Federal charter controlled HIRE Act credit eligibility

Plain-English summary

Chief Counsel advised that a congressionally created employer could claim the HIRE Act payroll tax credit because its governing federal statute expressly said it was not a federal instrumentality. Section 3111(d) excluded the United States and its instrumentalities from the definition of a qualified employer. The advice reasoned that an authorizing statute controls when it directly specifies an entity's federal instrumentality status. Only when federal law is silent should the IRS apply the factors in Revenue Ruling 57-128.

Ruling snapshot

• Question: Was the congressionally created employer barred from the HIRE Act credit as a federal instrumentality?
• Outcome: Advice given that it was not a federal instrumentality for this purpose
• Key authorities: IRC § 3111(d)(2)(A); Rev. Rul. 57-128; Chief Counsel Memorandum AM2009-002

Full text (IRS public release)

ID: CCA_2013070210440443
Office: ----------------------------
UILC: 3111.00-00
Number: 201418053
Release Date: 5/2/2014
From: -----------------------
Sent: Tuesday, July 02, 2013 10:44:05 AM
To: ---------------------------------------
Cc: ---------------------
Subject: Hire Act Credit matter ---------

This email is in response to your request for assistance. The -------------------------- -------------------------------------------- claimed the Hire Act Credit on its 2d, 3d and 4th quarter ------ Forms 941. According to the information provided, Exam has asked whether the taxpayer is a federal entity and therefore not entitled to the credit. The Taxpayer contends it is a not a federal instrumentality and is ------------ ----------------------------- and therefore is eligible for the credit.

A "qualified employer" is eligible for the credit. Section 3111(d)(2)(A) of the Code defines qualified employer as any employer other than the United States, any State, or any subdivision thereof, or any instrumentality of the foregoing.

The taxpayer was created by an act of Congress in --------------------------------------- -------------------------------------------------------------------------------(as well as the regulations thereunder) states that officers and employees of ------ shall not be considered officers or employees of the United States and ------ shall not be considered a department, agency, or instrumentality of the Federal Government.

In memorandum AM2009-002 (released Feb. 6, 2009) (attached) addressing the employment status of federal workers hired under personal service contracts, CC:TEGE has taken the position that where an authorizing federal statute states how workers are to be classified for federal tax purposes, the authorizing statute controls. Where the authorizing statute or another federal statute does not specify the tax treatment of the worker, the Internal Revenue Code (Code) applies, and classification of the worker will be determined by application of the Code’s common law test to the specific facts and circumstances. We believe we should take a similar position with respect to entities related to the Federal government. That is, that where an authorizing statute specifies an entity's federal instrumentality status, the authorizing statute controls. Where the authorizing statute or another federal statute does not specify the entity's status, the Internal Revenue Code (Code) applies, and the entity's federal 2

instrumentality status will be determined by application of the factors in Rev. Rul.
57-128 to the specific facts and circumstances.

Therefore, we believe that ------ should not be treated as a federal instrumentality
for purposes of its eligibility to claim the Hire Act Credit.