Related Entities
Rev. Proc. 2016-33, section 1.01(10)
(10) The term “related entity” means any person described in § 301.7705- 1T(b)(12).
Final and Temporary Regulations, §301.7705-1T(b)(12)
(12) Related entity means, with respect to a CPEO applicant or CPEO, any person that meets one or more of the following criteria:
(i) The person is a member of a controlled group of which the CPEO applicant or CPEO is also a member. For purposes of this paragraph (b)(12)(i), controlled group has the meaning given to such term by sections 414(b) and (c) and the regulations thereunder, except that—
(A) With respect to a person that is not a provider of employment-related services ‘‘more than 50 percent’’ will be substituted for ‘‘at least 80 percent’’ each place it appears in section 1563(a) (which is cross-referenced in section 414(b)) and § 1.414(c)–2 of this chapter); and
(B) With respect to a person that is a provider of employment-related services, ‘‘more than 5 percent’’ will be substituted for ‘‘at least 80 percent’’ each place it appears in section 1563(a) and § 1.414(c)–2 of this chapter; or
(ii) The person is a provider of employment-related services and—
(A) A majority of the directors or a majority of the officers (as described in paragraph (b)(13)(ii) of this section) of the CPEO applicant or CPEO are directors or officers (as described in paragraph (b)(13)(ii) of this section), respectively, of the provider of employment-related services; or
(B) An individual is a responsible individual of both the provider of employment-related services and the CPEO applicant or CPEO by reason of paragraph (b)(13)(i) of this section.
Preamble to Final and Temporary Regulations, section 1(b)
b. Related Entity
…The temporary regulations define a related entity of a CPEO applicant or CPEO as including any person that is a member of a controlled group (within the meaning of sections 414(b) and (c) and the regulations thereunder, with two adjustments) of which the CPEO is also a member. Section 414(b) incorporates by reference the controlled group definitions in section 1563. Likewise, the regulations prescribed under section 414(c)—§§ 1.414(c)-2 and 1.414(c)-3—rely on principles that are substantially similar to the controlled group definitions in section 1563. However, with respect to persons that are not providers of employment-related services, the temporary regulations substitute ‘‘more than 50 percent’’ for ‘‘at least 80 percent’’ in each place the term appears in section 1563(a) and § 1.414(c)-2. For persons that are providers of employment-related services, the temporary regulations substitute ‘‘more than 5 percent’’ for ‘‘at least 80 percent’’ in each place the term appears in section 1563(a) and § 1.414(c)-2. The temporary regulations define a provider of employment-related services as a person that provides payroll or other employment tax administration and compliance services to clients, including, but not limited to, collecting, reporting, and paying employment taxes with respect to wages or compensation paid by the provider of employment-related services to individuals performing services for the clients. A provider of employment- related services includes, but is not limited to, a PEO and a CPEO.
A related entity of a CPEO applicant or CPEO also includes any provider of employment-related services if a majority of the directors or a majority of the officers of the CPEO applicant or CPEO are also directors or officers, respectively, of the provider of employment-related services. Finally, a related entity includes any provider of employment-related services with an owner who is a responsible individual of both the provider of employment- related services and the CPEO applicant or CPEO by virtue of the individual’s ownership percentage.