Week in Insights: Work Opportunity Credit Never Really Worked

The work opportunity tax credit expired at the end of last year, though its history indicates it could come back. Designed to subsidize the hiring of disadvantaged workers, the WOTC assumes that if the cost of labor is lowered for a certain class of workers, firms will hire from that group more readily. That seems not to have operated as intended.

A working paper from the National Bureau of Economic Research suggests Congress may have been subsidizing a fiction. The paper finds that employers weren’t reaching deeper into the disadvantaged labor pool—it estimates that about 97% of subsidized hires would have been hired even without the credit. This would mean the WOTC was more of a windfall than a hiring incentive for employers.

One possible explanation the paper’s authors float is that many firms weren’t collecting WOTC eligibility data at the job application stage. Of those that did, many kept that information away from hiring managers. The concern appeared to be legal risk. Managers may have worried that explicitly screening for WOTC eligibility could expose them to discrimination claims.

If Congress revives the WOTC, it should remedy that disconnect. A simple, obvious reform would be to reduce the legal uncertainty surrounding WOTC eligibility in hiring. That shouldn’t require sweeping immunity from discrimination claims but would need some guardrails.

Standardized screening forms, Equal Employment Opportunity Commission-backed guidance with a related safe harbor provision, or even a rebuttable presumption protecting well-documented WOTC-based hiring decisions would go a long way toward making the credit serve its intended purpose. Otherwise, a resurrected credit would continue to be a mere cash transfer to employers.

—Andrew Leahey

A resurrected work opportunity tax credit may not function as intended.

Photographer: John Moore/Getty Images

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined a proposed California billionaire tax, VAT consequences of “zero-person” companies operated by AI, and more.

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By All Accounts

The standoff between the Pentagon and Anthropic has put a spotlight on how the government uses artificial intelligence to monitor Americans—and it demands that lawmakers are truly stewards of our checks and balances system, Danny Werfel argues in his latest By All Accounts column.

“This means establishing guardrails for what will best serve the country far into our future,” Danny writes, rather than basing decisions on which political party has power. AI is here to stay, so Congress should think carefully about how to govern this technology. Read More

Insights

New Covid Tax Relief Cases Spur Wave of IRS Interest Challenges

Recent US Tax Court and US Court of Federal Claims decisions are prompting taxpayers to argue that the IRS should suspend interest on tax deficiencies during the Covid-19 pandemic from early 2020 through mid-2023 or pay additional overpayment interest because the interest-limiting provisions are turned off.

Latin America Aims for Tax Stability to Promote Growth, Business

Pro-business tax policies being introduced in Latin American countries indicate that the idea of offering attractive tax incentives is gaining traction among policy makers craving higher growth and improved tax collections.

IRS Win in Micro-Captive Insurance Case Not End of Legal Road

The IRS can claim a temporary victory that allows it to require reporting by micro-captive insurance arrangements it deems potentially tax abusive, but a federal court in Texas may favor claims that the final captive regulations are arbitrary and capricious.

New Zealand’s Consumption Tax Takes ‘Best in Class’ Place

New Zealand’s goods and services tax is regarded as an exemplary consumption tax model, with several features that make it efficient and adaptable.

Companies’ Tariff Refund Calculus May Change With These Factors

Companies should consider these lesser-known scenarios impacting tariff refunds, including that the likely addition of interest will spur the government to speed up the process.

Ensuring Tax Credit Access Should Be Higher Priority for States

More states should follow Maryland and Colorado’s lead by increasing investment in outreach and technology that helps families claim tax credits.

‘Zero-Person’ Companies Operated by AI Would Create VAT Tensions

What happens if a company has no people performing work and no human managers taking operational decisions? From a tax perspective, this raises important questions, including on VAT.

California Can’t Afford the Reckless Gamble of a Billionaire Tax

The proposed California Billionaire Tax Act is a profoundly ill-conceived measure that threatens to inflict more damage than it promises relief. If enacted, it would introduce radical complexity, guarantee legal chaos, and virtually assure an exodus of high-wealth residents.

Young Lawyers Can Do These Three Things to Set Themselves Apart

Junior lawyers looking to move up in their careers should use a few strategies to set themselves apart: Help solve others’ problems, differentiate themselves, and be social while staying professional.

Five Questions With Jones Day Partner-in-Charge Colleen Laduzinski

Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. Today we feature Colleen Laduzinski, who is the partner-in-charge of Jones Day’s Boston office.

Technically Speaking

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Georgia’s gas tax holiday is “affordability theater” that will end up hurting consumers given the realities of supply and demand, Andrew Leahey argues in his latest Technically Speaking column.

Refundable tax credits would be a smarter way to address rising gas prices, Andrew says, adding that lawmakers also should invest more in public transit, coordinate with large employers on remote work policies, and openly confront the potential for a fuel crunch. Read More

News Roundup

Church Political Speech Leeway Shifts to IRS After Court Ruling

A push by the Trump administration for a court’s blessing to allow political endorsements by churches now falls directly into the hands of the IRS after a federal court dismissed an agreement allowing more politics in the pulpit.

New Jersey Weighs Hiking Sportsbook, Sales Tax During World Cup

Top New Jersey Democrats are considering temporarily hiking taxes on revenue earned from online sports betting during the World Cup tournament this summer to help pay for security needed to host the five-week soccer event.

States Update Tax Rule to Reflect Revenue from Streaming

A group of state tax administrators endorsed an overhaul of decades-old model tax rules for apportioning broadcasters’ income across several states, pulling streaming services and on-demand programming into the rule for the first time.

Backlogs, Job Holes Plague IRS in Tax Season After DOGE Cuts

The IRS is undertaking its first full filing season since DOGE slashed a quarter of the agency’s 100,000-person staff. IRS employees have challenges: a backlog of returns, a shortage of employees, and HR and IT workers processing returns.

Good Counsel

New moms who are on the fence about leaving the workforce should hang in there. Women who take a long hiatus face potential long-term career and financial consequences, writes Ellen Yang in the latest Good Counsel column.

But that doesn’t make it easy. “Don’t beat yourself up,” a fellow in-house counsel mom told Ellen. “You will only truly learn this by living it and connecting with some similarly situated folks. Release yourself from the pressure of being a perfect parent and everything gets a little easier.” Read More

Career Moves

Morgan Lewis Taps Three-Partner Team for Its New York Office

Julia Medynskaya, Daniel Rosen, and Brendan Sponheimer joined Morgan Lewis as partners in its tax and transfer pricing team in New York, the firm announced Monday. They join from Baker McKenzie.

Hunton Promotes Jake Johnson, Tyler Richardson to Counsel

Hunton Andrews Kurth promoted Jake Johnson and Tyler Richardson to counsel, the firm announced Monday.

Nelson Mullins Hires Els as Estate Planning and Trusts Partner

Anna Els joined Nelson Mullins Riley & Scarborough as a partner on its estate planning and trusts team and will relocate to the firm’s Naples, Fla., office this summer, the firm announced Monday.

Clifford Chance Adds Adriana Zhan to New York Tax Group

Adriana Zhan joined Clifford Chance as a partner in its tax, pensions, and employment group in New York, the firm announced Wednesday.

Miller Johnson Brings Amber Soler to Tax and Estate Practice

Amber Soler joined Miller Johnson as counsel in its private client, probate, and estate planning practice in Grand Rapids, Mich., the firm announced Wednesday.

Jones Walker Adds Herrera, Levine to Tax Practice in Miami

Pedro Herrera and Madison Levine joined Jones Walker as partner and special counsel, respectively, in the tax practice group and employee benefits team in Miami, the firm announced Wednesday.