150 is $5,000.

    2. TC 766 is $5,000.

    3. The system rolls over $5,000.

21.7.4.4.7.5  (01-01-2005)
Form 8752 Credit Transfers

  1. The following procedures describe credit transfers on Forms 8752. It is very important to understand how credits are applied and the effect a change in credits has on each account involved before an attempt is made to move payments.

  2. Once a liability is assessed, the credits are frozen on that account up to the TC 150 amount. Do not attempt to adjust the posted credit below the assessment amount. If so, the adjustment unposts because the system has already used the credit in the automatic roll over program. Therefore, it is not available, unless the liability is reduced first.

    Example:

    Form 8752 for 201012 posts with a TC 150 of $2,000. Credits up to the $2,000 assessment are frozen from being transferred out of the account. Attempts to transfer the credit go unpostable.

  3. Any adjustments to the existing credits affects all subsequent year accounts by amounts corresponding to any credit transfer from a prior year.

    Example:

    TC 291 for $2,000 is input to a 200912 account. The system pulls credits which rolled to subsequent Form 8752 accounts (201012 and 201112) back to the period adjusted to compensate for the tax decrease.

  4. The necessity to move payments from one account to another can occur when working Form 8752 accounts. The most common credit transfer on these types of cases is when a payment was applied to the incorrect period with a return present on the account from which you are moving the credit, and the payment belongs on another account. Action required:

    1. Input TC 291, HC 4, in blocking series 17 and reduce the tax liability to zero.

    2. Input a credit transfer with the date of your payment and use TC 570 on the debit side to create an -R freeze.

    3. Input TC 290, HC 4, in blocking series 18 with your documentation for the credit transfer. Use a posting delay code 1 to allow your credit transfer to post.

    Example:

    The accounts involved are Form 8752 accounts for 200912 and 201012.

    1. The 200912 account has a liability of $10,000 and a TC 766 of $5,000. This leaves the account in balance due of $5,000 plus penalty and interest.

    2. The 201012 account has a liability of $10,000, a TC 766 of $5,000, and a TC 670 for $5,000. The timely TC 670 was intended for 200912.

    3. Input TC 291 on 201012 for $10,000, HC 4, blocking series 17.

    4. Input credit transfer for $5,000 to move the TC 670 to 200912 using TC 570 on the debit side to create an -R freeze.

    5. Input TC 290 for $10,000, HC 4, blocking series 18, and posting delay code 1 on 201012 to reassess the liability and allow your credit transfer one cycle to post.

    6. Both the 200912 and 201012 accounts will be in zero balance after the TC 670 for $5,000 posts to 200912. An additional TC 766 will post to 201012, and then another TC 766 for $5,000 will roll (post) to 201112. Creating a total credit balance of $10,000 on 201112.

    Note:

    Never move a TC 766 at any time. Form 8752 accounts are not subject to offset-in/offset-out criteria.

21.7.4.4.7.6  (01-01-2005)
Form 8752 Tax Adjustments

  1. The necessity to adjust tax on Form 8752 can arise due to any of the situations described below. These instructions are intended to cover the most common cases and are not intended to cover every situation.

21.7.4.4.7.6.1  (01-01-2005)
Incorrect Percentage Used (Form 8752)

  1. If the incorrect percentage was used to compute the tax liability and the taxpayer has not terminated the Section 444 election, take the following action:

    1. Analyze the taxpayer’s account to determine the correct tax period and percentage.

    2. Edit the correct percentage onto the Form 8752 and recompute the liability.

    3. Input the necessary adjustment to correct the assessment and send a closing letter to the taxpayer explaining the action taken.

21.7.4.4.7.6.2  (07-09-2009)
Form 8752 Posts To Incorrect Period, Correct Return Unavailable

  1. If a return posts to an incorrect period and you do not have the correct return for that period, contact the taxpayer by phone or C-Letter to secure the necessary return.

  2. If you are unable to secure the return, take the following action:

    1. Prepare the return for re-input by completing Form 13596 and attaching it to the return.

    2. Input TC 291 for the amount of the TC 150, HC 4, and blocking series 17.

    3. Transfer any credits received with the return or identified by the taxpayer to be applied to this liability.

      Caution:

      Never move TC 766 credits.

    4. lnput TC 290, HC 4, posting delay code 1, and blocking series 18 to reassess the posted liability and prevent the TC 766 from refunding.

    5. Open a monitor base and wait for the TC 766 to post.

    6. When the TC 766 posts, input TC 291, HC 4 to reduce the tax liability to zero. (This creates a "-K" freeze to hold the credit until the taxpayer files a return.)

21.7.4.4.7.6.3  (04-23-2009)
Form 8752 Posts to Incorrect Period, Return Available

  1. If you are able to secure the return for the period from which you are reprocessing the TC 150 return, take the following action:

    1. Prepare the TC 150 document for re-input by preparing Form 13596 and attaching it to the return. See IRM 21.7.9.4.1.1, TRNS 193s Involving Reprocessing Returns, for more information.

    2. If a payment was received with the return, an adjustment to release the credit transfer freeze must be done before transferring the credit.

    3. Input TC 291 for the original TC 150 amount using HC 4.

    4. Input your credit transfer to move the credit to the prior period. (Since there is no return on the period to which your credit transfer is posting, a TC 570 is not needed on the debit side in this instance.)

    5. Input TC 290 for the correct liability assessment (based on the correct return for the period involved), HC 4, blocking series 00, and posting delay code 1.

21.7.4.4.7.7  (10-01-2008)
Form 8752 Refunds

  1. IRC 7519(c)(3), requires the Service to hold any refund of the required payment until the later of the applicable April 15 date or 90 days after the day on which the claim is filed with the Service. Since this requires extensive programming to detain the taxpayer’s refund until the 90th day, a waiver to the above requirement was approved.

  2. The waiver permits the Service to pay the refund as soon as practical, but not earlier than April 15 and not later than the 90th day after the claim is filed.

  3. A request to obtain a refund of an over-deposit under IRC 7519 is treated as a return of a deposit general claim against the government (although IRC 6603 is not applicable). Section 7519 requires a running deposit balance that is adjusted each year. An entity’s required payment may increase, decease, or stay the same from any one year to the next, depending on the entity’s base year income and the applicable tax rates.

  4. See IRM 21.7.4.4.7.8.2, regarding any period of limitation for obtaining a refund of an over deposit of IRC 7519 payments.

  5. Request that all delinquent Form(s) 8752 be filed for all prior applicable election years before processing a request for a refund of IRC 7519 payments. If the taxpayer fails to file prior years’ returns or files such returns late and the information cannot be verified, any overpayment shown on the pending claim for refund may be rejected. Issue a disallowance letter as described in IRC 6532(a), and the taxpayer will have two years to file suit.

    Note:

    The taxpayer’s election is generally not terminated for the failure to file Form 8752.

  6. The following is an example of a Partnership electing to file Form 8752 under IRC 444 election but thereafter failing to file annually. In extreme instances, an entity might fail to file Forms 8752 after making the IRC 444 election until it liquidates or terminates its IRC 444 election.

    Example:

    Assume Partnership’s tax year ends on 9/30. On 5/15/2006, Partnership timely files an initial Form 8752 for its tax year ending 9/30/2005, making a required payment of $1,000. Partnership timely files its Forms 1065 each year, but does not file any additional Forms 8752 or make any required payments until 2011. On 5/15/2011, Partnership files a Form 8752 seeking a refund of an over-deposit for 2011 in the amount of $250. Assuming Partnership had an IRC section 444 election in effect for the years 2005 through 2011, Partnership’s claim for refund on the Form 8752 filed on 5/15/2011 is timely because the $1,000 required payment Partnership made in 2006 is, in effect, a deposit, it rolls forward into 2011. In order to determine the proper amount of any refund, the Service generally requires all delinquent Forms 8752 to be filed before processing Partnership’s 2011 Form 8752. Once the Forms 8752 that were due on 5/15 of each intervening year (2006 through 2010) are filed and an entry is made on the module for each period, the Service determines whether the $1,000 required payment made in 2006 (which rolled forward into each of the succeeding years) was sufficient for those years. If the amount that Partnership was required to have on deposit for each of the succeeding years was never more than $1,000, and if in 2011 the amount of the required payment is only $750, then Partnership is entitled to the $250 refund. If the $1,000 was less than the required payment balance for any of the years after 2006, however, appropriate interest and penalties for the under-deposit may be assessed and collected.

21.7.4.4.7.7.1  (01-01-2005)
Refunds Involving Termination of Section 444 Election

  1. In the case of a refund resulting from the termination of the Section 444 election, the term "applicable calendar year" means the calendar year following the calendar year in which the final applicable election year ends.

  2. In order to claim the refund, the taxpayer must:

    1. File a final Form 8752.

    2. Check box C on Form 8752, or write at the top "Termination of Section 444 Election" .

    3. Complete lines 10 - 12.

    Example:

    The taxpayer FYM is 09. Taxpayer decides to adopt the calendar year. Taxpayer files short period Form 1120S return for the period 10/1/2010 - 12/31/2010, thus terminating the election effective 9/30/2010. A final Form 8752 for the period January 2010 – December 2010 stating the Section 444 election had been terminated and requests a refund of the required payment. The taxpayer is entitled to a refund not earlier than April 15, 2011, nor later than the 90th day after the date the final return for January - December 2010 is received.

21.7.4.4.7.7.2  (01-01-2005)
Refunds Involving Continuation of Section 444 Election

  1. The steps below illustrate how a refund is issued when the taxpayer continues a Section 444 election.

    1. The taxpayer files a Form 8752 for the period January - December 2010 on May 15, 2011 for $10,000.

    2. The taxpayer files a Form 8752 for the period January - December 2011 on January 15, 2012 for $7,000.

    3. On April 15, 2012, the taxpayer will receive a refund in the amount of $3,000 for the excess credit from the 201012 return over the 201112 return. In other words, if the liability on the 201112 return is less than the liability on the 201012 return, then the taxpayer is entitled to a refund of the difference.

21.7.4.4.7.7.3  (01-01-2005)
No Interest on Section 444 Refunds

  1. The statute does not provide for issuance of credit interest with respect to any refund made under this section under authority of Treasury Regulation section 1.7519-2T(a)(6)(iii).

21.7.4.4.7.8  (10-01-2008)
Section 7519 Statute of Limitations, Period for Assessment

  1. A required payment is due only for a limited time, e.g., 5/15/YR1 to 5/15/YR2. Once the subsequent election year begins, a new required payment is computed and due. If a prior required payment was not made, the Service does not attempt to collect it; instead, interest and a possible penalty under IRC 7519(f)(4) may be assessed.

  2. Required payments are treated as employment taxes for the purpose of the statute of limitations on assessment. Per IRC 7519(f)(1), the interest and any penalty described in (1) above may be assessed under IRC 6201 though 6207, subject to the period of limitations in IRC 6501 (and collected under IRC 6301 through 6306, subject to the period of limitations in IRC 6502). The deficiency procedures do not apply to required payments because they are treated as employment taxes and not as income taxes for assessment purposes.

  3. If a taxpayer filed Form 8752 for a prior period and the three-year assessment period in IRC 6501(a) expires for that period (and there are no exceptions that would extend it), the Service can no longer examine the Form 8752, adjust the payment, and assess interest and penalties on the shortfall for that period. If the taxpayer has not filed for a prior period, the Service may determine the proper payment and assess interest and penalties at anytime.

21.7.4.4.7.8.1  (10-01-2008)
Section 7519 Statute of Limitations, Period for Claiming a Refund of a Payment.

  1. A request to obtain an over-deposit of the IRC 7519 amounts is treated as the return of a deposit, and not a tax. See IRM 25.6.1.10.2.12.8, Claim for IRC 7519 Payment Made in Connection with a Section 444 Election, regarding the lack, at the present time, of any period of limitations on filing a claim requesting a return of a IRC 7519 payment.

21.7.4.4.8  (01-01-2005)
Non-refundable Credits, Income Tax Returns

  1. A non-refundable credit is a statutory (regulated) credit claimed to reduce tax liability. These credits, subtracted from the tax amount, are limited to the amount of tax liability. Any excess is non-refundable, but, generally, still available if the tax liability increases at a later date or can be applied against tax liabilities in other periods (Carryback/carryforward - see IRM 21.5.9, Carrybacks, for more information on carrybacks.). Also, see information on the specific credit to determine if it is available for carryback/carryforward.

21.7.4.4.8.1  (01-01-2005)
General Business Credit, Form 3800

  1. Form 3800 must be filed to claim any of the general business credits. See the Instructions for Form 3800 for computing the tax credits. If more than one of these credits is claimed, if there is a carryback or carryforward of any of these credits, or if any of the credits are from a passive activity, the appropriate credit form must be attached and the total credit summarized on Form 3800. If none of the credits in IRM 21.7.4.4.4.9 are applicable, the Form 3800 is not necessary. The taxpayer should only file the appropriate credit form.

  2. See IRM 21.7.4.4.4.9 for a list of the applicable credits.

21.7.4.4.8.1.1  (11-02-2010)
Priority of Credits

  1. The General Business Credits reported on Form 3800 are treated as used on a first-in, first-out basis by offsetting the earliest-earned credits first. Therefore, the order in which the credits are used in any tax year is;

    1. Carryforwards to that year, the earliest ones first, as of the close of the tax year in which the credit is used:

    2. The general business credit earned in that year, and

    3. The carryback to that year.

  2. The components of the general business credits reported on TY 2011, Form 3800, are used in the following order:

    1. Investment Credit, (Form 3468, Part II only) in the following order: rehabilitation credit, energy credit, qualifying advanced coal project credit, and qualifying gasification project credit, and Qualifying Advanced Energy Project Credit) Form 3468

    2. Reserved

    3. Credit for Increasing Research Activities, Form 6765

    4. Low-income Housing Credit, Form 8586

    5. Disabled Access Credit, Form 8826

    6. Renewable Electricity, Refined Coal, and Indian Coal Production Credit, Form 8835

    7. Indian Employment Credit, Form 8845

    8. Orphan Drug Credit (Formerly part of Research Activities Credit until December 31, 1994 when it expired - was reinstated permanently beginning July 1, 1996), Form 8820

    9. New Markets Credit, Form 8874

    10. Credit for Small Employer Pension Plan Start-up Cost, Form 8881

    11. Credit for Employer-Provided Child Care Facilities and Services, Form 8882

    12. Biodiesel and Renewable Diesel Fuels Credit, Form 8864

    13. Low Sulfur Diesel Fuel Production Credit, Form 8896

    14. Distilled Spirits Credit, Form 8906

    15. Non-Conventional Source Fuel Credit, Form 8907

    16. Energy Efficient Home Credit, Form 8908

    17. Energy Efficient Appliance Credit, Form 8909

    18. Alternative Motor Vehicle Credit, Form 8910

    19. Alternative Fuel Vehicle Refueling Property Credit, Form 8911

    20. Employer Housing Credit

    21. Mine Rescue Team Training Credit, Form 8923

    22. Agriculture Chemicals Security Credit, Form 8931

    23. Credit for Employer Differential Wage Payments, Form 8932

    24. Carbon Dioxide Sequestration Credit, Form 8933

    25. Qualified Plug-in Electric Drive Motor Vehicle Credit, Form 8936

    26. Qualified Plug-in Electric Vehicle Credit, Form 8834 (Part I only)

    27. New Hire Retention Credit, Form 5884-B

    28. Current Year General Credits from an Electing Large Partnership, Schedule K-1, Form 1065-B

    30. Investment Credit, Form 3468, Part III

    31. Work Opportunity Credit, Form 5884

    32. Alcohol and Cellulosic Biofuel Fuels Credit, Form 6478

    33. Low-income Housing Credit, Form 8586, Part II

    34. Renewable Electricity, Refined Coal, and Indian Coal Production, Form 8835

    35. Employer Social Security and Medicare Taxes paid on certain employee tips, Form 8846

    36. Qualified Railroad Track Maintenance Credit, Form 8900

    37. Small Employer Health Insurance Premiums, Form 8941

  3. See the Instructions for Form 3800 for more specific information.

21.7.4.4.8.1.2  (04-15-2011)
Use of Other Credits Prior to Allowance of General Business Credit

  1. The tax liability must be reduced by the following other credits not taken on Form 3800, before the General Business Credit:

    • Foreign Tax Credit, Form 1116

    • American Samoa Economic Development Credit, Form 5735,
      Forward any case or correspondence relating to Form 5735 to:
      Internal Revenue Service
      Philadelphia Campus
      BLN 1-D08.113
      2970 Market Street
      Philadelphia, PA 19104

    • Nonconventional Source Fuel Credit (separate schedule must be attached)

    • Qualified Electric Vehicle Credit, Form 8834

    • Credit for Prior Year Minimum Tax - Corporations, Form 8827

    • Qualified Zone Academy Bond Credit (valid for periods 199901 and subsequent), Form 8860

  2. See the Instructions for Form 3800 for more specific information.

21.7.4.4.8.1.3  (06-23-2011)
Form 8844, Empowerment Zone and Renewal Community Employment Credit

  1. Form 8844 is filed to claim the empowerment zone and renewal community employment (EZRCE) credit. The credit is:

    • 20-percent of the employer's qualified wages (up to $15,000) paid or incurred during calendar year 2009 for qualified empowerment zone employees, plus

    • 15-percent of the employer's qualified wages (up to $10,000) paid or incurred during calendar year 2009 for qualified renewal community employees.

  2. Section 753, Empowerment Zone Tax Incentives, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the empowerment zone employment credit to December 31, 2011. However, the renewal community employment credit has expired for calendar years after 2009.

  3. A qualified empowerment zone employee is any employee (full-time or part-time) of the employer who:

    1. Performs substantially all of the services for that employer within an empowerment zone in the employer's trade or business, and

    2. Has their principal residence within that empowerment zone while performing those services. (Employees who work in the Washington, DC empowerment zone may live anywhere in the District of Columbia.)

  4. A qualified renewal community employee is any employee (full-time or part-time) of the employer who:

    1. Performs substantially all of the services for that employer within a renewal community in the employer's trade or business, and

    2. Has their principal residence within that renewal community while preforming those services.

  5. The credit is a component of Form 3800, General Business Credit, however, IRC 38, provides a special tax liability limitation for the credit. For 2007 and prior, the credit is figured separately and is never carried to Form 3800. For 2008 and subsequent, the allowable credit is figured in Part II of Form 3800. The credit is based on designated qualified areas nominated by state and local government in 1994.

  6. Publication 954, Tax Incentives for Distressed Communities (Obsolete 3/18/2011) advises taxpayers of the tax incentives available for businesses located in to-be-designated empowerment zones and enterprise communities.

  7. See the General Instructions for Form 8844 for more specific information, and for a listing of the Urban Areas, Rural Areas, and parts of Washington, DC that make up the Empowerment Zones and for a listing of the Renewal Communities. This information can also be found by using the RC/EZ/EC Address Locator at hud.gov/crlocator or by calling 1-800-998-9999.

21.7.4.4.8.1.4  (01-27-2011)
Carryback/Carryforward of Excess Credits

  1. Generally, for taxable years beginning prior to 1998, excess business credits can be carried back 3 years beginning with the earliest year. Any unused credit after the carryback, may then be carried forward 15 years. The TPRA of 1997 changed these provisions for taxable years beginning in 1998 and subsequent. Generally, it provides that credits can only be carried back one year. Any unused credit after the carryback can be carried forward 20 years. See IRM 21.5.9 for more information on carrybacks.

  2. Section 2012, General Business Credits of Eligible Small Businesses for 2010 Carried Back 5 Years, of the Small Business Jobs Act of 2010, P. L. 110-240, extends the carryback period for eligible small business credits from one to five years. The provision allows for a 5 year carryback of unused general business credits for "eligible small businesses" and is effective for credits determined in a taxpayer's first taxable year beginning after December 31, 2009. See IRM 21.5.9.5.6.1, Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - 5 Year Carryback of Eligible Small Business Credits, for more information.

  3. Section 2013, General Business Credits of Eligible Small Businesses in 2010 Not Subject to Alternative Minimum Tax, of the Small Business Jobs Act of 2010, P. L. 110-240, provides that the tentative minimum tax is treated as being zero for eligible small business credits. Thus, an eligible small business credit may offset both regular and alternative minimum tax liability. The provision applies to credits determined in the first taxable year beginning after December 31, 2009, and to carrybacks of such credits. See IRM 21.5.9.5.6.1, Small Business Jobs Act of 2010 (PL 111-240, Section 2012) - 5 Year Carryback of Eligible Small Business Credits, for more information.

  4. The Instructions for Form 3800 direct the taxpayer to attach a detailed computation of their carryforward of the General Business Credit showing for each credit, the tax year the credit originated and how it was applied.

21.7.4.4.8.1.5  (01-01-2005)
Adjusting Non-Refundable Credits

  1. Allow the credit with TC 291.

  2. Decrease the credit with TC 290.

21.7.4.4.8.2  (01-01-2005)
Expiration of Credits

  1. When credits expire, the date they expire may not coincide with the return period ending date for which they are valid.

    Example:

    The Orphan Drug Credit (on Form 6765) expired Dec. 31, 1994. However, the credit is valid on returns through period ending 199511. The taxpayer could have activity during December 1994 (when the credit was still available) which could be included on the return which includes the December 1994 period. The credit was reinstated permanently (on Form 8820) beginning July 1, 1996. Therefore, the credit is not valid on returns covering a full 12 month period for periods ending 199512 – 199606.

21.7.4.4.8.3  (01-01-2005)
Information on Specific Non-Refundable Credits

  1. The sections in this subsection contain information on various non-refundable credits.

  2. See IRM 21.8.2.10, Foreign Tax Credit (Form 1116 and Form 1118) for information on the foreign tax credit.

21.7.4.4.8.3.1  (05-09-2011)
Form 3468, Investment Credit

  1. Form 3468 is used to claim the investment credit. The investment credit consists of the rehabilitation credit and energy credit. It is also used for certain transition property. Section 1307, of the Energy Policy Act of 2005, P.L. 109-58, added the qualifying advanced coal project credit under IRC 48A, and the qualifying gasification project credit under IRC 48B, to the investment credit. See IRM 21.7.4.4.8.3.1.2 for more information on the qualifying advanced coal project credit and the qualifying gasification project credit.

  2. Taxpayers are allowed a credit for qualified rehabilitation expenditures made for any qualified rehabilitation building. Qualified rehabilitation expenditures must meet six requirements. See the Instructions for Form 3468 for specific information. Also, see the instructions to determine which property qualified as energy property.

  3. Section 1302, Credit for Investment in Advanced Energy Facilities, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, added IRC 48C, Qualifying Advanced Energy Project Credit to the investment credit. See IRM 21.7.4.4.8.3.1.3, for more information on the qualifying advanced energy project credit.

  4. In addition, Section 9023, Qualifying Therapeutic Discovery Project, of the Patient Protection and Affordable Care Act, P.L. 111-148, added new IRC 48D. The provision added the Qualifying Therapeutic Discovery Project Credits to the investment credit for qualified investment in qualified therapeutic discovery projects made in 2009 and 2010. See Notice 2010-45, 2010-23 I.R.B., for more specific information on the Qualifying Therapeutic Discovery Project Credits. Under IRC 46, the amount of the investment credit for any taxable year is the sum of the:

    1. Rehabilitation credit

    2. Energy credit

    3. Qualifying advanced coal project credit

    4. Qualifying gasification project credit

    5. Qualifying advanced energy project credit, and (See Notice 2009-72, 2009-37 I.R.B.)

    6. Qualifying therapeutic discovery project credit

  5. The sections listed below of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, added or extended the following credits on Form 3468:

    Section #
    of Division B
    Title II    		 Section Title Description
    103 Energy credit Extends through 2016 the energy tax credit for any property using solar energy, qualified fuel cell property, and microturbine property. It also allows an energy tax credit for combined heat and power system property.
    104 Energy credit for small wind property Allows an energy tax credit for 30-percent of expenditures for wind turbines used to generate electricity in a residence.
    105 Energy credit for geothermal heat pump system Allows an energy tax credit for 30-percent of expenditures for wind turbines used to generate electricity for geothermal heat pump systems.

  6. Section 1102, Election of Investment Credit in Lieu of Production Credit, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, allows an energy tax credit for renewable energy facilities that are placed in service after 2008 and before 2014 (or 2013 for wind facilities) in lieu of the tax credit for producing electricity from renewable resources on Form 8835. Notice 2009-52, 2009-25 I.R.B., provides a description of the procedures that taxpayers are required to follow to make an irrevocable election to take the investment tax credit in lieu of the production tax credit.

  7. Section 1103, Repeal of Certain Limitations on Credit for Renewable Energy Property, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, repeals the $4,000 limitation on the energy tax credit for qualified small wind energy property placed in service during the taxable year. This section also repeals limitations on property financed by subsidized energy financing for IRC 48, the energy tax credit, IRC 25C, the nonbusiness energy credit and IRC 25D, the residential energy efficient property credit. The provision is effective for qualified property placed in service after December 31, 2008. The repeal of the limitations on property financed by subsidized energy financing, however, generally applies only for expenditures after December 31, 2008. Notice 2009-53, 2009-25 I.R.B., provides procedures that manufacturers may follow to certify property as qualified non-business energy property under IRC 25C and guidance regarding the conditions under which taxpayers may rely on a manufacturer's certification.

  8. Notice 2009-41, 2009-19 I.R.B., sets forth interim guidance, pending the issuance of regulations, relating to the credit for residential energy efficient property under IRC 25D for taxable years beginning after December 31, 2008. The notice provides procedures that manufacturers may follow to certify that property satisfies certain conditions of IRC 25D, as well as guidance regarding the conditions under which taxpayers seeking to claim the credit may rely on a manufacturer’s certification.

  9. The reforestation credit was repealed by the American Jobs Creation Act of 2004 effective with expenditures paid or incurred after October 22, 2005.

  10. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998. The carryover rule continues to apply for property placed in service before 1986.

  11. See the Instructions for Form 3468 for specific information on claiming the investment credit and the recapture of the credit.

  12. Process Form 3468 as follows:

    1. Math verify Form 3468.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.1.1  (01-01-2005)
Carryforward of Investment Credit

  1. If the credit claimed is a carryforward credit, request records of the account for the 3 preceding tax years (from the year the credit originated), for tax years beginning prior to 1998 or for the previous year for tax years beginning in 1998 and subsequent, and:

    If Then
    The credit can be applied to tax owed for preceding years 1. Reject the claim.
    2. The taxpayer must indicate if recaptured investment credit or alternative minimum tax is included in the TC 150 amounts. Do NOT secure the original return to verify.
    3. Instruct the taxpayer to refile and follow carryback procedures or Form 1120X instructions.
    There is no tax to be reduced on the 3 preceding years (for tax years beginning prior to 1998) or for the preceding year (for tax years beginning 1998 and subsequent) Allow the carryforward claim.

21.7.4.4.8.3.1.2  (05-09-2011)
Credit for Investment in Clean Coal Facilities

  1. Section 1307 of the Energy Policy Act of 2005, P.L.109-58, creates two new investment tax credits:

    • The Qualifying Advanced Coal Project Credit, and

    • The Qualifying Gasification Project Credit

  2. The first credit, the Qualifying Advanced Coal Project Credit under IRC 48A of the Code, established a 10-year program to allocate an investment tax credit in the amount of 20-percent of eligible basis for projects using integrated gasification combined cycle "IGCC" and 15-percent for projects using other advanced coal-based electricity generation technology. IRS Notice 2006-24, 2006-11 I.R.B., establishes the qualifying advanced coal project program. See Notice 2006-24 for the requirements for the project. Also, see the following notices and announcements for more information

    • Notice 2007-52, 2007-26 I.R.B., for the allocation of credits in 2007 ( Notice 2007-52 defines certain terms for purposes of IRC 48A.).

    • Notice 2008-26, 2008-9 I.R.B., for the special allocation round for 2008.

    • Notice 2008-96, 2008-44 I.R.B., for the allocation round for 2008-2009.

    • Notice 2009-24, 2009-16 I.R.B., for updated procedures for the allocation of the credit.

    • Announcement 2010-56, 2010-39 I.R.B., discloses the results of the 2009-10 allocation round under IRC 48A and IRC 48B. The announcement also serves notice to applicants that a 2010-11 allocation round under the qualifying advanced coal project program is currently open pursuant to Notice 2009-24, 2009-16 I.R.B. 817. No allocation round will be conducted under the qualifying gasification project program.

  3. Division B, Title I, section 111 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, increases to 30-percent the investment tax credit under IRC 48A. It also added a requirement for projects receiving IRC 48A credits to capture and sequester at least 75-percent of such project’s total carbon dioxide emissions. Additionally, Act section 115 creates a new tax credit for carbon dioxide sequestration under IRC 45Q. See IRM 21.7.4.4.8.3.36, Carbon Dioxide Sequestration Credit, Form 8933, for more information.

  4. Notice 2009-24, 2009-16 I.R.B., updates the procedures for the allocation of credits for the qualifying advanced coal project program under IRC 48A. The notice also announces the beginning of an allocation round of credits in the amount of $1.25 billion for qualifying advanced coal-based generation technology projects under Phase II of the qualifying advanced coal project program. Notice 2009-24 clarifies, modifies, and amplifies Notice 2007-52.

  5. Notice 2011-24, 2011-14 I.R.B., modifies Notice 2009-24 by updating the rules relating to the qualifying advanced coal project program under IRC 48A. Specifically, this notice updates the rules regarding the separation and sequestration of carbon dioxide emissions for Phase II of the qualifying advanced coal program and provides for the annual measurement of separated and sequestered carbon dioxide by applying the recapture rules of IRC 50(a) in the event that a taxpayer fails to attain or maintain the carbon dioxide separation and sequestration requirements of IRC 48A or IRC 48B. Except as specifically provided in this notice, the qualifying advanced coal project program will be conducted in the manner and under the procedures provided in Notice 2009-24.

  6. The second credit, the Qualifying Gasification Project Credit under IRC 48B of the Code, authorizes the allocation of an investment tax credit in the amount of 20-percent of eligible basis for certain gasification projects. Qualified gasification projects convert a solid or liquid produced from coal, petroleum residue, biomass, or other material recovered for their energy or feedstock value into a synthetic gas composed primarily of carbon monoxide and hydrogen for direct use of subsequent chemical or physical conversion. IRS Notice 2006-25, 2006-11 I.R.B., establishes the qualifying gasification project program. See Notice 2006-25 for the requirements for the project.

  7. Notice 2007-53, 2007-26 I.R.B., provides updated procedures for the allocation of credits after 2006. The notice also defines certain terms for purposes of IRC 48B. Notice 2008-97, 2008-44 I.R.B., provides that the amount of credit available under the qualifying gasification project program has been fully allocated in the allocation rounds conducted in 2006 and in 2007-2008. Accordingly, the notice provides that no allocation of credits will be conducted in 2008-2009 under the qualifying gasification project program.

  8. Division B, Title I, section 112 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, increases to 30-percent the investment tax credit for certain gasification projects and the aggregate credit amount for such projects. It also added a requirement for projects receiving IRC 48B credits to capture and sequester at least 75-percent of such project’s total carbon dioxide emissions. See IRM 21.7.4.4.8.3.1, and the Instructions for Form 3468, for more specific information.

  9. Notice 2009-23, 2009-16 I.R.B., updates the procedures for the allocation of credits for the qualifying gasification project program and announces a beginning of an allocation round of credits for qualifying gasification projects under Phase II of the program. Notice 2009-23 clarifies, modifies, and amplifies Notice 2007-53.

  10. Notice 2011-24, 2011-14 I.R.B., also modifies Notice 2009-23 by updating the rules relating to the qualifying gasification project program. Specifically, this notice applies to any qualifying project that includes equipment that separates and sequesters such project’s total carbon dioxide emissions. Except as specifically provided in this notice, the qualifying gasification project program will be conducted in the manner and under the procedures provided in Notice 2009-23.

  11. The IRC 48A and IRC 48B credits apply to periods after August 8, 2005, the date of the enactment of the Act. Both credits are claimed on Form 3468, Investment Credit. See IRM 21.7.4.4.8.3.1 for more information.

  12. Section 15346, Competitive Certification Awards Modification Authority, of the Food, Conservation, and Energy Act of 2008, P.L. 110-246, allows the secretary to modify the terms of any competitive certification award and any associated closing agreement where such modification (unless the Secretary determines that the dollar amount of tax credits available to the taxpayer under such section would increase as a result of the modification or such modification would result in such project not being originally certified):

    • Is consistent with the objectives of such section

    • Is requested by the recipient of the competitive certification award, and

    • Involves moving the project site to improve the potential to capture and sequester carbon dioxide emissions, reduce costs of transporting feedstock, and serve a broader customer base

  13. Action required:

    • Math verify Form 3468.

    • Input TC 291 to increase the credit and TC 290 to decrease the credit.

21.7.4.4.8.3.1.3  (05-09-2011)
Credit for Investment in Advanced Energy Facilities:

  1. Section 1302, Credit for Investment in Advanced Energy Facilities, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, added IRC 48C, Qualifying Advanced Energy Project Credit, to the investment credit. The provision is effective with respect to qualified progress expenditures made after February 17, 2009.

  2. The qualified advanced energy project credit for any taxable year is an amount equal to 30-percent of the qualified investment for such taxable year with respect to any qualified advanced energy project of the taxpayer.

  3. A qualifying advanced energy project is a project which re-equips, expands or establishes a manufacturing facility for the production of:

    • Property designed for use in the production of energy from the sun, wind, geothermal deposits (within the meaning of IRC 613(e)(2)), or other renewable resources.

    • Fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric motor vehicles.

    • Electric grids to support the transmission of intermittent sources of renewable energy, including property for the storage of such energy.

    • Property designed to capture and sequester carbon dioxide and sequester carbon dioxide emissions.

    • Property designed to refine or blend renewable fuels (but not fossil fuels) or to produce energy conservation technologies (including energy-conserving lighting technologies and smart grid technologies).

    • New plug-in electric drive motor vehicles (as defined by IRC 30D), qualified plug-in electric vehicles (as defined by IRC 30(d)), or components that are designed specifically for use with such vehicles, including electric motors, generators, and power control units, or

    • Other property designed to reduce greenhouse gas emissions as may be determined by the Service.

    Note:

    Exception: The project does not produce any property which is used in the refining or blending of any transportation fuel (other than renewable fuels) (i.e., a qualifying advanced energy project can produce property which is used in the refining or blending of any transportation fuel only if the property is used solely in the refining or blending of transportation fuels that are renewable fuels).

  4. Eligible property is any property (other than a building or its structural components) that meets the following requirements:

    1. The property is necessary for the production of specified advanced energy property described in IRC 48C(c)(1)(A)(i) or section 4.02 of Notice 2009-72, 2009-37 I.R.B.

    2. The property is: tangible personal property; or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualifying investment credit facility, and

    3. To which depreciation (or amortization in lieu of depreciation) is allowable

  5. The Service will consider a project under the qualifying advanced energy project program only if the U.S. Department of Energy (DOE) provides a recommendation and ranking for the project (DOE recommendation). DOE will provide a recommendation and ranking only if it determines that the project has a reasonable expectation of commercial viability and merits a recommendation based on the criteria in IRC 48C(d)(3)(B). Accordingly, a taxpayer must submit, for each project that it sponsors:

    • A preliminary application and a final application for recommendation by DOE (application for DOE recommendation), and

    • An application for certification under IRC 48C(d)(2) by the Service (application for IRC 48C certification). Certifications will be issued and credits will be allocated to projects in annual allocation rounds. The initial allocation round will be conducted in 2009-2010, and if necessary, an additional allocation round will be conducted in 2010-2011.

  6. See Notice 2009-72 and the Instructions for Form 3468 for more specific information on claiming the qualifying advanced energy project credit.

21.7.4.4.8.3.2  (02-15-2011)
Form 5884, Work Opportunity Credit

  1. The Work Opportunity Credit was previously known as the Jobs Credit until it expired December 31, 1994. The credit was reduced from 40-percent to 35-percent for workers beginning work October 1, 1996 - September 30, 1997. The TPRA of 1997 extended the provisions to workers beginning work through June 30, 1998 and increased the percentage to 40-percent for workers beginning work after September 30, 1997. For workers beginning work after September 30, 1997, who work at least 120 hours but less than 400 hours for the employer, the credit is 25-percent. The Tax and Trade Relief Extension Act of 1998 extended the credit for workers beginning work through June 30, 1999. The Tax Relief Extension Act of 1999 extended the credit through December 31, 2001.

  2. The Job Creation and Workers Assistance Act of 2002, P.L. 107-147, extended the credit through December 31, 2003. The provision is effective for wages paid or incurred to a qualified individual who begins work for an employer on or after January 1, 2002 and before January 1, 2004. In addition, Section 303 of the Working Families Tax Relief Act of 2004 extended the credit through December 31, 2005, and is effective for wages paid or incurred to a qualified individual who begins work for an employer on or after January 1, 2004 and before January 1, 2006.

  3. Section 105 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extends the Work Opportunity Credit for one year without modifications, for qualified individuals who begin work for an employer after December 31, 2005 and before January 1, 2007. The provision of law then combines the Work Opportunity Credit and the Welfare-to-Work Credit for a second year for qualified individuals that begin work for an employer after December 31, 2006 and before January 1, 2008.

    Note:

    An employer cannot claim the welfare-to-work credit with respect to wages of any employee on which the work opportunity credit is claimed.

  4. On May 25, 2007, President Bush signed the Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28. The act modifies and extends the Work Opportunity Credit for 44 months for qualified individuals who begin work for an employer after December 31, 2007, and before September 1, 2011.

  5. On December 17, 2010, President Obama signed into law, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. Section 757 of the act extends the work opportunity credit for 4 months to December 31, 2011.

  6. Qualified first-year wages are wages paid or incurred for work performed during the one-year period beginning on the date the certified individual begins work for the taxpayer. The amount of qualified wages that may be taken into account for a qualified employee is limited to $6,000 or $3,000 for a qualified summer youth employee.

  7. To claim the credit, taxpayers generally must request and be issued a certification for each employee from the state employment security agency (SESA) to prove that the employee is a member of a targeted group. Taxpayers must receive the certification by the day the individual begins work, or they must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, on or before the day the taxpayer offers the individual a job.

  8. For TY 2005 and prior, Form 5884, Work Opportunity Credit must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  9. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  10. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  11. See the General Instructions for Form 5884 for more specific information on the targeted groups, rules concerning qualified wages, and specific instructions for completing the form.

  12. Section 8214 of the Small Business and Work Opportunity Tax Act of 2007, treats the tentative minimum tax as zero for purposes of determining the tax liability limitation with respect to the work opportunity credit. Therefore, the work opportunity credit may offset the alternative minimum tax liability and is effective for taxable years beginning after December 31, 2006.

  13. Action required:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ math verify the form.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.2.1  (02-11-2005)
Form 8884, Expanded Work Opportunity Credit, New York Liberty Zone

  1. The Job Creation and Workers Assistance Act of 2002, P.L. 107-147, created another targeted group for the Work Opportunity Credit. Generally the targeted group is individuals who perform substantially all their services in the recovery zone for a business located in a defined area of New York City referred to as the "New York Liberty Zone" ("Liberty Zone" ). The Liberty Zone includes businesses located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the borough of Manhattan.

    Note:

    See various IRM 21.7.4.4.18 subsections for information on the additional first-year depreciation deduction on qualified New York Liberty Zone Property.

  2. The targeted group also includes individuals who perform substantially all their services in New York City, for a business that relocated from the Liberty Zone to elsewhere within New York City due to the physical destruction or damage of their workplaces within the Liberty Zone by the September 11, 2001, Terrorist Attack.

  3. The credit is claimed on Form 8884, and is effective for wages paid or incurred to a qualified individual who began work for an employer after December 31, 2001, and before January 1, 2004. Recent legislation did not extend the credit. The credit is not allowed for work performed in 2004 and subsequent.

  4. The credit is 40-percent (25-percent for employees who worked fewer than 400 hours) of the qualified wages (up to $6,000) paid or incurred during the tax year for work performed during calendar year 2002 or 2003 per qualified employee in each taxable year.

  5. Unlike the other targeted categories, the credit for the targeted group is available for wages paid to both new hires and existing employees for each qualified business that relocated from the Liberty Zone elsewhere within New York City due to the physical destruction or damage of their workplaces within the Liberty Zone. The number of that employer's employees whose wages are eligible under the targeted category may not exceed the number of its employees in the Liberty Zone on September 11, 2001.

  6. No credit for this new category of workers is allowed if the qualifying employer, on average, employed more than 200 employees during the taxable year.

  7. Unlike the other targeted categories, members of this targeted group are not required to get certification of their wages to qualify for the credit.

  8. The portion of each employer's work opportunity credit attributable to the targeted group is allowed against the alternative minimum tax.

  9. Action required:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ math verify the form.

    2. Input TC 291 to increase the credit and TC 290 to reduce the credit.

21.7.4.4.8.3.2.2  (12-23-2008)
Form 5884-A, Work Opportunity Credit, Hurricane Katrina Employees

  1. Section 201, of the Work Opportunity Tax Credit for Hurricane Katrina Employees, Katrina Emergency Tax Relief Act of 2005, P.L. 109-73, provides for a credit for hiring qualified Hurricane Katrina employees as defined directly below.

  2. A Hurricane Katrina Employee is:

    • Any individual who on August 28, 2005, had a main home in the core disaster area and who is hired during the two-year period beginning August 28, 2005 for a position in which the principal place of employment is located in the core disaster area, or

    • Any individual who on such date had a main home in the core disaster area, who is displaced from such residence by reason of Hurricane Katrina, and who is hired on or after August 28, 2005 and on or before December 31, 2005.

  3. Division C, Title III, section 319 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extends the credit for 2 years for Hurricane Katrina employees hired after August 27, 2007.

  4. Certification is not required. Reasonable identification is acceptable. An individual may provide to the employer, reasonable evidence that the individual is a Hurricane Katrina employee.

  5. See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma, for more information.

  6. Action required:

    • Math verify Form 5884-A.

    • Input TC 291 to increase the credit and TC 290 to reduce the credit.

21.7.4.4.8.3.2.3  (03-17-2006)
Employee Retention Credit for Employers Affected By Hurricane Katrina, Rita, and Wilma (Form 5884-A, Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma)

  1. Section 201, of the Employee Retention Credit for Employers Affected by Hurricane Katrina, Katrina Emergency Tax Relief Act of 2005, P.L. 109-73, provides for a credit against tax in an amount equal to 40-percent of the qualified wages for each eligible employee of such employer. The amount of qualified wages applicable to any individual can not exceed $6,000 paid or incurred for each employee during the period August 29, 2005 through December 31, 2005.

  2. Section 201, of the Gulf Opportunity Zone Act of 2005, P.L. 109-135, extended the Employee Retention Credit for Employers affected by Hurricane Katrina, to victims of Hurricane Rita and Hurricane Wilma beginning with the dates shown in the chart below and ending on December 31, 2005.

  3. An eligible employer means any employer which conducted an active trade or business in a Gulf Opportunity Zone beginning within the dates described below and ending on December 31, 2005:

    Specific Hurricane Beginning After
    Katrina August 28, 2005
    Rita September 23, 2005
    Wilma October 23, 2005

  4. An eligible employee is an employee whose principal place of employment on the dates described in paragraph (3) above was in the Gulf Opportunity Zone.

  5. Qualified wages means wages paid or incurred by an eligible employer with respect to a qualified employee on any day after the date described in paragraph (3) above and on or before December 31, 2005, and which occur during the period:

    • Beginning on the date on which the trade or business described above first became inoperable at the principal place of employment of the employee immediately before the specific hurricane listed above, and

    • Ending on the date on which such trade or business has resumed significant operations at such principal place of employment.

  6. Prior to the enactment of the Gulf Opportunity Zone Act of 2005, an eligible employer did not include employers who averaged more than 200 employees on business days during the taxable year.

  7. See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma, for more information.

  8. The credit is claimed on Form 5884-A, Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma. See the general instructions for the form for the definitions of the Gulf Opportunity Zone and for more specific information.

  9. The credit is a part of the General Business Credit claimed on Form 3800. No portion of the unused business credit attributable to the Hurricane Katrina housing credit may be carried back to a year before 2005. However, taxpayers may be able to carry the unused portion forward. See the Instructions for Form 3800, General Business Credit, for details.

  10. Action required:

    • Math verify Form 5884-A.

    • Input TC 291 to increase the credit and TC 290 to reduce the credit.

21.7.4.4.8.3.2.4  (03-17-2006)
Form 5884-A, Hurricane Katrina Housing Credit

  1. Form 5884-A, Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma, is also filed to claim the Hurricane Katrina Housing Credit.

  2. The credit is equal to 30-percent of the value (up to $600 per month, per employee) of in-kind lodging furnished to a qualified employee from January 1, 2006 through July 1, 2006 and which is excluded from the employee’s income.

  3. The credit is a part of the General Business Credit and is claimed on Form 3800. No portion of the unused business credit attributable to the Hurricane Katrina housing credit may be carried back to a year before 2005. However, taxpayers may be able to carry the unused portion forward. See the Instructions for Form 3800, General Business Credit, for details.

  4. Action required:

    • Math verify Form 5884-A.

    • Input TC 291 to increase the credit and TC 290 to reduce the credit.

21.7.4.4.8.3.2.5  (08-31-2009)
Form 5884, Work Opportunity Credit - Incentives to Hire Unemployed Veterans and Disconnected Youth

  1. Section 1221, Incentives to Hire Unemployed Veterans and Disconnected Youth, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, allows for a credit for unemployed veterans and disconnected youth hired in 2009 or 2010. Any unemployed veteran or disconnected youth who begins work for the employer during 2009 or 2010 is treated as a member of a targeted group for purposes of the work opportunity credit.

  2. An individual is a member of a targeted group if such individual is a:

    • Qualified IV-A recipient

    • Qualified veteran

    • Qualified ex-felon

    • Designated community resident

    • Vocational rehabilitation referral

    • Qualified summer youth employee

    • Qualified food stamp recipient

    • Qualified SSI recipient, or

    • Long-term family assistance recipient

  3. See IRM 21.7.4.4.8.3.2, Work Opportunity Credit, and the General Instructions for Form 5884 for more specific information on claiming the credit and the action required to adjust an account.

  4. Notice 2009-28 sets forth the statutory definitions of "unemployed veteran" and "disconnected youth," and provides guidance on the definition of "disconnected youth." It also provides transition relief for employers who hire unemployed veterans or disconnected youth after December 31, 2008, and before July 17, 2009. Notice 2010-69 clarifies section D of Notice 2009-28. Notice 2009-69 explains that "not readily employable by reason of lacking a sufficient number of basic skills" includes individuals who have worked occasionally since high school graduation / receipt of GED certificate. Notice 2009-69 also provides extended transition relief for filing of Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.

  5. Businesses planning to claim the newly-expanded work opportunity tax credit (WOTC) for eligible unemployed veterans and unskilled younger workers hired during the first part of 2009, have until August 17, 2009 to request the certification required for these workers. Issue Number IR-2009-55 offers guidance to businesses hiring unemployed veterans and certain youths on claiming the tax credit.

21.7.4.4.8.3.3  (03-18-2011)
Form 6478, Alcohol and Cellulosic Biofuels Fuels Credit

  1. Form 6478 is used to claim the credit for alcohol and cellulosic biofuels used as fuel in a trade or business. The credit consists of:

    • Alcohol mixture credit

    • Alcohol credit

    • Small ethanol producer credit, and

    • Cellulosic biofuel producer credit (added by P.L. 110–234, section 15321, of the Food, Conservation, and Energy Act of 2008. The credit is available for cellulosic biofuel that the taxpayer produces after December 31, 2008 and before January 1, 2013. See Notice 2008-110 for guidance on the cellulosic biofuel producer credit

  2. Before claiming a credit on Form 6478, the alcohol fuel mixture credit must be taken against any IRC 4081 liability on Form 720. Any credit in excess of the IRC 4081 liability can be taken as a claim for payment on Form 8849 or an income tax credit on Form 4136.

  3. See the General Instructions for Form 6478 for definitions and special rules, and the coordination with excise tax credits on Form 720, Quarterly Federal Excise Tax Return, Form 8849, Claim for Refund of Excise Taxes or Form 4136, Credit for Federal Tax Paid on Fuel.

  4. All producers and importers of alcohol with a proof of at least 190 and all producers of cellulosic biofuel must be registered by the IRS. See Form 637, Application for Registration (For Certain Excise Tax Activities).

  5. Any unused portion of this credit remaining, after the tax is reduced to zero, cannot be carried back. Taxpayers must carry the unused credit forward 20 years. However, see IRM 21.7.4.4.8.1.4, if the credit involves a carryback.

  6. Action required:

    1. Math verify Form 6478.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

    3. Input IRN 884 for the amount of the credit. Use a positive amount to increase the credit and a negative amount to reduce the credit.

21.7.4.4.8.3.4  (02-15-2011)
Form 6765, Credit for Increasing Research Activities

  1. Form 6765 is used to claim the credit for increasing the research activities of a trade or business. It was also used to claim the Orphan Drug Credit for periods 199511 and prior.

  2. For TY 2006 and subsequent the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  3. Any unused portion of this credit remaining, after the tax has been reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  4. The credit expired June 30, 1999 but was reinstated retroactively for the period July 1, 1999 – June 30, 2004, by the Tax Relief Extension Act of 1999. In addition, Section 301 of the Working Families Tax Relief Act of 2004 extended the credit through December 31, 2005.

  5. Section 104 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extends the Research Credit two years for amounts paid or incurred after December 31, 2005 and before January 1, 2008. The provision modifies the research credit for taxable years ending after December 31, 2006, subject to the general termination provision applicable to the credit. The provision also creates at the election of the taxpayer, an alternative simplified credit for qualified research expenses. An election to use the alternative simplified credit applies to all succeeding taxable years unless revoked with the consent of the Secretary. See revised Form 6765 for more specific information.

  6. Section 1351 of the Energy Policy Act of 2005, P.L. 109-58, modified the research credit as it applies to qualified energy research and is effective on the date of enactment (08-08-2005).

  7. Division C, Title III, section 301 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extends the credit for 2 years to any amount paid or incurred on or before December 31, 2009, and modifies the alternative simplified credit.

  8. On December 17, 2010, President Obama signed into law, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. Section 731 of the act extends the research credit for 2 years for any amount paid or incurred for taxable years beginning after December 31, 2009 and on or before December 31, 2011.

  9. See the General Instructions for Form 6765 for specific information on claiming the credit for increasing research activities.

  10. Notice 2002-44 established a new filing address for certain claims for credit or refund reported on Forms 1120X, generated by the Credit for Increasing Research Activities (Research Credit). Research Credit Suspension Period claims ARE NOT covered by this notice.

    1. The notice applies to taxpayers required to file Form 1120, U. S. Corporate Income Tax Return, with claims for credit or refund attributable to the Research Credit that: (1) Was not reported on an original Form 1120 or a Form 1120X; (2) Was filed on or before the due date of the original Form 1120, including extensions; and (3) Was not filed with the IRS on or before the date this notice was printed in the Internal Revenue Bulletin (July 9, 2002).

    2. Claims attributable in whole or part, to the Research Credit and reported on Form 1040 or Form 1040X ARE NOT subject to this notice. Form 1045 and Form 1139 also ARE NOT subject to the notice.

    3. All claims subject to this notice should indicate "Refund-Research Credit" at the top of the claim/return and must include a completed Form 6765, (and a copy of the Form 6765 they filed with their original return, if any) and must: (1) Explain in detail the grounds which the credit is claimed; (2) Provide facts sufficient to apprise the Service of the exact basis thereof; and (3) Include a written declaration under the penalties of perjury.

      Note:

      Accounts Management in Ogden and Cincinnati follow the general claims instructions in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing, for claims that do not meet the criteria in (c) above.

    4. These claims are filed with the Ogden campus at the following address;

      Sent via US Postal Service Sent via Private Delivery Service (e.g., UPS, FedEx, etc.)

      Internal Revenue Service
      Ogden, UT 84201
      Internal Revenue Service
      1973 Rulon White Blvd.
      Mail Stop 4912
      Ogden, UT 84404

    5. Per Notice 2008-39, 2008-13 I.R.B., (supersedes Notice 2002-44), all Form 1120X Amended U.S. Corporate Income Tax Returns, involving the Research Credit are worked in Accounts Management at the Ogden campus only. If a Form 1120X involving the Research Credit is received in Accounts Management (other than Ogden) prepare a Form 3210 Transmittal, and route to Ogden Accounts Management. Ogden will route the case to Exam based on the taxpayer's Business Operation Division (BOD) code. If the taxpayers BOD code is SBSE, route to Mail Stop 4160. If the taxpayers BOD code is LB&I, route to Mail Stop 4912.

  11. If the case is routed back to Accounts Management (Cincinnati or Ogden) stamped "Accepted as Filed," the case is worked in AM in the campus that sent the referral to Exam.

  12. Action required:

    1. Math verify Form 6765.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.4.1  (01-01-2007)
Research Credit Suspension Periods

  1. The Tax Relief Extension Act of 1999 created two suspension periods. As a result, credit arising from these suspension periods cannot be taken into account on original returns. (See archived IRM 21.7.4.4.8.3.4.2.)

    1. The first suspension period is July 1, 1999 - September 30, 2000. Credit cannot be taken into account prior to the later of October 1, 2000 or the date the return (which includes all or part of the first suspension period) is considered filed, including approved extensions. (See Note below.)

    2. The second suspension period is October 1, 2000 - September 30, 2001. Credit cannot be taken into account prior to the later of October 1, 2001 or the date the return (which includes all or part of the second suspension period) is considered filed, including approved extensions. (See Note below.)

      Note:

      Returns which are timely filed by the approved extension date are considered timely filed on the original return due date.

  2. Notice 2001-2, provides information to assist taxpayers in filing claims related to the suspension periods. It appears in Internal Revenue Bulletin 2001-2, dated January 8, 2001. Notice 2001-29, provides information on Forms 7004 filed for returns involving the suspension periods. It appears in Internal Revenue Bulletin 2001-14, dated April 2, 2001.

  3. The statute has expired for the vast majority of claims, however, if for some reason a statute is still open, check for instructions in the archive IRMs on SERP. The IRM can be assessed by going to the SERP home-page, clicking on the "SERP IRM" tab, then clicking on the "Archives tab."

21.7.4.4.8.3.5  (01-01-2006)
Form 8586, Low-Income Housing Credit

  1. The taxpayer must submit a Form 8609 (with Part I completed (prior to 2005)) from the state or local agency for each building a credit is being claimed and the accompanying Schedule A. If the only credit claimed on the Form 8586 is from a flow-through entity (partnership, S corporation, estate, trust), Form 8609 is not required.

  2. Form 8609-A, Annual Statement for Low-Income Housing Credit, replaces Schedule A (Form 8609), Annual Statement, for tax years beginning after 2004. Form 8609-A is filed by a building owner to report compliance with the low-income housing provisions and calculate the low-income housing credit.

  3. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800.

  4. For TY 2005 and prior, Form 8586, Low-Income Housing Credit must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  5. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  6. Action required:

    1. Verify Form 8609 (issued by the state or local agency) is filed with Form 8586 showing the allocation of credit amount for each building claimed on Form 8586.

    2. Math verify Form 8586.

    3. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.6  (02-18-2010)
Form 8830, Enhanced Oil Recovery Credit

  1. The Enhanced Oil Recovery Credit is for certain costs paid or incurred which result in increased oil production.

  2. Form 8830 is used to compute the 15-percent credit of the qualified enhanced oil recovery costs for the tax year. The credit is phased out as crude oil prices increase, using a ratio set out in IRC 43(b). There is no reduction of the credit for TY 2005. However, the credit has been completely phased-out in TY 2006 through TY 2009. See table 2 in Notice 2009-73 for the inflation adjustment factors and phase-out amounts for 1991 through 2009.

  3. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  4. For TY 2005 and prior, Form 8830, Enhanced Oil Recovery Credit, must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  5. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  6. Action required:

    1. Math verify Form 8830.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.7  (01-01-2005)
Form 8826, Disabled Access Credit

  1. Form 8826 is used by eligible small businesses to claim the 50-percent credit for eligible access expenditures to comply with the requirements under the Americans with Disabilities Act of 1990 (Public Law 101-336). The credit is part of the general business credit. For purposes of the credit, an eligible small business is any business or person that;

    • Had gross receipts for the preceding tax year that did not exceed $1 million or had no more than 30 full-time employees during the preceding year, and

    • Elects (by filing Form 8826) to claim the disabled access credit for the tax year.

  2. This credit cannot be claimed as a deduction in figuring taxable income, capitalized, or used in figuring any other credit to the extent of the credit being claimed on Form 8826. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  3. See the General Instructions for Form 8826 for eligible access expenditures and for expenditures that are not included.

  4. Action required:

    1. Math verify Form 8826.

    2. Input TC 291 to increase the credit and TC 290 to reduce the credit.

21.7.4.4.8.3.8  (06-23-2011)
Form 8835, Renewable Electricity and Refined Coal Production Credit

  1. Form 8835 is used to claim the renewable electricity and refined coal production credit. The credit is allowed only for the sale of electricity or refined coal produced in the United States or U.S. Possessions from qualified energy resources at a qualified facility (see definitions in the instructions for these terms).

  2. Section 710 of the American Jobs Creation Act of 2004, P.L. 108-357, expanded the credit to include refined coal from a qualified refined coal production facility placed in service after the date of enactment of this paragraph (October 22, 2004) and before January 1, 2009. The credit is not available for solar energy facilities placed-in-service after December 31, 2005. Notice 2009-90, 2009-51 I.R.B., sets forth interim guidance pending the issuance of regulations relating to the tax credit under IRC 45 for refined coal. Notice 2010-54, 2010-40 I.R.B., supersedes Notice 2009-90.

  3. Notice 2010-54 also contains the following modifications:

    • It revises the definition of refined coal

    • Certain processing of utility-grade coal is permitted to be taken into account in determining whether a qualified emissions reduction has been achieved, and

    • The testing protocols for determining emissions reduction are revised

  4. Section 710 also extended the placed in service dates for the credits other than coal and solar facilities to January 1, 2006. In addition, section 1301 of the Energy Policy Act of 2005, P.L. 109-58, extended the placed in service dates for the credit for two years through December 31, 2008.

  5. The following list identifies some of the qualifying resources and facilities for the production of electricity:

    • Wind

    • Closed-loop biomass

    • Open-loop biomass used in an open-loop biomass facility (See Notice 2006-88 and Notice 2008-60 for interim guidance regarding the credit as it applies to open-loop biomass.)

    • Geothermal energy used in a geothermal facility

    • Solar energy used in a solar facility

    • Small Irrigation Power

    • Municipal Solid Waste

  6. Section 1301 of the Energy Policy Act of 2005, P.L. 109-58, extended and modified the Renewable Electricity Production Credit to include hydropower and Indian coal production facilities. The provision extended the placed-in-service date by two years (through December 31, 2008) for most facilities. It did not extend the placed-in-service date for solar facilities (December 31, 2005) or refined coal facilities (December 31, 2008).

  7. Section 201 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extends through December 31, 2008, the period during which certain facilities must be placed in service as qualified facilities for claiming the credit. The placed-in-service extension applies to all qualified facilities, except qualified solar, refined coal, and Indian coal facilities.

  8. Division B, Title I, section 101 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extends the credit through December 31, 2009 for wind and refined coal, and through December 31, 2010 for most other facilities. Section 102 adds marine and hydrokinetic renewable energy, and section 108 adds steel industry fuel as a renewable resource for the production of electricity.

  9. On December 17, 2010, President Obama signed into law, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. Section 702 of the act extends the renewable electricity and refined coal production credit for 2 years to December 31, 2011.

  10. Division B, section 1101, Extension of Credit for Electricity Produced from Certain Renewable Resources, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, extends (for three years) the renewable electricity production credit in the case of a facility using wind to produce electricity. In addition, the provision extends the tax credit in the case of a facility using: closed-loop biomass, open-loop biomass, geothermal energy, gas derived from landfills and trash, hydroelectric production, which is owned by the taxpayer and is originally placed in service on or before December 31, 2014. See the General Instructions for Form 8835 for definitions of the various resources used to produce electricity and the placed in service dates for each resource.

  11. Generally, the credit is 1.5 cents per kilowatt-hour (kWh) for the sale of electricity produced by the taxpayer from qualified energy resources at a qualified facility during the credit period. See the chart below for the amount of credit per kWh. The credit is reduced for grants, tax-exempt bonds, subsidized energy financing, and other credits.

    Tax year Amount per kWh
    2003 & 2004 .018
    2005 & 2006 .019
    2007 .020
    2008 & 2009 .021
    2010 & 2011 .022

  12. In addition, the amount of the credit is phased out as the market price of electricity (or refined coal in the case of refined coal production credit) exceeds certain threshold levels. Per Notice 2005-37, the phaseout of the credit does not apply to electricity produced from wind, refined coal, closed-loop biomass, geothermal energy, solar energy, small irrigation power, or municipal solid waste sold during calendar year 2005. There is also no phaseout of the credit for calendar year 2006. See the General Instructions for Form 8835 on how to figure the credit. See the chart below for the factor to use to figure the amount of the credit:

    Tax Year Factor for refined coal produced and sold per ton Factor for Indian coal produced and sold per ton
    2006 $5.481 $1.50
    2007 $5.877 $1.54
    2008 $6.061 $1.589
    2009 $6.20 $1.625
    2010 $6.27 $2.20
    2011 $6.33 $2.20

  13. For TY 2006 and subsequent the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  14. For TY 2005 and prior, Form 8835, Renewable Electricity and Refined Coal Production Credit, must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more general business credits are claimed.

  15. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  16. Action required:

    1. Math verify Form 8835.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.9  (08-09-2010)
Form 8907, Nonconventional Source Fuel Credit

  1. Section 1321 and 1322 of H.R. 6, Energy Policy Act of 2005, P.L. 109-58, modified the credit for producing fuel from a non-conventional source, by making it a component of the general business credit. The provisions also added a production credit for qualified facilities that produce coke or coke gas.

  2. The credit is for the domestic production (within the United States) and sale of fuel produced from nonconventional sources which include:

    • Gas produced from biomass

    • Liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), and

    • Coke or coke gas (if sold after December 31, 2005)

  3. Division A, section 211 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, made changes to the credit relating to coke and coke gas. Coke and coke gas that is produced in a facility that produces coke or coke gas from petroleum-based products does not qualify for the credit.

  4. Gas produced from biomass, and liquid, gaseous, or solid fuels produced from coal, qualify for the credit if:

    • It is produced by the taxpayer in a facility located in the United States or a U.S. possession that was placed in service after December 31, 1992, and before July 1, 1998, pursuant to a binding contract in effect before January 1, 1997, and

    • The fuel was sold before January 1, 2008.

  5. Coke and coke gas qualifies for the credit if:

    • It is not produced in a facility that produces coke or coke gas from petroleum-based products.

    • It is produced by the taxpayer in a facility located in the United States or a U.S. possession that was placed in service before January 1, 1993, or after June 30, 1998, and before January 1, 2010, and

    • The fuel is sold during the period beginning on the later of January 1, 2006, or the date the facility is placed in service and ending 4 years after the date the period began.

  6. Form 8907, Nonconventional Source Fuel Credit is used to claim the credit. Any unused credit can be carried back one year and forward 20 years. However, the credit, cannot be carried back to a taxable year ending before January 1, 2006.

  7. For TY 2005 and prior, the taxpayer must include a credit computation with the claim. A specific form/schedule is not required. The credit may need to be carried to Form 3800, General Business Credit, if two or more general business credits are claimed.

  8. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  9. The income tax credit is equal to $3 per barrel or Btu oil barrel equivalent. However, this amount must be adjusted by multiplying it by the inflation adjustment factor for the type of qualified fuel and the calendar year in which the sale occurs. See the General Instructions for Form 8907 on figuring the credit.

  10. See the chart below for the notice number that contains the nonconventional source fuel credit amount, inflation adjustment factor, and reference price under 45K of the IRC. For calendar year 2008 and 2009, the credit is only available for fuel produced from coke or coke gas (other than from petroleum based products). Also, see the General Instructions for Form 8907 for more information on figuring the credit.

    For calendar year See
    2006 Notice 2007-38
    2007 Notice 2008-44
    2008 Notice 2009-32
    2009 Notice 2010-31
    2010 Notice 2011-30

  11. Action required:

    1. Input TC 291 to increase the credit or TC 290 to reduce the credit.

    2. Input IRN 883 to record the credit. Use a positive amount to increase the credit or a negative amount to decrease the credit.

21.7.4.4.8.3.10  (01-01-2005)
Credit for Prior Year Minimum Tax, Form 8801 (Estates and Trusts) and Form 8827 (Corporations)

  1. These forms are used to compute the minimum tax credit for any alternative minimum tax incurred in prior years and to compute any minimum tax credit carryforward to be used in future years.

  2. For non-corporate taxpayers after 1990, the minimum tax credit is allowed only on the amount attributed to deferred items.

  3. Action required:

    1. Math verify Form 8801 or Form 8827.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.11  (02-15-2011)
Form 8845, Indian Employment Credit

  1. Form 8845 is used by employers of American Indians who are qualified employees to claim this credit. (See the General Instructions for Form 8845 for more information on qualified employees.) In most cases, the credit is 20-percent of the excess of an employer’s current year qualified wages and employee health insurance costs over the sum of the corresponding amounts paid or incurred during calendar year 1993 by the employer (or predecessor).

  2. The Job Creation and Workers Assistance Act of 2002, P.L. 107-147, extended the Indian Employment Credit under IRC 45A and the accelerated depreciation rules under IRC 168(j) for property on Indian Reservations. The provision is effective for wages paid or incurred to a qualified individual who begins work on or after January 1, 2002, and before January 1, 2004, and for property placed in service before January 1, 2004. In addition, Sections 315 and 316 of the Working Families Tax Relief Act of 2004 extended the credit through December 31, 2005. It is effective for wages paid or incurred to a qualified individual who begins work on or after January 1, 2004 and before January 1, 2006, and for property placed in service on or after January 1, 2004 and before January 1, 2006.

  3. Section 111 and 112 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extend for two years the present-law credit provision through taxable years beginning on or before December 31, 2007. P.L. 110-343, Division C, Title III, section 314 and section 315 of the Emergency Economic Stabilization Act of 2008, extends the credit and accelerated depreciation for 2 years for taxable years beginning on January 1, 2008, and on or before December 31, 2009.

  4. On December 17, 2010, President Obama signed into law, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. Section 732 of the act extends the Indian employment credit for 2 years to December 31, 2011. In addition, section 739 of the act extends the accelerated depreciation rules for property placed in service on Indian reservations for 2 years to December 31, 2011.

  5. See the General Instructions for Form 8845 for specific information on claiming the Indian employment credit and the accelerated depreciation rules for property on Indian Reservations.

  6. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1 for tax years beginning prior to 1998.

  7. Action required:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ math verify the form.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.12  (07-17-2007)
Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips

  1. Certain food and beverage establishments use Form 8846 to claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips. For more information on the employees involved, see the General Instructions for Form 8846.

  2. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  3. Section 8213 of the Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28, provides that the amount of the tip credit is based on the amount of tips in excess of those treated as wages for purposes of the Fair Labor Standards Act (FLS) as in effect on January 1, 2007. The tip credit is determined based on a minimum wage of $5.15 per hour. Therefore, if the amount of the minimum wage increases, the amount of the FICA tip will not be reduced. The provision applies to tips received for services performed after December 31, 2006.

  4. Section 8214 of the Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28, treats the tentative minimum tax as zero for purposes of determining the tax liability limitation to the credit for taxes paid with respect to employee cash tips. Therefore, the credit for taxes paid with respect to cash tips may offset the alternative minimum tax and is effective for taxable years beginning after December 31, 2006.

  5. Action required:

    1. Math verify Form 8846.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.13  (01-01-2005)
Form 8847, Credit for Contributions to Selected Community Development Corporations

  1. This credit is figured over a 10 year period beginning with the tax year a qualified community development corporation contribution is made.

  2. When a contribution is made, the community development corporation furnishes a Schedule A of Form 8847, with Part I completed. The contributor must complete Part II of Schedule A and attach it to Form 8847 each year the credit is claimed. If Schedule A is not completed or attached to Form 8847, contact the taxpayer to obtain a completed Schedule A. (Fax copies are acceptable.)

  3. For TY 2006 and subsequent the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit will then be figured on Form 3800.

  4. For TY 2005 and prior, Form 8847, Credit for Contributions to Selected Community Development Corporations must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  5. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See I IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  6. Action required:

    1. Math verify Form 8847.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.14  (01-01-2005)
Form 8820, Orphan Drug Credit

  1. Form 8820 is now used to compute the Orphan Drug Credit. The credit was previously reported on Form 6765 until it expired December 31, 1994. It was reinstated permanently beginning July 1, 1996 and must now be part of Form 3800. The credit is 50-percent of qualified clinical testing expenses paid or incurred during the tax year.

  2. For TY 2005 and prior, Form 8820, Orphan Drug Credit must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  3. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800.

  4. No portion of the credit reinstated July 1, 1996 can be carried back to a taxable year ending before July 1, 1996. For tax years beginning 1998 and subsequent, any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years.

  5. See the general instructions to Form 8820, for definitions and more special instructions.

  6. Action required:

    1. Math verify Form 8820.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.15  (01-22-2007)
Form 8861, Welfare-to-Work Credit

  1. The Taxpayer Relief Act of 1997 added this credit as part of the General Business Credit.

  2. This credit can be claimed for wages paid or incurred to long-term family assistance recipients during the tax year. Only wages paid or incurred to individuals who began working for the employer on or between January 1, 1998 and December 31, 2001, can be used to figure the credit. The credit was extended by the Job Creation and Workers Assistance Act of 2002 to December 31, 2003. In addition, Section 303 of the Working Families Tax Relief Act of 2004 extended the credit through December 31, 2005. The credit cannot be claimed for workers starting employment after December 31, 2005.

  3. Section 105 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extends the Welfare-to-Work Tax Credit for one year without modifications for qualified individuals who begin work for an employer after December 31, 2005 and before January 1, 2007. The provision of law then combines the Welfare-to-Work Credit and the Work Opportunity Credit for a second year for qualified individuals that begin work for an employer after December 31, 2006 and before January 1, 2008. Because of these changes, Form 8861 should not be used to claim the credit for any employees hired after December 31, 2006. To calculate a credit for any employee hired after December 31, 2006, use Form 5884, Work Opportunity Credit. (See IRM 21.7.4.4.8.3.2, for more information)

    Note:

    An employer cannot claim the Work Opportunity Credit with respect to wages of any employee on which the Welfare-to-Work Credit is claimed.

  4. The credit is 35-percent of qualified first-year wages and 50-percent of qualified second-year wages paid or incurred during the tax year. The amount of qualified first-year wages, and the amount of qualified second-year wages, which may be used for computing the credit for any employee is limited to $10,000 per year.

  5. For TY 2006 and subsequent, the credit can only be claimed as a general business credit and must be carried to Form 3800, General Business Credit. The allowable credit is then figured on Form 3800.

  6. For TY 2005 and prior, Form 8861, Welfare-to-Work Credit, must be submitted. The credit may need to be carried to Form 3800, General Business Credit, if two or more credits are claimed.

  7. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back one year to reduce taxes for that year. It can then be carried forward 20 years.

  8. To claim the Welfare-to-Work Credit, employers must request and be issued a certification for each employee from the State Employment Security Agency (SESA). (Do not send to the IRS.) The certification proves that the employee is a long-term family assistance recipient. The employer must receive the certification by the day the individual begins work, or they must complete Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, on or before the day they offer the individual a job. See Form 8861 and its instructions for further information.

  9. In addition to filing Form 8850, employers must complete and send to the state's work opportunity credit coordinator either:

    • ETA Form 9062, Conditional Certification Form, if the job applicant received this form from a participating agency (e.g., the Job Corps), or

    • ETA Form 9061, Individual Characteristics Form, if the job applicant did not receive a conditional certification.

  10. Action required:

    1. Math verify Form 8861.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.16  (01-01-2005)
Trans-Alaska Pipeline Liability Fund Credit

  1. This credit is part of the General Business Credit. It is applicable to an extremely small number of large corporations.

  2. There is no form for the credit. A statement must be attached to show how the credit was computed under IRC 4612(e).

  3. Any unused portion of this credit remaining, after the tax is reduced to zero, can be carried back 1 year to reduce taxes for that year. It can then be carried forward 20 years. See IRM 21.7.4.4.8.1.4 for tax years beginning prior to 1998.

  4. Action required:

    1. Do not adjust this credit without contacting the Large Corporation Unit.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.17  (12-23-2008)
Form 8860, Qualified Zone Academy Bond Credit

  1. A Qualified Zone Academy Bond (QZAB) is a taxable bond issued after 1997 by a state or local government, the proceeds of which are used to improve certain eligible public schools. For TY 2007 and prior, the credit is claimed on Form 8860. See paragraph (6) below and IRM 21.7.4.4.8.3.17.1, for claiming the credit for tax years beginning in 2008.

  2. The Job Creation and Workers Assistance Act of 2002, P.L. 107-148, extended the QZAB Credit. The provision authorized issuance of up to $400 million in qualified zone academy bonds annually for calendar years 2002 and 2003. In addition, Section 304 of the Working Families Tax Relief Act of 2004 extended the credit through 2004 and 2005.

  3. Section 105 of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extends the Qualified Zone Academy Bond Credit for two years through December 31, 2007. In addition, the provision imposes on QZAB issuers the arbitrage requirement of IRC 148 that applies to interest-bearing tax-exempt bonds. It also imposes new spending requirements for QZABs. Finally, issuers of QZABs are required to report to the IRS bonds they issued in a manner similar to the information returns required for tax-exempt bonds.

  4. To be an eligible holder of this type of bond, the taxpayer must be a bank, insurance company, or other corporation actively engaged in the business of lending money, or shareholder of an S Corporation that is an eligible holder. The bonds must be held for one year.

  5. The credit can be claimed on Form 1120 and Form 1120S. Individuals are eligible to claim the credit (on Forms 1040) if they are shareholders in an S Corporation that is an eligible holder. Estates and trusts also claim the credit on Form 1041.

  6. P.L. 110-343, Division C, Title III, section 313 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extends the credit for 2 years through December 31, 2009. Form 8860 became obsolete for tax years beginning in 2008. Taxpayers are instructed to use Form 8912, Credit to Holders of Tax Credit Bonds, to compute the annual income tax credit which functions as interest paid on bonds to claim the credit from QZABs for tax years beginning in 2008. See IRM 21.7.4.4.8.3.17.1 for more information regarding Form 8912.

  7. See the General Instructions for Form 8860 for more specific information.

  8. Action required:

    1. Math verify Form 8860.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.

21.7.4.4.8.3.17.1  (03-18-2011)
Form 8912, Credit to Holders of Tax Credit Bonds

  1. Taxpayers use Form 8912 to claim the clean renewable energy bond (CREB) credit, Gulf tax credit bond (GTCB) credit, Midwestern tax credit bond (MTCB) credit, qualified forestry conservation bond (QFCB) credit, new clean renewable energy bond (NCREB) credit, qualified energy conservation bond (QECB) credit, qualified zone academy bond (QZAB) credit, qualified school construction bond (QSCB) credit, and build American bond (BAB) credit. The holder of the bond is generally allowed an annual income tax credit in lieu of, or in addition to, receiving periodic interest payments on the bonds. Prior to TY 2008, the credit on QZABs was claimed on Form 8860. See IRM 21.7.4.4.8.3.17 above for more information

  2. A CREB is any bond issued after 2005 and before 2010 by a qualified issuer (such as a cooperative electric company or governmental body). The proceeds of which are used for capital expenditures incurred by a qualified borrower for a qualified project.

  3. A GTCB is any bond issued after 2005 and before 2007, with a maturity of not more than 2 years by the states of Alabama, Louisiana, or Mississippi and designated by the governor of that state as a Gulf tax credit bond.

  4. A MTCB is any bond with a maturity of not more than 2 years that was issued after 2008 and before 2010 by any state (or any instrumentality of a state) in which a Midwestern disaster area is located and designated by the governor of that state as a Midwestern tax credit bond. Division C, section 702, Temporary Tax Relief for Areas Damaged By 2008 Midwestern Severe Storms, Tornadoes, and Flooding, of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, P.L. 110-343, added a MTCB as a form of relief assistance for affected areas.

  5. A QFCB is any bond issued after May 22, 2008, by a qualified issuer as a qualified forestry conservation bond. 100-percent of the available project proceeds of which are used for one or more qualified forestry conservation purposes. Section 15316, Qualified Forestry Conservation Bonds, of the Food, Conservation, and Energy Act of 2008, P.L. 110-246, allows the issuance of up to $500,000,000 of the QFCBs for qualified forestry conservation purposes.

  6. A NCREB is any bond issued after October 3, 2008, by a qualified issuer as a new clean renewable energy bond. 100-percent of the available project proceeds of which are used for capital expenditures incurred by governmental bodies, public power providers, or cooperative electric companies for one or more qualified renewable energy facilities. Division B, section 107, New Clean Renewable Energy Bonds, of the Energy Improvement and Extension Act of 2008, P.L. 110–343, provided for a national volume cap of $800,000,000 for NCREBs to finance qualified renewable energy facilities. Section 1111, Increased Limitation on Issuance of New Clean Renewable Energy Bonds, of Title 1 of Division B of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, increased the national limitation for new CREBs by $1,6 billion to $2,4 billion.

  7. A QECB is any bond issued after October 3, 2008, by a state or local government as a qualified energy conservation bond. 100-percent of the available project proceeds of which are used for one or more qualified energy conservation purposes. Section 301 Qualified Energy Conservation Bonds, of the Tax Extenders and Alternative Minimum Tax Relief Act of 208, Division C of P.L. 110-343 provided national authority too issue $800,000,000 of QECBs, Section 1112, Increased Limitations on Issuance of Qualified Energy Conservation Bonds of Title 1 of Division B of the American Recovery and reinvestment Act of 2009, P.L. 111-5, increased the national limitation for QECBs by $2.4 billion to $3.2 billion.

  8. A QZAB is any bond issued by a state or local government as a qualified zone academy bond and 100-percent of the available project proceeds of which are used to improve certain eligible public schools (for QZABs issued before October 4, 2008, 95-percent or more of the proceeds are used to improve certain eligible public schools). Section 1522, Extension and Expansion of Qualified Zone Academy Bonds, of the American Recovery and Reinvestment Act of 2009 Act, P.L. 111-5, extended the qualified zone academy bond program and increased the national limitations for QZABs. The provision authorizes the issuance of up to $1,400,000,000 in qualified zone academy bonds annually for 2009 and 2010. After TY 2007, the credit is not claimed on Form 8860, Qualified Zone Academy Bond Credit. See Rev. Proc. 2011-19, 2011-6 I.R.B., for the maximum face amount of QZAB that may be issued for each State for calendar year 2011 under IRC 54E(c)(2).

  9. On December 17, 2010, President Obama signed into law, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. Section 758(a) of the act extends the qualified zone academy bond credit for 1 year to December 31, 2011. In addition, section 758(a) sets the national limitation at $400,000,000 for 2011.

  10. A QSCB is any bond issued after February 17, 2009, by a state or local government as a qualified school construction bond and 100-percent of the available project proceeds of which are used for the construction, rehabilitation, or repair of a public school facility or for the acquisition of land on which the bond-financed facility is to be constructed. Section 1521, Qualified School Construction Bonds, of Title 1 of Division B of the American Recovery and Reinvestment Act of 2009 Act, P.L. 111-5, added QSCB as a new tax credit bond to the IRC and provided a national bond limit for QSCB of $11 billion for 2009 and 2010, each.

  11. A BAB is any bond issued after February 17, 2009 and before January 1, 2011, by an issuer who makes an irrevocable election to have the rules of IRC 54A apply and except for that election, the interest on the bonds would have been excluded under section 103. Section 1531, Build America Bonds, of Title 1 of Division B of the American Recovery and Reinvestment Act of 2009 Act, P.L. 111-5, added BABs as a tax credit bond to the code.

  12. See Form 8912 and its instructions for the definitions of a qualified issuer, qualified borrower, and qualified project and see the specific information on claiming the credits.

  13. Action required:

    1. Math verify Form 8912.

    2. Input TC 291 to increase the credit and TC 290 to decrease the credit.

21.7.4.4.8.3.18  (01-06-2004)
Form 8882, Credit for Employer-Provided Childcare Facilities and Services

  1. Section 205(a) of the Economic Growth and Tax Relief Reconciliation Act of 2001, PL 107-16, provided for a new credit for employers: Form 8882, Credit for Employer-Provided Childcare Facilities and Services. Employers use Form 8882 to claim the credit for qualified childcare facilities, and resource and referral expenditures.

  2. A qualified childcare facility is a facility that meets the requirements of all applicable laws and regulations of the state or local government in which it is located, including the licensing of the facility as a childcare facility. See the general instructions for the other conditions that must be met, and for the requirements to claim the credit for qualified childcare facility expenditures and for qualified childcare resources and referral expenditures.

  3. The credit is part of the General Business Credit. It is effective for tax years beginning after December 31, 2001. Therefore, the first full 12-month period for which the credit is valid is 200212. Employers may claim the credit on their original return or on a timely filed amended return. See the general instructions for Form 8882 for controlled groups and recapturing of the credit.

  4. The credit is limited to $150,000 per taxable year. For the taxable year, the credit is equal to the expenses incurred by the employer equal to:

    1. 25-percent of the qualified childcare facility expenditures; plus

    2. 10-percent of the qualified childcare resource and referral expenditures paid or incurred during the tax year.

  5. Action required;

    1. Math verify Form 8882.

    2. Input TC 291 to increase the credit and TC 290 to reduce the credit.

21.7.4.4.8.3.19  (01-06-2004)
Form 8881, Credit for Small Employer Pension Plan Startup Costs

  1. Section 619(a) of the Economic Growth and Tax Relief Reconciliation Act of 2001, PL 107-16, provides for a new credit for small employers: Form 8881, Credit for Small Employer Pension Plan Startup Cost. Employers use Form 8881 to claim the credit for qualified start-up costs incurred in establishing or administrating an eligible employer plan.

  2. To be an eligible small employer, the taxpayer must have had no more than 100 employees during the tax year preceding the first credit year who received at least $5,000 of compensation from the taxpayer during that tax year. However, a taxpayer is not an eligible small employer if, during the 3 tax years preceding the first credit year, they established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the new qualified employer plan. See IRC 45E(c) for rules for controlled groups and predecessor employers. The credit can be claimed on Form 1120 and Form 1041. A partnership or S corporation that is an eligible small employer, completes part 1 on the form to figure the credit to pass through to it's partners and shareholders on Schedule K-1 and is subsequently claimed on Form 1040.

  3. The credit is allowed under IRC 45E and is part of the General Business Credit. The credit is allowed only for costs paid or incurred in tax years beginning after 2001 with respect to qualified employer plans first effective after 2001. Therefore, the first full 12-month period for which the credit is valid is 200212.

  4. The credit (equal to 50-percent of the start-up costs paid or incurred during the tax year) is limited to the first three years of the start-up costs of the plan. The credit cannot exceed $500 for the first credit year and each of the two taxable years immediately following the first credit year. See the General Instructions for Form 8881 for more specific information.

  5. Action required;

    1. Math verify Form 8881.

    2. Input TC 291 to increase the credit or TC 290 to reduce the credit.


Prev Next

More Internal Revenue Manual