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Credits & Incentives Compliance Best Practices

By: True Partners Consulting Staff |

Economic development incentives are now a vital piece of many companies’ strategic operation plans.  However, once the incentives are finalized, many companies find themselves unable to monetize their incentives because of compliance issues.  Incentives compliance can be time-consuming and documentation-heavy, preventing some companies from fully utilizing the benefits. But savvy incentives holders know that up-front time investments and watchful monitoring can pay dividends throughout an incentives period.

Tips for Effective Incentives Compliance

Keep a Binder of all Incentive Agreements
As the incentive process is finalized, the company receiving incentives should compile all documentation (including correspondence, applications, agreements, and statutes and regulations) required for the program and store in a hardcopy binder and an electronic folder.  This repository of information serves as a ready-reference tool during incentive compliance, or should issues arise during the incentives period.

List Compliance Tasks Outlined in Agreement/Contract
Create a list that details all compliance tasks and deadlines for each incentive.  Also, this list should note the events which “trigger” incentive payments, and incentives with multiple compliance tasks. Using a calendar or other mechanism, companies should keep track of each individual incentive filing requirement, whether it be monthly, quarterly, or annually, in order to maintain proper and timely compliance.

Keep Blank Templates of all Program Forms, Schedules, Reports, etc. 
Obtain all incentive program forms, schedules, and reporting templates related to the incentives received.  States’ economic development agencies or departments of revenue may post forms and schedules on its websites.  Creating a master compliance reference file is especially useful when introducing new personnel to incentive compliance and to managing long-term projects.

Understand How and Where Incentives are Utilized and Monitor Benefit Received 
In order to properly budget time, the company should understand each incentive’s compliance requirements. Companies receiving tax credits should note the appropriate tax forms and special schedules required for each filing and against which taxes the credits may be applied.  Some jurisdictions require a CPA’s review to verify agreement requirements while others ask for the completion of one simple form.  Programs such as the New York Excelsior Jobs Program require multiple forms at various stages of the project, including an Initial Employment Report in the first year, then Annual Performance Reports to monitor the company’s yearly activities. It is also imperative to maintain a list of carryforwards available as outlined in the incentive agreement. Companies should develop a schedule in order to track the available carryforwards and the term of the carryforwards for future compliance to ensure full benefits are received.

Track Project Progress, Incentive Trigger Events and Compliance Due Dates
Companies should develop a mechanism to track the project’s progress. By estimating and tracking incentive “trigger” dates, a company will know when and which compliance forms to submit for each incentive awarded. It is important for companies to develop these trigger lists or compliance calendars as each project progresses instead of waiting until the project is completed, as some state programs require progress reports or other annual compliance prior to the completion of a project.

Keep Economic Developers Informed of any Material Changes
Unintentional, but material, changes to development projects are inevitable.  However, you can help minimize ramifications to incentive deals by staying on the forefront of communication with economic developers.  In fact, establishing an on-going, congenial business relationship with economic developers could encourage them to be a more amenable advocate when you need assistance to overcome a significant hurdle.    So, just as a company tracks the project progress to properly trigger incentives, companies can avoid surprise defaults by paying special attention to the situation, and keep relevant jurisdictions informed to potentially preserve incentive value.

If Utilizing Training Incentives, Create a Robust, Contemporaneous Tracking System
Although maintaining adequate records for compliance is important in monetizing any negotiated incentive, it is even more crucial in complying with training incentive programs.  To maintain adequate compliance records and receive the full benefit without wasting resources, companies should create a robust and contemporaneous internal training tracking system that coincides with the programs’ reporting requirements.  Illinois’ Employer Training Investment Program requires monthly reporting, while the Kansas Industrial Training allows for quarterly reporting of training expenses.   Training compliance may necessitate documentation of trainer/trainee wages, sign-in sheets documenting employee participation, and direct training expenses.

Communicate to Other Departments and Inform Key Personnel of Incentives Awarded
Incentives compliance requires advanced planning.  If many departments contribute detailed information (payroll data, fixed asset documentation, etc.), advanced communication may provide a smoother flow of information between departments.  For example, the state of Florida has an annual filing in January for many of its incentive programs.  This January filing coincides with a number of critical business activities—financial reporting and other regulatory filings—ultimately lowering the incentives compliance priority for those departments without primary responsibility for preparing the compliance.

Compliance Ownership by a Point Person and Sponsorship by a Decision-Maker 
Incentives are typically negotiated by the top tier of management, while the compliance may be performed by individuals not part of the initial incentives negotiation.  The ownership and sponsorship of incentives compliance should be articulated in all inter-departmental communications regarding timing and data requests to ensure participation by necessary departments.

Have a Succession Plan 
Many compliance processes fall by the wayside as company personnel change.  Notice provisions in agreements should be addressed to specific titles in the necessary departments, not individual employee names.  This reduces the potential for incentives compliance to fall through the cracks in case of employee turnover.

True Partners Consulting’s Credits and Incentives Practice can assist your business with all aspects of incentives compliance.  Our team of knowledgeable professionals provides advice and performs services to determine your specific reporting requirements.  By implementing these tips into incentives compliance best practices, companies can mitigate the risk of default or clawback liabilities, while increasing the potential to fully monetize their negotiated incentive values.   If you have any questions or need help in maximizing your awarded incentives, please contact Minah Hall.