IRS issues interim guidance on CPEOs in response to comments


The IRS has issued interim guidance on the process of seeking certification as Certified Professional Employer Organizations (CPEOs). Temporary and proposed regulations under Code Sec. 7705 were recently issued (T.D. 9768, I.R.B. 2016-21, 862; NPRM REG-127561-15, I.R.B. 2016-21), as well as a revenue procedure (Rev. Proc. 2016-33, I.R.B. 2016-25, 1034), which provide detailed procedures for application to be a CPEO.

The IRS and the Treasury Department received comments indicating that certain provisions of the regulations and the revenue procedure might limit the ability of persons to apply for and maintain certification as a CPEO. This includes (1) the requirement that a CPEO or an applicant provide a CPA opinion on its financial statements and its method of computing taxable income, (2) the requirement that a CPEO or an applicant submit a written declaration of an independent CPA addressing representation of the CPEO by the CPA, and (3) the requirement that the CPEO not be a disregarded entity. The new guidance provides modifications to these requirements that will be reflected in the final regulations.

For persons submitting applications during the program’s first year, the audited financial statements that are required as part of the application for certification might not include certain information because the financial statements related to fiscal years that ended around the time the regulations were issued. The new notice provides transition relief for meeting the audited financial statement requirements.

Finally, the notice extends until September 30, 2016, the deadline by which a complete and accurate application for certification must be submitted in order to be eligible for an effective date of certification of January 1, 2017. (Notice 2016-49, IRB 2016-34, August 22, 2016.)