Procedures for Applying for Certification as A CPEO
Rev. Proc. 2016-33, section 2.01
SECTION 2. PROCEDURES FOR APPLYING FOR CERTIFICATION AS A CPEO
.1 Method of submission. A person seeking certification as a CPEO must electronically submit a properly completed and executed online application for CPEO certification (made available by the IRS on www.irs.gov) and the accompanying forms and documentation required by § 301.7701-2T, this revenue procedure, and instructions accompanying the application. Paper submissions will not be accepted and will be treated as an incomplete application as described in section 4.02. Except as otherwise provided in this revenue procedure or the instructions accompanying the application, documents required by this revenue procedure to be submitted after the application is submitted and while the application is pending must also be submitted electronically, as provided by the instructions accompanying the application. The individual submitting the online application for CPEO certification on behalf of the CPEO applicant must be authorized by section 6103(e) to inspect the return of the CPEO applicant. In addition, each of the CPEO applicant’s responsible individuals must electronically submit a properly completed and executed online Responsible Individual Personal Attestation (RIPA) form and must also provide a FD-258, Fingerprint Card at the time and in the manner described in the instructions accompanying the application. Once the RIPA is submitted, the information contained in the RIPA becomes return information of the CPEO applicant and may be disclosed to the CPEO applicant if the IRS determines that such disclosure will not impair Federal tax administration.
§301.7705-2T (a-d), (f)(1)
§ 301.7705–2T CPEO certification requirements.
(a) Application requirement and certification—
(1) Application. To be certified as a certified professional employer organization (CPEO), a person must submit a properly completed and executed application for certification as a CPEO in the time and manner prescribed by, and providing such information as required by, this section and any further guidance issued by the Commissioner. In addition, the applicant’s responsible individuals must submit such information as is specified in this section and further guidance.
(2) Notice. A CPEO applicant will be notified by the Internal Revenue Service (IRS) whether its application for certification has been approved or denied, and, if approved, the effective date of certification. If the IRS denies the application, the IRS will inform the CPEO applicant of the reason(s) for denial.
(3) Public disclosure of certification. If the IRS approves a CPEO applicant’s application for certification, the IRS will make available to the public the name and address of the CPEO, as well as the effective date of its certification, in the time and manner described in further guidance.
(4) Effective date of certification. A CPEO’s certification will be effective as of the effective date of certification specified in the notice described in paragraph (a)(2) of this section and in the public disclosure described in paragraph (a)(3) of this section and will continue in effect until the effective date of the revocation of the CPEO’s certification, if any, as described in paragraph (n) of this section or, if earlier, the date that the CPEO voluntarily terminates its certification in the time and manner prescribed by the Commissioner in further guidance.
(b) Requirements for certification. To receive and maintain certification, a CPEO applicant or CPEO must meet the requirements described in this section, as well as any additional requirements the Commissioner may prescribe in further guidance. In addition, any precursor entities, related entities, and responsible individuals (as defined in §§ 301.7705–1T(b)(10), (12), and (13), respectively) of the CPEO applicant or CPEO must meet any requirements applicable to them described in this section and in further guidance. The IRS may deny an application for certification or revoke or suspend a CPEO’s certification if a CPEO applicant or CPEO, or one or more of its precursor entities, related entities, or responsible individuals, fails to meet any applicable requirement described in this section or other applicable guidance, and the IRS will do so if the IRS determines, in its sole discretion, that such failure presents a material risk to the IRS’s collection of federal employment taxes. In determining whether one or more failures to meet the requirements described in this section presents a material risk to the IRS’s collection of federal employment taxes, the IRS generally will consider all relevant facts and circumstances, including the size, scope, nature, significance, recurrence, and timing of and reason for the failure and, in the case of a CPEO, any prior failures of the CPEO to meet the requirements of this section.
(c) Suitability—
(1) In general. The IRS may deny an application for certification or revoke or suspend a CPEO’s certification for any of the following reasons:
(i) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, has failed to pay any applicable federal, state, or local taxes or file any required federal, state, or local tax or information returns in a timely and accurate manner, unless the failure is determined to be due to reasonable cause and not due to willful neglect.
(ii) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, has been charged or convicted of any criminal offense under the laws of the United States or of a state or political subdivision thereof, or is the subject of an active IRS criminal investigation.
(iii) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, has been sanctioned, or had a license, registration, or accreditation (including a license, registration, or accreditation relating to its status or ability to operate as a professional employer organization) denied, suspended, or revoked, by a court of competent jurisdiction, licensing board, assurance or other professional organization, or federal or state agency, court, body, board, or other authority for any misconduct that involves dishonesty, fraud, or breach of trust or that otherwise bears upon the suitability of the CPEO applicant or CPEO to perform its professional functions (including, but not limited to, any civil or criminal penalty described in 42 U.S.C. 503(k)(1)(D) imposed by state law).
(iv) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, is listed on any sanctions list compiled by the Office of Foreign Assets Control (OFAC) within the Department of Treasury, including, but not limited to the OFAC Consolidated Sanctions List and the OFAC Specially Designated Nationals (SDN) List.
(v) The CPEO applicant or CPEO, or any of its precursor entities, related entities, or responsible individuals, fails to demonstrate a history of financial responsibility, which the IRS may assess by checks on credit history and other similar indicators.
(vi) The CPEO applicant or CPEO and the responsible individuals of the CPEO applicant or CPEO fail to demonstrate adequate collective knowledge or experience with respect to:
(A) Federal or state employment tax reporting, depositing, and withholding requirements;
(B) Handling and accounting of payroll, tax payments, and other funds on behalf of others;
(C) Effective recordkeeping systems;
(D) Retention of qualified personnel and legal advisors as needed; and
(E) General business and risk management.
(vii) The CPEO applicant or CPEO, or any of its responsible individuals, gives false or misleading information (including by intentionally omitting relevant information), or participates in any way in the giving of false or misleading information, to the IRS, knowing, or having reason to know, that the information is false or misleading. For the purpose of this subsection, ‘‘information’’ includes (but is not limited to) facts or other matters contained in testimony, federal tax returns, and financial statements and opinions regarding such statements; applications for certification (and all accompanying documentation); affidavits, declarations, assertions, attestations, statements, and agreements; and periodic verifications that the requirements of this section continue to be met; and any other information that is required to be provided by this section, section 3511(g) and regulations thereunder, or further guidance.
(2) Must be a business entity that is not a disregarded entity. A CPEO must be a business entity described in § 301.7701–2(a), except that a CPEO may not be a business entity that is disregarded as an entity separate from its owner for federal tax purposes under §§ 301.7701–2 and 301.7701–3 (without regard to the special rule in § 301.7701– 2(c)(2)(iv) that provides that such entities are corporations for federal employment tax purposes). Accordingly, a CPEO may not be an individual or an entity classified as a trust under § 301.7701–4. (3) Authorization to investigate suitability. A CPEO applicant or CPEO, and each of its responsible individuals, must take such actions as are necessary to authorize the IRS to investigate the accuracy of statements and submissions, including waiving confidentiality and privilege when necessary, and to conduct comprehensive background checks, including, but not limited to, checks on tax compliance, criminal background, professional experience (including through the contact of third- party references), credit history, and professional sanctions. In addition, a CPEO applicant or CPEO, and any of its responsible individuals, must provide the IRS with such additional information as the IRS may request to facilitate such background investigations. Each responsible individual of a CPEO applicant or CPEO must also submit fingerprints in the time and manner and under the circumstances prescribed by the Commissioner in further guidance. (d) Business location— (1) State of organization. A CPEO applicant or CPEO must be created or organized in the United States or under the law of the United States or of any state. (2) Business location in the United States. A CPEO applicant or CPEO must have one or more established, physical business locations in the United States at which regular operations that constitute a trade or business within the United States (within the meaning of section 864(b)) take place and at which a significant portion of its CPEO-related functions are carried on and administrative records are kept.
(3) United States responsible individuals. A majority of the CPEO applicant’s or CPEO’s responsible individuals must be citizens or residents of the United States. (4) Use of financial institution. A CPEO applicant or CPEO must use only financial institutions described in section 265(b) (5) to hold its cash and cash equivalents, receive payments from customers, and pay wages and federal employment taxes…
§301.7705-2T (f)(1)
(f) Quarterly assertions and attestations—
(1) CPEOs. By the last day of the second month after the end of each calendar quarter, and beginning with the first calendar quarter, that ends after the CPEO’s effective date of certification, a CPEO must provide the following to the IRS:
(i) An assertion, signed by a responsible individual under penalties of perjury, stating that the CPEO has withheld and made deposits of all federal employment taxes (other than taxes imposed by chapter 23 of the Code) as required by subtitle C for such calendar quarter and an examination level attestation from a CPA stating that such assertion is fairly stated in all material respects.
(ii) A statement signed by a responsible individual under penalties of perjury verifying that the CPEO has positive working capital (as determined in accordance with GAAP) at the end of the most recently completed fiscal quarter, as well as such additional financial information that the Commissioner may specify in further guidance.