The Internal Revenue Service on May 4 released temporary and proposed regulations implementing a new voluntary certification program for professional employer organizations (PEOs). PEOs handle various payroll administration and tax reporting responsibilities for their business clients and are typically paid a fee based on payroll costs.
The regulations were issued as a result of legislation enacted in late 2014 requiring the IRS to establish a voluntary certification program for these organizations. To become and remain certified under the new program, PEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in the regulations. The application process will open on July 1. A revenue procedure further detailing the application process will be released in coming weeks. Subsequently, as required by law, the IRS will publish lists of certified PEOs (CPEOs) and those whose certification has been revoked or suspended.
The IRS plans to issue a revenue procedure with the application process in the coming weeks. Another revenue procedure is in the works that will prescribe the ongoing requirements that certified professional employer organizations "must meet to maintain certification and describes the consequences of the failure to meet the ongoing requirements." Applications will be accepted beginning July 1.
The IRS will notify the CPEO applicant as to whether its application for certification has been approved or denied and the effective date of its certification," the temporary regulations said. "If the IRS denies the application, the IRS will inform the CPEO applicant of the reason(s) for denial." The IRS will publish the names, addresses and certification date of approved applicants. Additionally, the agency will release the names of CPEOs who have had their certification revoked or suspended.
The final temporary regulations are effective May 6, when they are scheduled to be published in the Federal Register. Comments on the proposed rules are due Aug. 4.