Part III. Administrative, Procedural, and Miscellaneous

Work Opportunity Tax Credit

Notice 2009–28

PURPOSE

Section 51 of the Internal Revenue Code (the Code) provides for a Work Opportunity Tax Credit (WOTC) for employers who hire individuals who are members of targeted groups. Section 1221 of the American Recovery and Reinvestment Tax Act of 2009 (ARRTA), enacted February 17, 2009, Div. B, Tit. I of Pub. L. No. 111–5, amended § 51 to add two new targeted groups for purposes of the WOTC. New § 51(d)(14) provides that unemployed veterans and disconnected youth who begin work for an employer during 2009 or 2010 shall be treated as members of a targeted group for purposes of the WOTC.

This notice 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.

I. STATUTORY DEFINITION OF UNEMPLOYED VETERAN

For purposes of § 51(d)(14), the term “veteran” means any individual who is certified by the designated local agency (as defined in § 51(d)(12) as a State employment security agency established in accordance with the Act of June 6, 1933, as amended (29 U.S.C. § 49–49n)) as:

(1) having served on active duty (other than active duty for training) in the Armed Forces of the United States (Armed Forces) for a period of more than 180 days; or

(2) having been discharged or released from active duty in the Armed Forces for a service-connected disability.

Section 51(d)(14)(B)(i) provides that the term “unemployed veteran” means any veteran who is certified by the designated local agency as:

(1) having been discharged or released from active duty in the Armed Forces at

any time during the 5-year period ending on the hiring date; and

(2) being in receipt of unemployment compensation under State or Federal law for not less than four weeks during the oneyear period ending on the hiring date.

II. DISCONNECTED YOUTH

A. Statutory Definition

Section 51(d)(14)(B)(ii) provides that the term “disconnected youth” means any individual who is certified by the designated local agency:

(I) as having attained age 16 but not age 25 on the hiring date; (II) as not regularly attending any secondary, technical, or post-secondary school during the 6-month period preceding the hiring date;

(III) as not regularly employed during such 6-month period; and

(IV) as not readily employable by reason of lacking a sufficient number of basic skills.

The Conference Agreement on ARRTA, H.R. Rep. No. 111–16, at 554, states:

For purposes of the disconnected youths, it is intended that a low level of formal education may satisfy the requirement that an individual is not readily employable by reason of lacking a sufficient number of skills. Further, it is intended that the Internal Revenue Service, when providing general guidance regarding the various new criteria, shall take into account the administrability of the program by the State agencies.

B. Not regularly attending any secondary, technical or post-secondary school

For purposes of § 51(d)(14)(B)(ii)(II), the term “not regularly attending” means that the individual states in writing that during the six months preceding his or her hiring date, he or she has not attended a secondary, technical or post-secondary school for more than an average of 10 hours per week, not counting periods during which the school is closed for scheduled vacations.

For purposes of § 51(d)(14)(B)(ii), the term “secondary school” means:

(1) A secondary school as defined in 20 U.S.C. § 7801(38); or (2) a for-profit secondary school that otherwise meets the definition in 20 U.S.C. § 7801(38).

A General Education Development (GED) program is not a secondary school for purposes of § 51(d)(14)(B)(ii).

For purposes of § 51(d)(14)(B)(ii) and § 51(d)(14)(B)(ii)(IV), the terms “technical school” and “post-secondary school” mean institutions of higher education as defined in 20 U.S.C. §§ 1001; 1002(a)(1), (b) and (c); and 1059c(b)(3).

C. Not regularly employed

For purposes of § 51(d)(14)(B)(ii)(III), an individual was not regularly employed if, during each consecutive three-month period within the six months preceding his or her hiring date, the individual earned less than an amount equal to the gross amount he or she would have been paid at the minimum wage if he or she worked 30 hours every week during the three-month period.

For purposes of the preceding sentence, “minimum wage” is the higher of (1) the federal minimum wage (as defined in 29 U.S.C. § 206(a)(1)) or (2) the generally applicable State minimum wage (if any).

D. Not readily employable by reason of lacking a sufficient number of basic skills

For purposes of § 51(d)(14)(B)(ii)(IV), an individual is not readily employable by reason of lacking a sufficient number of basic skills if the individual states in writing that he or she does not have a certificate of graduation from a secondary school or a GED Certificate. For purposes of § 51(d)(14)(B)(ii)(IV), an individual also is not readily employable by reason of lacking a sufficient number of basic skills if the individual states in writing that he or she has a certificate of graduation from a secondary school or a GED Certificate that was awarded no less than six months preceding his or her hiring date and has not held a job or been admitted to a technical school or post-secondary school since receiving the certificate.

June 15, 2009 1082 2009–24 I.R.B.

which the insured attains age 95, and no later than the day on which the insured attains age 100. Section 1.7702–2 of the Income Tax Regulations provides guidance on determining the attained age of the insured for this purpose.

.06 Section 7702A(a) provides that a life insurance contract is a modified endowment contract (MEC) if the contract is entered into on or after June 21, 1988, and fails to meet the 7-pay test, or is received in exchange for a contract which is a MEC. A contract fails to meet the 7-pay test if the accumulated amount paid under the contract at any time during the first 7 contract years exceeds the sum of the net level premiums that would have to be paid on or before such time if the contract were to provide for paid-up future benefits (including death benefits) after the payment of 7 level annual premiums. Under § 7702A(c)(1)(B), the determination of the 7 level annual premiums generally is made by applying the computational rules of § 7702(e), including the rule requiring a deemed maturity date no earlier than the day on which the insured attains age 95 and no later than the day on which the insured attains age 100.

.07 The 2001 Commissioners’ Standard Ordinary mortality and morbidity tables (2001 CSO tables) prescribed by the NAIC became the prevailing commissioners’ standard tables within the meaning of § 807(d)(5) during calendar year 2004, and have been adopted by all 50 states. For tax purposes, the 2001 CSO mortality tables generally must be used for purposes of applying the reasonable mortality charge requirements of § 7702(c)(3)(B)(i) with regard to contracts issued after December 31, 2008. See Notice 2006–95, 2006–2 C.B. 848, modifying and super- seding Notice 2004–61, 2004–2 C.B. 596, supplementing Notice 88–128, 88–2 C.B. 540. .08 Unlike the 1958 Commissioners Standard Ordinary Mortality Tables (1958 CSO Tables) and the 1980 Commissioners Standard Ordinary Mortality Tables (1980 CSO Tables), the 2001 CSO tables extend to age 121. As a result, an increasing number of issuers now develop contracts with maturity dates beyond age 100, even though the qualification of the contracts as life insurance contracts (and as MECs) is tested using computational rules that deem the contracts to mature between the

EFFECTIVE DATE

New § 51(d)(14) is effective for individuals who begin work for the employer after December 31, 2008, and before January 1, 2011.

TRANSITION RELIEF

Section 51(d)(13) provides that an individual shall not be treated as a member of a targeted group unless the employer obtains certification from a designated local agency on or before the day the individual begins work that the individual is a member of a targeted group or completes a pre-screening notice (IRS Form 8850) on or before the day the individual is offered employment and submits such notice to the designated local agency to request certification not later than 28 days after the individual begins work. However, under this notice, any employer who hires an unemployed veteran or a disconnected youth (as defined in § 51(d)(14)) after December 31, 2008, and before July 17, 2009, will be considered to satisfy the deadline in § 51(d)(13)(A)(ii)(II) if the employer submits the pre-screening notice to the designated local agency to request certification not later than August 17, 2009.

DRAFTING INFORMATION

The principal author of this notice is Robin Ehrenberg of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other individuals participated in its development. For further information regarding this notice, contact Ms. Ehrenberg at (202) 622–6080 (not a toll-free call).

Application of Sections 7702 and 7702A to Life Insurance Contracts that Mature After Age 100

Notice 2009–47