Attention PEOs: The IRS wants to hear from you

Currently, the IRS holds both a professional employer organization (PEO), also known as an employee leasing organization, and the client (you) responsible if your PEO defaults on remitting your payroll taxes. However, last year’s tax extenders law gave a big boost to PEOs by allowing the IRS to certify PEOs, which, in turn, allows the PEOs to become solely responsible for your payroll taxes.

These provisions were originally slated to take effect Jan. 1, 2016, but the IRS has postponed the effective date to at least July 1, 2016, because it’s seeking more information about PEOs’ current practices. PEOs have until Jan. 8, 2016, to respond to the IRS’ request for comments.

How do things work now?

PEOs are, by and large, regulated by the states. The IRS isn’t looking to piggyback on state regulatory requirements. Instead, it’s seeking information on several aspects of current PEO industry practices, including:

  • Financial audits: The timing, scope and content of audits; the evidence and methods CPAs use to conduct them; whether and how audits differ in any material respect from audits of companies in other industries; and whether CPAs conducting audits confirm compliance with any applicable net worth or working capital requirements
  • Verification of payroll tax obligations: Current practices, including compliance with requirements under state law or private assurance programs to determine and certify that federal and state payroll taxes are paid on time and the evidence and methods used to determine tax compliance
  • Working capital: Practices followed to comply with state law or private assurance programs
  • Covered employees: How PEOs monitor and remain informed regarding the number of employees who are provided to clients who aren’t covered under the leasing agreement, so they can confirm compliance with state laws that require all or a majority of employees working for a client to be covered by the leasing agreement.

How to comment

PEOs can email their comments to

Mail written submission to: Internal Revenue Service, 1111 Constitution Ave., N.W., Washington, D.C. 20224-0002, Attn: SBSE ABLE CPEO Room 3406.