[Federal Register Volume 61, Number 242 (Monday, December 16, 1996)]
[Proposed Rules]
[Pages 66000-66002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31718]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-209834-96]
RIN 1545-AU30
Empowerment Zone Employment Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to the
period employers may use in computing the empowerment zone employment
credit under section 1396 of the Internal Revenue Code. These proposed
regulations reflect and implement certain changes made by the Omnibus
Budget Reconciliation Act of 1993 (OBRA '93). They affect employers of
employees who live and work in an empowerment zone designated under the
statute. These proposed regulations provide employers with the guidance
necessary to claim the credit. This document also contains a notice of
public hearing on these proposed regulations.
DATES: Written comments must be received March 17, 1997. Outlines of
oral comments and requests to speak at the public hearing scheduled for
May 7, 1997, at 10 a.m., must be received by April 16, 1997.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209834-96), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, D.C. 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209834-96), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the ``Tax Regs'' option on
the IRS Home Page, or by submitting comments directly to the IRS
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Robert G. Wheeler, (202) 622-6060; concerning submissions and the
hearing, Michael Slaughter, (202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) relating to the empowerment zone employment
credit under section 1396. Sections 1391 through 1397D (relating to
empowerment zones and enterprise communities) were added to the
Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1993
(OBRA'93). Section 1397D of the Code authorizes the Secretary of the
Treasury to prescribe regulations that may be necessary or appropriate
to carry out the purposes of section 1394 through 1397C.
The amount of the empowerment zone employment credit under section
1396 is equal to a specified percentage of qualified zone wages, which
are certain wages paid or incurred by an employer for services
performed by a qualified zone employee. Questions have arisen about the
definition of a ``qualified zone employee'' in section 1396(d). In
particular, questions have been raised about the appropriate period
under section 1396(d)(1)(A) during which substantially all of the
services performed by an employee for his or her employer must be
performed within an empowerment zone in a trade or business of the
employer.
In Notice 96-1, 1996-3 I.R.B. 30, the IRS announced its intention
to publish a notice of proposed rulemaking that would clarify the
relevant period for this purpose. Notice 96-1 described a rule under
which employers would have a choice about what period to use, and
invited comments on this and any other related issues for which
guidance would be helpful to employers. No comments were received.
These proposed regulations set forth the rule described in Notice 96-1.
Explanation of Provisions
Under the proposed regulations, an employer may use either each pay
period or the entire calendar year as the
[[Page 66001]]
relevant period in determining whether a particular employee performed
substantially all of his or her services within an empowerment zone
(the ``location-of-services'' requirement). For each taxable year the
employer must use the same method for all its employees, but the
employer may change methods from one year to the next.
In addition to comments on the relevant period for applying the
location-of-services requirement, Treasury and IRS request comments on
other issues relating to the empowerment zone employment credit with
respect to which guidance may be helpful to employers. In particular,
comments are requested on whether the final regulations should include
guidance on (1) the meaning of ``substantially all'' in the location-
of-services requirement, or (2) a provision authorizing employers to
rely on employee certifications to demonstrate compliance with the
requirement that a qualified zone employee's principal place of abode
be in an empowerment zone. In this regard, commentators may wish to
consider analogous provisions in the final regulations under
Sec. 1.1394-1 on enterprise zone facility bonds (TD 8673, 61 FR 27258,
May 31, 1996).
Some taxpayers and their representatives have asked whether there
is any requirement that an employee's status as a qualified zone
employee be certified by a third party in a fashion similar to the
eligibility certifications required under the targeted jobs tax credit
(prior to its expiration on December 31, 1994). There is no such
requirement.
Proposed Effective Date
These proposed regulations are proposed to be effective December
21, 1994, the date on which the nine empowerment zones authorized by
OBRA'93 were designated by the Secretaries of Housing and Urban
Development and Agriculture.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations, and because the
regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (preferably a
signed original and eight (8) copies) that are timely submitted to the
IRS. All comments will be available for public inspection and copying.
A public hearing has been scheduled for Wednesday, May 7, 1997 in
room 2615, Internal Revenue Building, 1111 Constitution Avenue NW,
Washington, DC. Because of access restrictions, visitors will not be
admitted beyond the building lobby more than 15 minutes before the
hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons
that wish to present oral comments at the hearing must submit written
comments and an outline of topics to be discussed and the time to be
devoted to each topic (signed original and eight (8) copies by
Wednesday, April 16, 1997).
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Robert G. Wheeler,
Office of Associate Chief Counsel, Employee Benefits and Exempt
Organizations. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1396-1 also issued under 26 U.S.C. 1397D.
Par. 2. A new undesignated centerheading and Sec. 1.1396-1 are
added to read as follows:
Empowerment Zone Employment Credit
Sec. 1.1396-1 Qualified zone employees.
(a) In general. A qualified zone employee of an employer is an
employee who satisfies the location-of-services requirement and the
abode requirement with respect to the same empowerment zone and is not
otherwise excluded by section 1396(d).
(1) Location-of-services requirement. The location-of-services
requirement is satisfied if substantially all of the services performed
by the employee for the employer are performed in the empowerment zone
in a trade or business of the employer.
(2) Abode requirement. The abode requirement is satisfied if the
employee's principal place of abode while performing those services is
in the empowerment zone.
(b) Period for applying location-of-services requirement. In
applying the location-of-services requirement, an employer may use
either the pay period method described in paragraph (b)(1) of this
section or the calendar year method described in paragraph (b)(2) of
this section. For each taxable year of an employer, the employer must
either use the pay period method with respect to all of its employees
or use the calendar year method with respect to all of its employees.
The employer may change the method applied to all of its employees from
one taxable year to the next.
(1) Pay period method--(i) Relevant period. Under the pay period
method, the relevant period for applying the location-of-services
requirement is each pay period in which an employee provides services
to the employer. If an employer has one pay period for certain
employees and a different pay period for other employees (e.g., a
weekly pay period for hourly wage employees and a bi-weekly pay period
for salaried employees), the pay period actually applicable to a
particular employee is the relevant pay period for that employee under
this method.
(ii) Application of method. Under this method, an employee does not
satisfy the location-of-services requirement during a pay period unless
substantially all of the services performed by the employee for the
employer during that pay period are performed within the empowerment
zone in a trade or business of the employer.
(2) Calendar year method--(i) Relevant period. Under the calendar
year method, the relevant period for an employee is the entire calendar
year with respect to which the credit is being claimed. However, for
any employee who is employed by the employer for less than the entire
calendar year, the relevant period is the portion of that
[[Page 66002]]
calendar year during which the employee is employed by the employer.
(ii) Application of method. Under this method, an employee does not
satisfy the location-of-services requirement during any part of a
calendar year unless substantially all of the services performed by the
employee for the employer during that calendar year (or, if the
employee is employed by the employer for less than the entire calendar
year, the portion of that calendar year during which the employee is
employed by the employer) are performed within the empowerment zone in
a trade or business of the employer.
(3) Examples. This paragraph (b) may be illustrated by the
following examples. In each example, the employees satisfy the abode
requirement at all relevant times and all services performed by the
employees for their employer are performed in a trade or business of
the employer. The employees are not precluded from being qualified zone
employees by section 1396(d)(2) (certain employees ineligible). No
portion of the employees' wages is precluded from being qualified zone
wages by section 1396(c)(2) (only first $15,000 of wages taken into
account) or section 1396(c)(3) (coordination with targeted jobs credit
and work opportunity credit). The examples are as follows:
Example 1. (i) Employer X has a weekly pay period for all its
employees. Employee A works for X throughout 1997. During each of
the first 20 weekly pay periods in 1997, substantially all of A's
work for X is performed within the empowerment zone in which A
resides. A also works in the zone at various times during the rest
of the year, but there is no other pay period in which substantially
all of A's work for X is performed within the empowerment zone.
(ii) Employer X uses the pay period method. For each of the
first 20 pay periods of 1997, A is a qualified zone employee, all of
A's wages from X are qualified zone wages, and X may claim the
empowerment zone employment credit with respect to those wages. X
cannot claim the credit with respect to any of A's wages for the
rest of 1997.
Example 2. (i) Employer Y has a weekly pay period for its
factory workers and a bi-weekly pay period for its office workers.
Employee B works for Y in various factories and Employee C works for
Y in various offices.
(ii) Employer Y uses the pay period method. Y must use B's
weekly pay periods to determine the periods (if any) in which B is a
qualified zone employee. Y may claim the empowerment zone employment
credit with respect to B's wages only for the weekly pay periods for
which B is a qualified zone employee, because those are B's only
wages that are qualified zone wages. Y must use C's bi-weekly pay
periods to determine the periods (if any) in which C is a qualified
zone employee. Y may claim the credit with respect to C's wages only
for the bi-weekly pay periods for which C is a qualified zone
employee, because those are C's only wages that are qualified zone
wages.
Example 3. (i) Employees D and E work for Employer Z throughout
1997. Although some of D's work for Z in 1997 is performed outside
the empowerment zone in which D resides, substantially all of it is
performed within the empowerment zone. E's work for Z is performed
within the empowerment zone in which E resides for several weeks of
1997 but outside the zone for the rest of the year so that, viewed
on an annual basis, E's work is not substantially all performed
within the empowerment zone.
(ii) Employer Z uses the calendar year method. D is a qualified
zone employee for the entire year, all of D's 1997 wages from Z are
qualified zone wages, and Z may claim the empowerment zone
employment credit with respect to all of those wages, including the
portion attributable to work outside the zone. Under the calendar
year method, E is not a qualified zone employee for any part of
1997, none of E's 1997 wages are qualified zone wages, and Z cannot
claim any empowerment zone employment credit with respect to E's
wages for 1997. Z cannot use the calendar year method for D and the
pay period method for E because Z must use the same method for all
employees. For 1998, however, Z can switch to the pay period method
for E if Z also switches to the pay period method for D and all Z's
other employees.
(c) Effective date. This section applies with respect to wages paid
or incurred on or after December 21, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 96-31718 Filed 12-13-96; 8:45 am]
BILLING CODE 4830-01-U
