Notice 2016-49: Interim CPEO guidance, employee leasing companies

Interim CPEO guidance, employee leasing companies

The IRS today released an advance version of Notice 2016-49 as interim guidance concerning the requirements for a certification program for professional employer organizations—“certified professional employer organizations” or CPEOs (also referred to as employee leasing companies).

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Read Notice 2016-49 [PDF 60 KB]


The IRS and Treasury Department in May 2016 released temporary regulations (and by cross-reference, proposed regulations) concerning the requirements for a certification program for CPEOs. The regulations were issued to implement a new voluntary certification program for professional employer organizations. To become and remain certified under the new program, CPEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in the regulations. Read TaxNewsFlash-United States

Notice 2016-49 was released by the IRS today in response to comments made about the regulations. Specifically, there were comments that certain provisions of the regulations and revenue procedure could “unnecessarily limit the ability of persons to apply for and maintain certification as a CPEO” including the criteria in the regulations requiring:

  • That a CPEO or applicant provide a certified public accountant (CPA) opinion attesting that the annual audited financial statements reflect positive working capital (or meet certain rules that permit negative working capital in limited circumstances) and that the CPEO or applicant computes its taxable income using an accrual method of accounting;
  • That a CPEO or applicant submit a written declaration of an independent CPA, regarding the CPEO or applicant’s annual audited financial statements and ongoing federal employment tax compliance, and declaring that the CPA is authorized to represent the CPEO or applicant before the IRS; and 
  • That a CPEO is not a “disregarded entity.”

In response to these comments, today’s notice describes modifications that the IRS Treasury intend to make in the final regulations and updated revenue procedure. Notice 2016-49 states that entities may rely on the guidance provided in this notice until the final regulations and updated revenue procedure are published.

In addition, Notice 2016-49 explains that the IRS and Treasury are aware that, for persons submitting applications during the first year of the program, the audited financial statements that must be included as part of an application for certification may not include certain elements required by the regulations (for example, because the statements relate to fiscal years that end before or shortly after the regulations were issued). To address this issue, today’s IRS notice provides transition relief for those needing to satisfy the audited financial statement requirements in the regulations and revenue procedure.

Lastly, Notice 2016-49 provides interim guidance on requirements applicable to those that may already be engaged in the process of applying for certification as a CPEO, by extending the deadline to September 30, 2016, by which a complete and accurate application for certification must be submitted in order to be eligible for an effective date of certification of January 1, 2017.

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