IRS issues guidance on certified professional employer status

The IRS has released guidance describing the procedures a certified professional employer organization (CPEO) must follow and the requirements it must satisfy to maintain its certification. The guidance also provides procedures relating to the suspension and revocation of CPEO certification, voluntary termination of CPEO status and certain transition relief to CPEOs with an effective date of certification of January 1, 2017, that receive notice of certification after that date. The new guidance consolidates into one place the rules articulated in the temporary and proposed regulations (T.D. 9768, IRB 2016-21, 862; NPRM REG-127561-15, IRB 2016-21, 991, as well as certain applicable requirements of Rev. Proc. 2016-33, IRB 2016-25, 1034 and modified by Notice 2016-49, IRB 2016-34, 265. The procedures are effective December 29, 2016.

Comment

A professional employer organization, also referred to as an employee leasing company, is an organization that enters into an agreement with a client to perform some or all of the federal employment tax withholding, reporting and payment functions related to the client’s employees. The IRS has established a voluntary certification program for such organizations; being a CPEO has certain federal employment tax consequences for both the CPEO and its clients. The requirements for maintaining a CPEO certification include annually: (1) filing an online verification with the information and documents required by the regulations, (2) paying a $1,000 user fee, (3) submitting to a background and tax compliance check, (4) posting a bond and (5) submitting audited financial statements. A CPEO is also required to comply with a number of reporting requirements to maintain its status.

Comments Requested

The IRS has requested comments on the procedures and the administration of the CPEO program. Comments may be submitted electronically to Notice.Comments@irscounsel.treas.gov. Please include “Rev. Proc. 2017-14″ in the subject line of any electronic communications. (IRS Rev. Proc. 2017-14, I.R.B. 2017-03, January 17, 2017.)

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