LB&I and SB/SE Joint Directive on the Work Opportunity Tax Credit per Internal Revenue Code Section 51 (IRC § 51)


October 10, 2019

Control Number: LB&I-04-1019-011
Affected IRM:  IRM 4.43.1


Douglas W. O’Donnell, /s/ Douglas W. O’Donnell
Commissioner, Large Business & International Division

Eric Hylton,
Commissioner, Small Business/Self-Employed Division

LB&I and SB/SE Joint Directive on the Work Opportunity
Tax Credit per Internal Revenue Code Section 51 (IRC § 51)


his Joint Directive provides instructions to LB&I and SB/SE examiners on the treatment of Work Opportunity Tax Credit (WOTC) examinations under IRC § 51. Specifically, this Joint Directive is effective for all LB&I and SB/SE taxpayers claiming the WOTC in the year their eligible employees are certified.

This Directive is not an official pronouncement of law, and cannot be used, cited, or relied on as such. In addition, nothing in this Directive should be construed as affecting the operation of any other provision of the Internal Revenue Code, regulations, or guidance thereunder.


In general, IRC § 51 provides a WOTC for employers who hire and pay qualified wages, as defined in IRC §§ 51(b) and (e), to individuals who are certified members of targeted groups, in accordance with IRC § 51(d)(13). However, third-party payers, such as Professional Employer Organizations, are not considered employers eligible to claim the WOTC.

An employer may claim the WOTC upon receipt of a certification that an individual employee is a member of a targeted group. An employer must submit IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to the Designated Local Agency (DLA) as defined in IRC § 51(d)(12), also referred to as the State Workforce Agency (SWA), to certify the employee. The Form 8850 is required to be submitted no later than the 28th calendar day after the employee begins to work for the employer.

After receipt of the certification from the DLA/SWA, employers compute and claim the WOTC in the year in which they paid or incurred certified employees’ qualified wages. Extended delays associated with the WOTC certification process prevent some employers from being able to claim the WOTC on the tax return originally filed for the year in which the qualified wages were paid or incurred. This creates a need for employers to file multiple amended federal and state income tax returns, each year, to claim the WOTC in the year the employer paid or incurred the qualified wages. In lieu of filing amended returns, some employers have claimed the WOTC in the year they receive the delayed certifications for the qualified wages they paid or incurred in earlier year(s).

Planning and Examination Guidance

To use resources effectively and to reduce administrative burden, examiners shall not challenge the timing of when a taxpayer claims the WOTC, if the claimed WOTC complies with all requirements of IRC § 51, but the WOTC is claimed in the year the taxpayer receives the delayed certification (Certification Year). To comply with IRC § 280C, taxpayers claiming the WOTC under this Directive must not claim or have claimed a deduction for wages, equal to the WOTC.

If an examiner audits the WOTC, the examiner should first determine the taxpayer’s WOTC computation methodology. If the taxpayer consistently claims the WOTC in the Certification Year, then the examiner should follow this Directive and allow the taxpayer to claim the WOTC in the Certification Year. The taxpayer should be allowed an initial transition year to convert from its previous computation methodology to claiming the WOTC in the Certification Year.

The examiner may verify a taxpayer’s WOTC computation by confirming the amount and year qualified wages were paid, the year certifications were received, and that the taxpayer did not include the same qualified wages to compute other credits (e.g., Empowerment Zone (IRC § 1396(c)(3)), Indian Employment (IRC § 45A(b)(1)(B)), Research Credit (IRC § 41(b)(2)(D)(iii)), etc.). Under IRC § 6001, the taxpayer should make available to the examiner, upon request, all relevant documentation to substantiate the WOTC.


Direct questions concerning this Directive to the Enterprise Activities Practice Area, General Business Credits Practice Network.

Division Counsel