Eligibility
Requires rigorous IRS certification, including bonding, independent financial audits, and quarterly CPA attestations.
Frequently Asked Questions
Who is eligible for the Certified Professional Employer Organization (CPEO) Election?
Requires rigorous IRS certification, including bonding, independent financial audits, and quarterly CPA attestations.
How does the Certified Professional Employer Organization (CPEO) Election work?
Allows an organization to be certified by the IRS to take statutory responsibility for employment tax reporting and liability, providing tax certainty for customers.
What law authorizes the Certified Professional Employer Organization (CPEO) Election?
The Certified Professional Employer Organization (CPEO) Election is authorized under IRC §7705 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §7705
Source: Internal Revenue Code, Title 26, United States Code
§ 7705. Certified professional employer organizations(a) In generalFor purposes of this title, the term “certified professional employer organization” means a person who applies to be treated as a certified professional employer organization for purposes of section 3511 and has been certified by the Secretary as meeting the requirements of subsection (b).
(b) Certification requirementsA person meets the requirements of this subsection if such person—(1) demonstrates that such person (and any owner, officer, and other persons as may be specified in regulations) meets such requirements as the Secretary shall establish, including requirements with respect to tax status, background, experience, business location, and annual financial audits,
(2) agrees that it will satisfy the bond and independent financial review requirements of subsection (c) on an ongoing basis,
(3) agrees that it will satisfy such reporting obligations as may be imposed by the Secretary,
(4) computes its taxable income using an accrual method of accounting unless the Secretary approves another method,
(5) agrees to verify on such periodic basis as the Secretary may prescribe that it continues to meet the requirements of this subsection, and
(6) agrees to notify the Secretary in writing within such time as the Secretary may prescribe of any change that materially affects the continuing accuracy of any agreement or information that was previously made or provided under this subsection.
(c) Bond and independent financial review(1) In generalAn organization meets the requirements of this paragraph if such organization—(A) meets the bond requirements of paragraph (2), and
(B) meets the independent financial review requirements of paragraph (3).
(2) Bond(A) In generalA certified professional employer organization meets the requirements of this paragraph if the organization has posted a bond for the payment of taxes under subtitle C (in a form acceptable to the Secretary) that is in an amount at least equal to the amount specified in subparagraph (B).
(B) Amount of bondFor the period April 1 of any calendar year through March 31 of the following calendar year, the amount of the bond required is equal to the greater of—(i) 5 percent of the organization’s liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year (but not to exceed $1,000,000), or
(ii) $50,000.
(3) Independent financial review requirementsA certified professional employer organization meets the requirements of this paragraph if such organization—(A) has, as of the most recent audit date, caused to be prepared and provided to the Secretary (in such manner as the Secretary may prescribe) an opinion of an independent certified public accountant as to whether the certified professional employer organization’s financial statements are presented fairly in accordance with generally accepted accounting principles, and
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