Definition of Responsible Individuals
Rev. Proc. 2016-33, section 1.01(11)
(11) The term “responsible individual” means an individual described in § 301.7705-1T(b)(13).
§ 301.7705-1T(b)(13)
(13) Responsible individual means, with respect to a CPEO applicant or CPEO, (or, for purposes of paragraphs (b)(10)(ii) or (b)(12)(ii) of this section, a provider of employment-related services), the following individuals:
(i) Any individual who owns, directly or indirectly and applying the constructive ownership rules of section 1563(e) with respect to stock ownership and by substituting the term ‘‘interest’’ for the term ‘‘stock’’ and the term ‘‘partnership’’ for the term ‘‘corporation’’ used in that section, as appropriate for purposes of determining whether an interest in a partnership is indirectly owned by any person, 33 percent or more of—
(A) In the case of a corporation, the total combined voting power of all classes of stock entitled to vote of such corporation or of the total value of shares of all classes of stock of such corporation; or
(B) In the case of a partnership, the capital interest or profits interest of such partnership. (ii) Any individual who is a director or an officer. For purposes of this paragraph (b) (13)
(ii), a director is a voting member of the governing body (that is, the board of directors or equivalent controlling body authorized under state law to make governance decisions on behalf of the organization),and the officers are determined by reference to the organizing document, bylaws, or resolutions of the governing body, or otherwise designated consistent with state law. Officers may include a president, vice-president, secretary, and treasurer.
(iii) Any individual who, regardless of title, has ultimate responsibility for implementing the decisions of the organization’s governing body. An individual who serves with the title of chief executive officer, executive director, and/or president has this ultimate responsibility. An individual with this ultimate responsibility may include an individual who is not treated as an employee of the organization. If this ultimate responsibility resides with two or more individuals (for example, co-presidents), who may exercise such responsibility in concert or individually, then each individual is a responsible individual.
(iv) Any individual who, regardless of title, has ultimate responsibility for supervising the management, administration, or operation of the organization. An individual who serves with the title of chief operating officer has this ultimate responsibility. An individual with this ultimate responsibility may include an individual who is not treated as an employee of the organization. If this ultimate responsibility resides with two or more individuals, who may exercise such responsibility in concert or individually, then each individual is a responsible individual.
(v) Any individual who, regardless of title, has ultimate responsibility for managing the organization’s finances. An individual who serves with the title of chief financial officer or treasurer has this ultimate responsibility. An individual with this ultimate responsibility may include an individual who is not treated as an employee of the organization. If this ultimate responsibility resides with two or more individuals who may exercise the responsibility in concert or individually, then each individual is a responsible individual.
(vi) In the case of a partnership, any individual who is a managing member or general partner.
(vii) In the case of a sole proprietorship, the sole proprietor.
(viii) Any other individual with primary responsibility for the organization’s federal employment tax compliance.
Preamble to Final and Temporary Regulations, section 1(a)
a. Responsible Individual
The temporary regulations generally define a responsible individual as an individual in any of the following categories with respect to the CPEO applicant or CPEO: (1) Certain owners; (2) directors and officers; (3) individuals with ultimate responsibility for implementing the decisions of the organization’s governing body; (4) individuals with ultimate responsibility for the organization’s management and operations; (5) individuals with ultimate responsibility for managing the organization’s finances; (6) managing members or general partners; (7) the sole proprietor of a sole proprietorship; and (8) any other individuals with primary responsibility for federal employment tax compliance of the organization.
With respect to determining whether an individual is a responsible individual by reason of ownership, the temporary regulations specify that, in the case of a CPEO applicant or CPEO that is a corporation, a responsible individual includes any individual who owns 33 percent or more of the total combined voting power of all classes of stock of the corporation entitled to vote or the total value of shares of all classes of stock of the corporation. In the case of a CPEO applicant or CPEO that is a partnership (defined in the temporary regulations as a business entity that is classified as a partnership for federal tax purposes under §§ 301.7701–1, 301.7701–2, and 301.7701–3), a responsible individual includes any individual who owns 33 percent or more of the profits interest or capital interest in the partnership. In both cases, ownership may be direct or indirect and is determined by applying the constructive ownership rules of section 1563(e) with respect to stock ownership and by substituting the term ‘‘interest’’ for the term ‘‘stock’’ and the term ‘‘partnership’’ for the term ‘‘corporation’’ used in that section, as appropriate for purposes of determining whether an interest in a partnership is indirectly owned by any person. The Department of the Treasury (Treasury Department) and the IRS request comments regarding the administrability of applying the definition of responsible individual with respect to ownership of profits interests in a partnership, the value of which may fluctuate over time.
With respect to directors and officers of the CPEO applicant or CPEO, the temporary regulations provide that a director is any voting member of the governing body (such as the board of directors). An officer is determined by reference to the organization’s organizing document, bylaws, or resolutions, or is otherwise designated consistent with state law (and often includes an organization’s president, vice-president, treasurer, and secretary).
The temporary regulations also provide that a responsible individual includes any individual who, regardless of title, has ultimate responsibility for: (1) implementing the decisions of the organization’s governing body (typically, the chief executive officer (CEO), executive director, or president); (2) supervising the management, administration, or operation of the organization (typically, the chief operating officer (COO)); or (3) managing the organization’s finances (typically, the chief financial officer (CFO) or treasurer). Any individual who serves with the titles of executive director, president, CEO, COO, CFO, or treasurer will be considered to have the ultimate responsibilities that are consistent with that title. The temporary regulations also provide that an individual with this ultimate responsibility may include an individual who is not treated as an employee of the CPEO applicant or CPEO.