TAX CREDIT FOR CERTAIN EXPENSES INCURRED IN WORK INCENTIVE PROGRAM.

SEC 601. TAX CREDIT FOR CERTAIN EXPENSES INCURRED IN WORK INCENTIVE PROGRAM. (a) Allowance of Credit—Subpart A of part IV of subchapter A of chapter 1 (relating to credits allowable) is amended by renumbering section 40 as section 42, and by inserting after section 39 the following new section: “SEC. 40. EXPENSES OF WORK INCENTIVE PROGRAMS. “(a) General Rule—There shall be allowed, as a credit against the tax imposed by this chapter, the amount determined under subpart C of this part. “(b) Regulations—The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section and subpart C.” (b) Computation of Credit—Part IV of subchapter A of chapter 1 (relating to credits against tax) is amended by adding at the end thereof the following new subpart: “Subpart C—Rules for Computing Credit for Expenses of Work Incentive Programs “Sec. 50A. Amount of credit. “Sec. 50B. Definitions; special rules. 85 Stat. 554 “SEC. 50A. AMOUNT OF CREDIT. “(a) Determination of Amount— “(1) General rule—The amount of the credit allowed by section 40 for the taxable year shall be equal to 20 percent of the work incentive program expenses (as defined in section 50B(a)). “(2) Limitation based on amount of tax—Notwithstanding paragraph (1), the credit allowed by section 40 for the taxable year shall not exceed— “(A) so much of the liability for tax for the taxable year as does not exceed $25,000, plus “(B) 50 percent of so much of the liability for tax for the taxable year as exceeds $25,000. “(3) Liability for tax—For purposes of paragraph (2), the liability for tax for the taxable year shall be the tax imposed by this chapter for such year, reduced by the sum of the credits allow-able under— “(A) section 33 (relating to foreign tax credit), “(B) section 35 (relating to partially tax exempt interest), “(C) section 37 (relating to retirement income), “(D) section 38 (relating to investment in certain depreciable property), and “(E) section 41 (relating to contributions to candidates for public office). For purposes of this paragraph, any tax imposed for the taxable year by section 56 (relating to minimum tax for tax preferences), section 531 (relating to accumulated earnings tax), section 541 (relating to personal holding company tax), or section 1378 (relating to tax on certain capital gains of subchapter S corporations), and any additional tax imposed for the taxable year by section 1351(d) (1) (relating to recoveries of foreign expropriation losses), shall not be considered tax imposed by this chapter for such year. “(4) Married individuals—In the case of a husband or wife who files a separate return, the amount specified under subparagraphs (A) and (B) of paragraph (2) shall be $12,500 in lieu of $25,000. This paragraph shall not apply if the spouse of the tax-payer has no work incentive program expenses for, and no unused credit carryback or carryover to, the taxable year of such spouse which ends within or with the taxpayer’s taxable year. “(5) Controlled groups—In the case of a controlled group, the $25,000 amount specified under paragraph (2) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary or his delegate shall by regulations prescribe. For purposes of the preceding sentence, the term ‘controlled group’ has the meaning assigned to such term by section 1563(a). “(b) Carryback and Carryover of Unused Credit— “(1) Allowance of credit—If the amount of the credit determined under subsection (a)(1) for any taxable year exceeds the limitation provided by subsection (a)(2) for such taxable year (hereinafter in this subsection referred to as ‘unused credit year’), such excess shall be— “(A) a work incentive program credit carryback to each of the 3 taxable years preceding the unused credit year, and “(B) a work incentive program credit carryover to each of the 7 taxable years following the unused credit year, and shall be added to the amount allowable as a credit by section 40 for such years, except that such excess may be a carryback only to a taxable year beginning after December 31, 1971. The entire amount of the unused credit for an unused credit year shall be 85 Stat. 555carried to the earliest of the 10 taxable years to which (by reason of subparagraphs (A) and (B)) such credit may be carried, and then to each of the other 9 taxable years to the extent that, because of the limitation contained in paragraph (2), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. “(2) Limitation—The amount of the unused credit which may be added under paragraph (1) for any preceding or succeeding taxable year shall not exceed the amount by which the limitation provided by subsection (a) (2) for such taxable year exceeds the sum of— “(A) the credit allowable under subsection (a)(1) for such taxable year, and “(B) the amounts which, by reason of this subsection, are added to the amount allowable for such taxable year and attributable to taxable years preceding the unused credit year. “(c) Early Termination of Employment by Employer, Etc.— “(1) General rule—Under regulations prescribed by the Secretary or his delegate— “(A) Work incentive program expenses.—If the employment of any employee with respect to whom work incentive program expenses are taken into account under subsection (a) is terminated by the taxpayer at any time during the first 12 months of such employment (whether or not consecutive) or before the close of the 12th calendar month after the calendar month in which such employee completes 12 months of employment with the taxpayer, the tax under this chapter for the taxable year in which such employment is terminated shall be increased by an amount (determined under such regulations) equal to the credits allowed under section 40 for such taxable year and all prior taxable years attributable to work incentive program expenses paid or incurred with respect to such employee. “(B) Carrybacks and carryovers adjusted—In the case of any termination of employment to which subparagraph (A) applies, the carrybacks and carryovers under subsection (b) shall be properly adjusted. “(2) Subsection not to apply in certain cases— “(A) In general.— Paragraph (1) shall not apply to— “(i) a termination of employment of an employee who voluntarily leaves the employment of the taxpayer, “(ii) a termination of employment of an individual who, before the close of the period referred to in paragraph (1) (A), becomes disabled to perform the services of such employment, unless such disability is removed before the close of such period and the taxpayer fails to offer reemployment to such individual, or “(iii) a termination of employment of an individual, if it is determined under the applicable State unemployment compensation law that the termination was due to the misconduct of such individual. “(B) Change in form of business, etc.— For purposes of paragraph (1), the employment relationship between the taxpayer and an employee shall not be treated as terminated— “(i) by a transaction to which section 381(a) applies, if the employee continues to be employed by the acquiring corporation, or “(ii) by reason of a mere change in the form of con-ducting the trade or business of the taxpayer, if the employee continues to lie employed in such trade or busi-85 Stat. 556ness and the taxpayer retains a substantial interest in such trade or business. “(3) Special rule—Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit allowable under sub-part A. “(d) Failure To Pay Comparable Wages— “(1) General rule.—Under regulations prescribed by the Secretary or his delegate, if during the period described in subsection (c) (1) (A), the taxpayer pays wages (as defined in section 50B (b)) to an employee with respect to whom work incentive pro-gram expenses are taken into account under subsection (a) which are less than the wages paid to other employees who perform com-parable services, the tax under this chapter for the taxable year in which such wages are so paid shall be increased by an amount (determined under such regulations) equal to the credits allowed under section 40 for such taxable year and all prior taxable years attributable to work incentive program expenses paid or incurred with respect to such employee, and the carrybacks and carryovers under subsection (b) shall be properly adjusted. “(2) Special rule—Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit allowable under subpart A. “SEC. 50B. DEFINITIONS; SPECIAL RULES. “(a) Work Incentive Program Expenses—For purposes of this subpart, the term ‘work incentive program expenses’ means the wages paid or incurred by the, taxpayer for services rendered during the first 12 months of employment (whether or not consecutive) of employees who are certified by the Secretary of Labor as— “(1) having been placed in employment under a work incentive program established under section 432(b) (1) of the Social Security Act, and “(2) not having displaced any individual from employment. “(b) Wages—For purposes of subsection (a), the term ‘wages’ means only cash remuneration (including amounts deducted and withheld). “(c) Limitations— “(1) Trade or business expenses—No item shall lie taken into account under subsection (a) unless such item is incurred in a trade or business of the taxpayer. “(2) Reimbursed expenses—No item shall be taken into account under subsection (a) to the extent that the taxpayer is reimbursed for such item. “(3) Geographical limitation—No item shall be taken into account under subsection (a) with respect to any expense paid or incurred by the taxpayer with respect to employment outside the United States. “(4) Maximum period of training or instruction—No item with respect to any employee shall be taken into account under subsection (a) after the end of the 24-month period beginning with the date of initial employment of such employee by the taxpayer. “(5) Ineligible individuals.— No item shall be taken into account under subsection (a) with respect to an individual who— “(A) bears any of the relationships described in paragraphs (1) through (8) of section 152(a) to the taxpayer, or, if the taxpayer is a corporation, to an individual who owns, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation (determined with the application of section 267(c)), 85 Stat. 557 “(B) if the taxpayer is an estate or trust, is a grantor, beneficiary, or fiduciary of the estate or trust, or is an individual who bears any of the relationships described in paragraphs (1) through (8) of section 152(a) to a grantor, beneficiary, or fiduciary of the estate or trust, or “(C) is a dependent (described in section 152(a) (9)) of the taxpayer, or, if the taxpayer is a corporation, of an individual described in subparagraph (A), or, if the taxpayer is an estate or trust, of a grantor, beneficiary, or fiduciary of the estate or trust. “(d) Subchapter S Corporations—In case of an electing small business corporation (as defined in section 1371)— “(1) the work incentive program expenses for each taxable year shall be apportioned pro rata among the persons who are shareholders of such corporation on the last day of such taxable year, and “(2) any person to whom any expenses have been apportioned under paragraph (1) shall be treated (for purposes of this sub-part) as the taxpayer with respect to such expenses. “(e) Estates and Trusts—In the case of an estate or trust— “(1) the work incentive program expenses for any taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each, “(2) any beneficiary to whom any expenses have been apportioned under paragraph (1) shall be treated (for purposes of this subpart) as the taxpayer with respect to such expenses, and “(3) the $25,000 amount specified under subparagraphs (A) and (B) of section 50A(a) (2) applicable to such estate or trust shall be reduced to an amount which bears the same ratio to $25,000 as the amount of the expenses allocated to the trust under paragraph (1) bears to the entire amount of such expenses. “(f) Limitations With Respect to Certain Persons—In the case of— “(1) an organization to which section 593 applies, “(2) a regulated investment company or a real estate investment trust subject to taxation under subchapter M (section 851 and following), and “(3) a cooperative organization described in section 1381 (a), rules similar to the rules provided in section 46(d) shall apply under regulations prescribed by the Secretary or his delegate. “(g) Cross Reference— “For application of this subpart to certain acquiring corporations, see section 381(c)(24).” (c) Technical and Clerical Amendments— (1) The table of subparts for part IV of subchapter A of chapter 1 is amended by adding at the end thereof the following: “Subpart C. Rules for computing credit for expenses of work incentive programs.” (2) The table of sections of subpart A of part IV of subchapter A of chapter 1 is amended by striking out the last item and inserting in lieu thereof the following: “Sec. 40. Expenses of work Incentive programs. “Sec. 41. Contributions to candidates for public office. “Sec. 42. Overpayments of tax. (3) Section 381(c) (relating to items taken into account in certain corporate acquisitions) is amended by adding at the end thereof the following new paragraph: 85 Stat. 558 “(24) credit under section 40 for work incentive program expenses.—The acquiring corporation shall take into account (to the extent proper to carry out the purposes of this section and section 40, and under such regulations as may be prescribed by the Secretary or his delegate) the items required to be taken into account for purposes of section 40 in respect of the distributor or transferor corporation.” (4) Section 56(a) (2) (relating to imposition of minimum tax for tax preferences) is amended— (A) by striking out “and” at the end of clause (ii), (B) by striking out and” at the end of clause (iii) and inserting in lieu thereof a comma, and (C) by inserting after clause (iii) the following new clauses: “(iv) section 40 (relating to expenses of work incentive program), and “(v) section 41 (relating to contributions to candidates for public office); and”. (5) Section 56(c) (1) (relating to tax carryovers) is amended— (A) by striking out “and” at the end of subparagraph (B), (B) by striking out “exceed” at the end of subparagraph (C), and (C) by inserting after subparagraph (C) the following new subparagraphs: “(D) section 40 (relating to expenses of work incentive program), and “(E) section 41 (relating to contributions to candidates for public office), exceed”. (d) Statutes of Limitations and Interest Relating to Work Incentive Credit Carrybacks— (1) Assessment and collection—Section 6501 (relating to limitation on assessment and collection) is amended by adding at the end thereof the following new subsection: “(o) Work Incentive Program Credit Carrybacks.—In the case of a deficiency attributable to the application to the tax payer of a work incentive program credit carryback (including deficiencies which may be assessed pursuant to the provisions of section 6213(b) (2)), such deficiency may be assessed at any time before the expiration of the period within which a deficiency for the taxable year of the unused work incentive program credit which results in such carryback may lie assessed, or, with respect to any portion of a work incentive program credit carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year, at any time before the expiration of the period within which a deficiency for such subsequent taxable year may be assessed.” (2) Credit or refund—Section 6511(d) (relating to limitations on credit or refund) is amended by adding at the end thereof the following new paragraph: “(7) Special period of limitation with respect to work incentive program credit carrybacks. “(A) Period of limitation.—If the claim for credit or refund relates to an overpayment attributable to a work incentive program credit carryback, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be that period which ends with the expiration of the 15th day of the 40th month (or 39th month, in the case of a corporation) following the end of the taxable year of the unused work incentive program credit which results in such carry-85 Stat. 559back (or, with respect to any portion of a work incentive pro-gram credit carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year, the period shall lie that period which ends with the expiration of the 15th day of the 40th month, or 39th month, in the case of a corporation, following the year of such taxable year) or the period prescribed in subsection (c) in respect of such taxable year, whichever expires later. In the case of such a claim, the amount of the credit or refund may exceed the portion of the tax paid within the period provided in subsection (b) (2) or (c), whichever is applicable, to the extent of the amount of the overpayment attributable to such carryback. “(B) Applicable rules—If the allowance of a credit or refund of an overpayment of tax attributable to a work incentive program credit carryback is otherwise prevented by the operation of any law or rule of law other than section 7122, relating to compromises, such credit or refund may be allowed or made, if claim therefor is filed within the period provided in subparagraph (A) of this paragraph. In the case of any such claim for credit or refund, the determination by any court, including the Tax Court, in any proceeding in which the decision of the court has become final, shall not be conclusive with respect to the work incentive program credit, and the effect of such credit, to the extent that such credit is affected by a carryback which was not in issue in such proceeding.” (3) Interest on underpayments—Section 6601(e) (relating to income tax reduced by carryback or adjustment for certain unused deductions) is amended by adding at the end thereof the following new paragraph: “(4) Work incentive program credit carryback.—If the credit allowed by section 40 for any taxable year is increased by reason of a work incentive program credit carryback, such increase shall not affect the computation of interest under this section for the period ending with the last day of the taxable year in which the work incentive program credit carryback arises, or, with respect to any portion of a work incentive program carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year, such increase shall not affect the computation of interest under this section for the period ending with the last day of such subsequent taxable year.” (4) Interest on overpayments—Section 6611(f) (relating to refund of income tax caused by carryback or adjustment for certain unused deductions) is amended by adding at the end thereof the following new paragraph: “(4) Work incentive program credit carryback.—For purposes of subsection (a), if any overpayment of tax imposed by subtitle A results from a work incentive program credit carryback, such overpayment shall be deemed not to have been made prior to the close of the taxable year in which such work incentive pro-gram credit carryback arises, or, with respect to any portion of a work incentive program credit carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year, such overpayment shall be deemed not to have been made prior to the close of such subsequent taxable year.” 85 Stat. 560 (e) Tentative Carryback Adjustments— (1) Application for adjustment—Section 6411 (relating to quick refunds in respect of tentative carryback adjustments) is amended— (A) by striking out “or unused investment credit” each place it appears in such section and inserting in lieu thereof “unused investment credit, or unused work incentive program credit”, (B) by inserting after “section 46(b),” in the first sentence of subsection (a) “by a work incentive program carryback provided in section 50A(b),”, and (C) by inserting after “investment credit carryback” in the second sentence of subsection (a) “or a work incentive pro-gram carryback”. (2) Tentative carryback adjustment assessment period—Section 6501 (m) (relating to tentative carryback adjustment period) is amended— (A) by striking out “or an investment credit carryback” and inserting in lieu thereof “an investment credit carryback, or a work incentive program carryback”, and (B) by striking out “(h) or (j)” each place it appears and inserting in lieu thereof “(h), (j), or (o)”. (f) Effective Date—The amendments made by this section shall apply to taxable years beginning after December 31, 1971.