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IRS Guides On Professional Employer Organization Status

by Scott Hamilton,, Washington

04 January 2017

In Revenue Procedure (RP) 2017-14, the Internal Revenue Service (IRS) has released guidance on the requirements that US business entities must satisfy to maintain their certification as Professional Employer Organizations (PEOs).

PEOs provide human resource services under which employers can outsource various payroll administration and tax reporting responsibilities, such as the administration of employee benefits; payroll and workers' compensation; pension accounting arrangements; recruiting; and training and development. Up to three million taxpayers are covered by a PEO arrangement.

Under a legislative requirement enacted in late 2014, the IRS was required to establish a voluntary certification program for PEOs. The effective start date for certification was January 1, 2017.

As part of the program, among other requirements, a certified PEO (CPEO) applicant must pass background and tax compliance checks; secure an approved surety bond; satisfy financial review requirements; provide quarterly assertions and attestations regarding federal employment tax compliance; and comply with the terms of any service agreements with customers.

In addition to the requirements that must be satisfied to maintain certification, procedures relating to the suspension and revocation of a PEO's certification, and to the voluntary termination of its status, are now provided by RP 2017-14.

To maintain certification, for example, a CPEO must provide a properly completed and executed online annual verification 30 days before the anniversary of the date on which the CPEO's certification became effective; pay a USD1,000 user fee; submit to an IRS investigation as to the accuracy of statements and representations made by a CPEO (through, for example, tax compliance, professional experience, and credit history checks); and continue to post a bond.

In addition, a CPEO must provide a copy of its annual audited financial statements, together with the unqualified opinion of a certified public accountant that those statements are presented fairly and in accordance with generally accepted accounting principles.

The IRS has stressed that RP 2017-14 may be updated periodically to improve CPEO program procedures, and that it still welcomes comments on the procedure and the program's administration.

TAGS: compliance | tax | business | tax compliance | law | accounting | payroll | Internal Revenue Service (IRS) | tax authority | United States | standards | regulation | services

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