Empowerment Zone and Renewal Community Tax Incentives Create Valuable HUD-IRS Partnership

A Government Accountability Office (GAO) report issued in early 2004 sparked a partnership between HUD and the IRS that continues today. In March 2004, GAO issued report GAO-04-306 on the Empowerment Zone and Renewal Community program and its accompanying tax incentives, entitled, Federal Revitalization Programs Are Being Implemented, but Data on the Use of Tax Benefits Are Limited. The report provides background information on the Empowerment Zone and Renewal Community program and explains how HUD began implementing it in 1994. The report notes there are data at the national level that show the value of employment credits that business owners claim by operating in Empowerment Zones and Renewal Communities. The report adds, however, that there are no data on the value of claims for individual Empowerment Zones and Renewal Communities. GAO recommends in the report that, in order to measure the use of tax incentives in individual communities, HUD and IRS should collaborate to identify what data on tax incentive claims should be collected, determine how to collect it, and determine the cost-effectiveness of collecting it.

In response to the GAO report, HUD’s Office of Community Renewal (OCR) and IRS formed a partnership that has communicated regularly and made important contributions to the Empowerment Zone and Renewal Community program. Representatives of OCR and IRS began meeting in 2004 to discuss ways to collect data on tax incentive claims in individual Empowerment Zones and Renewal Communities. They reviewed IRS Tax Form 8844 to determine if IRS could modify it to help collect more localized data on employment credit claims. IRS concluded there was no simple way to modify this form without adding a substantial cost and burden to the taxpayer.

OCR and the members of the IRS team agreed to study other means to collect local data on tax incentive claims. The IRS representatives determined later they could import geographic information from HUD, such as the Census tract numbers where HUD designated Empowerment Zones and Renewal Communities, and IRS could provide data on employment credit claims in these tracts. Further, the IRS representatives noted they could provide data for the past 10 years, which would help illustrate the growth in employment credit claims over time.

The IRS team worked expediently to provide relevant data to HUD showing the value of employment credits that individual business owners and corporations have claimed for work performed in the Empowerment Zone and Renewal Community Census tracts. IRS provided these data by year, from 1997 through 2006, and for different levels of geography, from state levels down to the levels of individual Empowerment Zones and Renewal Communities.

HUD found these data very valuable and OCR used them to calculate the impact of the tax incentives on employment. OCR used the data to determine that during 2006 more than 240,000 jobs for Empowerment Zone and Renewal Community residents generated millions of dollars in Empowerment Zone and Renewal Community employment credits. The total dollar amount of the credits claimed by the business owners in the 70 distressed communities was $511 million in that year alone.

IRS intends to continue to provide data to HUD on Empowerment Zone and Renewal Community employment credit claims, thus OCR will continue to study how these important tax incentives for businesses in these communities influence job creation and retention.

HUD and IRS have found other ways also to work together that have helped to strengthen the Empowerment Zone and Renewal Community program. Since 2006, representatives of OCR and IRS have joined together in a conference call semi-monthly to discuss tax incentive data and to offer strategies to educate business owners and their tax professionals on the $11 billion package of Empowerment Zone and Renewal Community tax incentives. As a result of this partnership, IRS has made substantial contributions since 2006 to help OCR to market the EZ and RC tax incentives to local businesses, which include:

• Providing experts in tax law to discuss Empowerment Zone and Renewal Community tax incentives during an October 2007 webcast, which is still available for viewers at http://www.connectlive.com/events/hud101107/.
• Making tax law experts available each year to join conference calls with leaders of the Empowerment Zones and Renewal Communities to answer questions and provide updates on changes to laws affecting the tax incentives for businesses in these areas.
• Arranging for OCR to brief representatives of small business groups and tax practitioner associations on the Empowerment Zone and Renewal Community program.
• Briefing the IRS field stakeholder liaisons so they effectively educate business owners and other groups on the tax incentives in the 70 Empowerment Zones and Renewal Communities.

OCR is grateful for the partnership with IRS and intends to continue to work with that agency and with the new administration to create new jobs and business opportunities in the Empowerment Zones and Renewal Communities. OCR will continue to work with IRS to gather data to measure the growing popularity of Empowerment Zone and Renewal Community tax incentives that are fostering economic development and influencing the creation and retention of jobs in many of the country’s most challenged communities.