Hiring Incentives to

Restore Employment
(HIRE) Act
 APRIL 2010

Hiring Incentives to Restore

Employment (HIRE) Act
An Overview of the Provisions Signed Into Law By President Obama

With all the focus on Health Care legislation, not everyone got the message that on March 18, 2010, President Obama signed into
law the Hiring Incentives to Restore Employment Act (“HIRE”). While intended to spur job growth via tax breaks to businesses that
add employees and invest in equipment, it also (among other things) imposes new disclosure requirements related to foreign
investments. An overview of the more widely-applicable provisions follows. For more detailed information (and we do mean detailed),
readers can refer to these official sources:

• The text of H.R. 2847

• The Joint Committee on Taxation’s technical explanation

HIRING AND RETENTION INCENTIVES

Payroll Tax Forgiveness for Hiring Unemployed Workers
Eliminates the employer’s share of OASDI paid by a qualified employer attributable to wages paid to a qualified individual (starting
with the date immediately after enactment, i.e., 3/19/10) through 12/31/10, subject to minor adjustment for wages paid through
3/31/10.

“OASDI” is the old age, survivors, and disability insurance tax equal to 6.2% of covered wages up to the taxable wage base
($106,800 in 2010), providing a maximum potential benefit to the employer of approximately $6,600.

A qualified employer is any non-governmental employer (but does include public higher education institutions).

A qualified individual is anyone who (1) begins work for a qualified employer after 2/3/10 and before 1/1/11; (2) certifies by
signed affidavit that he or she was not employed for a total of 40 hours or less during the 60-day period ending on the date such
employment began; (3) is not employed to replace another employee of the employer unless such employee separated from employ-
ment voluntarily or for cause; and (4) is not a related party with respect to the employer. Coordination with the Work Opportunity
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Tax Credit (“WOTC”) - Qualified employers may not receive the WOTC with respect to wages paid to a qualified individual during
the 1-year period starting with the employee’s hire date if such wages qualify under this provision unless the employer expressly
elects to forgo the benefits of this provision for that person.

Business Credit for Retention of Certain Newly Hired Individuals in 2010

Provides a general business tax credit for each retained “qualified individual” (as defined above) who (1) is employed on any date
during the taxable year; (2) remains employed for a period of not less than 52 consecutive weeks; and (3) receives wages during
the last 26 weeks of such period that are least 80% of the wages received during the first 26 weeks of that period. The amount
of this credit is the lesser of

• $1,000 or
• 6.2% of the wages paid by the taxpayer to the retained worker during the 52 consecutive week period referred to above

The retention credit may not be carried back to a taxable year that begins prior to the date of enactment of this provision.

This provision is effective from the date of enactment (i.e., 3/18/10).

SECTION 179 EXPENSING

Extends for one year the $250,000 maximum section 179 deduction (and the $800,000 phase out limit) that would otherwise
have dropped to $125,000 (and $500,000) in the absence of this legislation.

This provision is effective for taxable years beginning after 12/31/09.

QUALIFIED TAX CREDIT BONDS

Permits tax credit bond issuers (of Clean Renewable Energy Bonds, Qualified Energy Conservation Bonds, Qualified Zone Acad-
emy Bonds, and Qualified School Construction Bonds) to elect to treat such bonds issued after 3/18/10 as Build America Bonds
and qualifying for tax credits to be paid to the issuer instead of the holders of such bonds. While primarily applicable to state and
local governments, potential purchasers of such bonds should be aware of this provision if they are considering these invest-
ments and were counting on possible credits coming to them.
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REVENUE RAISERS

FOREIGN ACCOUNT TAX COMPLIANCE

Reporting and withholding on certain foreign accounts
Adds a new chapter 4 to the Internal Revenue Code (comprising 4 new sections) that impose withholding and reporting require-
ments on persons making specified types of payments to certain foreign financial institutions and other foreign entities. The
general rules are as follows:

• The statutory withholding rate for withholdable payments to an applicable foreign financial institution or other covered
foreign entity is 30%.
• Withholdable payments generally include “(i) any payment of interest (including any original issue discount), dividends,
rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determin-
able annual or periodical gains, profits, and income, if such payment is from sources within the United States, and (ii) any
gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from
sources within the United States.” However, this term excludes any item of income that represents income connected with
the conduct of a U.S. trade or business.
• Withholding agents are those “persons, in whatever capacity acting, having the control, receipt, custody, disposal, or pay-
ment of any withholdable payment.”
• Covered foreign financial institutions are those that do not have an agreement with the U.S. Treasury for the collection,
verification, maintenance, and reporting of information about direct or indirect U.S. owners of financial accounts held by
that institution.
• Covered other foreign entities are those that are not covered “foreign financial institutions” as noted above and (1) the
beneficial owner of the payment is either that entity or another non-financial foreign entity and (2) the recipient does not
qualify for a waiver of withholding. A withholding waiver is generally available if the payee provides the withholding agent
with either (a) certification that the beneficial owner does not have substantial U.S. owners or (b) the name, address, and
taxpayer ID number of the beneficial owner. In addition, the withholding agent must not know or have reason to know that
the information provided is incorrect and must also report the above information to the IRS.

This provision is generally effective for payments made after 12/31/12.

Repeal of certain foreign exceptions to registered bond requirements

This provision actually consists of several changes related to foreign-targeted bonds and the corresponding (1) exclusion from
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withholding on, and (2) deduction of, the interest payments on those bonds if certain tests are met:

• Repeal of exception to denial of deduction for interest on non-registered bonds - Repeals the exception to the
denial of a deduction for interest on bonds not issued in registered form. As a result, interest deductions are disallowed
attributable to obligations not issued in registered form, unless (1) issued by a natural person, (2) it has a maturity of one
year or less, or (3) is not of a type offered to the public.

An obligation is considered issued in registered form if (1) it is registered with its issuer (or agent) and may only be
transferred by surrendering the old instrument and either (a) the reissuance to the new holder or (b) the issuance of a new
instrument to the new holder, (2) the right to principal and interest may only be transferred through a book entry system
maintained by the issuer (or agent), or (3) it is registered with the issuer (or agent) and may be transferred through both of
the foregoing methods.

• Repeal of treatment as portfolio interest - Repeals the portfolio interest exception to withholding on interest from
bonds that are not issued in registered form.

Portfolio interest means any interest (including OID) that is (1) paid on a registered-form obligation and for which the ben-
eficial owner has provided the U.S. withholding agent a statement certifying that the beneficial owner is not a U.S. person,
or (2) paid on a nonregistered form obligation that meets the foreign targeting requirements of the code. However, it does
not include interest received by a 10% shareholder, certain contingent interest, interest received by a controlled foreign
corporation from a related person, or certain interest received by a bank on an extension of credit.

• Dematerialized book-entry systems treated as registered form - Permits a debt obligation held through a demate-
rialized book entry system, or other specified book entry system, to be treated as being held through a book entry system
for the purpose of treating the obligation as being in registered form. A dematerialized book entry system is one that
tracks instruments (usually electronically) without the use of physical certificates.

Effective for debt obligations issued after the date which is two years after the date of enactment (i.e., starting 3/19/12).

Disclosure of information with respect to foreign financial assets

Imposes a disclosure requirement on individuals with an interest in a “specified foreign financial asset.” This requirement is
met through a statement attached to their tax return for any year in which the aggregate value of all such assets is greater than
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$50,000. “Specified foreign financial assets” are specified accounts at foreign financial institutions. However, the following
constitute such assets even if not held in an account at a financial institution: (1) stocks or securities issued by foreign persons,
(2) financial instruments or contracts held for investment issued by (or having) a non-U.S. counterparty, and (3) any interest in a
foreign entity. However, individuals are not required to disclose interests that are held in a custodial account with a U.S. finan-
cial institution. While the penalty is substantial ($10,000 plus additional amounts for continued failures, up to a maximum of
$50,000 for each applicable taxable period), the penalty may be waived if the individual can establish the failure was due to
reasonable cause and not willful neglect.

Effective for taxable years beginning after 3/18/10.

Penalties for underpayments attributable to undisclosed foreign financial assets

Adds a new 40% penalty on tax understatements related to undisclosed foreign financial assets. Applicable assets are those
subject to mandatory information reporting where the disclosure requirements were not met. Applicable understatements are
those attributable to any transaction involving such assets.

Effective for taxable years beginning after 3/18/10.

Modification of statute of limitations for significant omission of income in connection with

foreign assets
Provides for an extended, 6-year, statute of limitations period within which the IRS can assess additional tax on understated
income attributable to foreign financial assets. This provision applies if gross income in excess of $5,000 is omitted from an
income tax return and that gross income is from assets for which foreign financial asset disclosure is required.

Effective for returns filed after 3/18/10 as well as for any other return for which the assessment period has not yet expired as of
3/18/10.

Reporting of activities with respect to passive foreign investment companies (“PFICs”)

Imposes an information disclosure requirement on U.S. persons who are PFIC shareholders. A PFIC is any foreign corporation if
(1) 75% or more of the gross income of the corporation for the taxable year is passive income, or (2) the average percentage of
assets held by such corporation during the taxable year which produce passive income or which are held for the production of
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passive income is at least 50%. Passive income generally includes dividends, interest, royalties, rents, annuities, and net gains
on assets that give rise to those types of income.

Effective from 3/18/10.

Clarifications with respect to foreign trusts which are treated as having a United States beneficiary
Clarifies, for purposes of determining whether a foreign trust is treated as having a U.S. beneficiary, that amounts should be
treated as accumulated for a U.S. person’s benefit even if that person’s trust interest is contingent on a future event. Also clari-
fies that discretion to identify beneficiaries may also cause the trust to be treated as having a U.S. beneficiary. This is important
in light of disclosure requirements (as noted below).

Effective from 3/18/10.

Presumption that foreign trust has United States beneficiary

Generally creates a presumption that a foreign trust has a U.S. beneficiary if a U.S. person directly or indirectly transfers property
to a foreign trust, unless the transferor provides satisfactory information to the contrary to the IRS.

Effective for property transfers after 3/18/10.

Uncompensated use of trust property

Provides that the use of trust property, including cash, by (1) the U.S. grantor, (2) U.S. beneficiary
or (3) any U.S. person related to either of those two must be treated as a distribution to the
extent of the fair market value of the property’s use to the U.S. grantor or U.S. beneficiary, unless
the fair market value of that use is paid to the trust within a reasonable amount of time.
The provision applies to loans made and uses of property after 3/18/10.

Reporting requirement of United States owners of foreign trusts

Requires any U.S. person treated as the owner of any portion of a foreign trust to submit IRS required information and ensure
that the trust file a return of its activities and provide such information to its owners and distributees.
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Effective for taxable years beginning after 3/18/10.

Minimum penalty with respect to failure to report on certain foreign trusts

Increases the minimum penalty for failure to provide timely and complete disclosure on foreign trusts to the greater of $10,000
or 35% of the amount that should have been reported. In the case of failure to properly disclose by the U.S. owner of a foreign
trust of the year-end value, the minimum penalty would be the greater of $10,000 or 5% of the amount that should have been
reported.

Effective for notices and returns required to be filed after December 31, 2009.

Substitute dividends and dividend equivalent payments received by foreign persons treated as dividends
Treats substitute dividends and dividend equivalents as if they were U.S.-source dividends for purposes of withholding on pay-
ments to foreign persons. Substitute dividends and dividend equivalent payments are those payments that are economically the
same as dividends made with respect to the underlying stock in the context of a securities lending or sale-repurchase transac-
tion.

Effective for payments made on or after the date that is 180 days after 3/18/10 (i.e., starting 9/14/10).

DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST

Delays the availability date of the one-time election for an affiliated group’s domestic members to allocate and apportion interest
expense and a worldwide group basis for purposes of determining foreign source income in the context of the foreign tax credit.

Election may not be made before tax years beginning after 12/31/20.

TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX

Accelerates the timing of required corporate estimated tax payments due in July, August, or September of 2014, 2015, and 2019.
This provision applies to corporations with assets of at least $1 billion as of the end of the preceding year.

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Thank you for your time and continued support of the Enterprise Zone program
As always, please call if you would like to discuss any of these items further.

Your Tax Partners,

Mark G. Cook, Partner Richard A. Linder, Partner Jon Widdowson, Partner

Steven J. Cupingood, Partner David Neighbors, Partner Michael Wu, Partner
John A. Eckweiler, Partner Todd Northrup, Partner Don Leve, Partner
Dan B. Faulk, Partner Javier Ramirez, Partner
Andrew L. Gantman, Partner Thomas E. Wendler, Partner

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this
communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the
Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.
Notice: Opinions, conclusions, and other information in this message are not intended to represent recommendations or advice to you or any other
person. Each person’s circumstances are unique, and we strongly suggest you discuss your specific situation with your professional advisor before
taking any action based on the information herein or information to which this message refers.