Application. The definitions set forth in this section apply for purposes of this section, § 301.7705-2T and sections 3302(h), 3303(a)(4), 3511, 6053(c)(8), and 7528(b)(4).

Definitions—(1) Certified professional employer organization (CPEO) means a person that applies to be certified as a CPEO in accordance with § 301.7705-2T(a) and has been certified by the Internal Revenue Service (IRS) as meeting the requirements of § 301.7705-2T. For purposes of § 301.7705-2T(g)(2), the term CPEO also includes the person before it applied for certification and while its application is pending with the IRS. For all other purposes, a person is a CPEO as of the effective date of its certification (as specified in the certification notice described in § 301.7705-2T(a)(2)) and until its certification is revoked by the IRS (as described in § 301.7705-2T(n)) or, if earlier and applicable, until the CPEO voluntarily terminates its certification in the time and manner prescribed by the Commissioner in further guidance.

CPEO applicant means a person that has applied to be certified as a CPEO in accordance with § 301.7705-2T(a) and whose application is pending with the IRS.

CPEO contract. [Reserved]

Certified public accountant (CPA) means a certified public accountant who—

With respect to a CPEO applicant or CPEO, is independent of the CPEO applicant or CPEO (as prescribed by the American Institute of Certified Public Accountants' Professional Standards, Code of Professional Conduct, and its interpretations and rulings);

Is not currently under suspension or disbarment from practice before the IRS;

Is duly qualified to practice in any state;

Files with the IRS a written declaration that he or she is currently qualified as a CPA and authorized to represent the CPEO applicant or CPEO before the IRS; and

Meets such other requirements as the Commissioner may prescribe in further guidance.

Covered employee. [Reserved]

Customer. [Reserved]

Federal employment taxes means the taxes imposed by subtitle C of the Internal Revenue Code.

Guidance includes guidance published in the Federal Register or Internal Revenue Bulletin, as well as administrative guidance such as forms, instructions, publications, or other guidance on the IRS.gov Web site.

Partnership means a business entity (as described in § 301.7701-2(a)) that is classified as a partnership for federal tax purposes under §§ 301.7701-1, 301.7701-2, and 301.7701-3. Accordingly, any references to a managing member or general partner of a partnership mean a managing member or general partner of an entity that is classified as a partnership for federal tax purposes.

Precursor entity—(i) In general. A precursor entity means, with respect to a CPEO applicant, any related entity of the CPEO applicant that is or was a provider of employment-related services that—

Has made a substantial asset transfer to the CPEO applicant during the calendar year that the CPEO applicant applies for certification or any of the three preceding calendar years or plans to make such a substantial asset transfer while the application for certification is pending or in the 12-month period following the date of the CPEO applicant's application for certification; or

Has ceased operations or dissolved during the calendar year that the CPEO applicant applied for certification or any of the three preceding calendar years.

Related. For purposes of this paragraph (b)(10), a provider of employment-related services is considered a related entity of a CPEO applicant if it is a related entity within the meaning of paragraph (b)(12) of this section or if it would be or would have been such a related entity based on the ownership and responsible individuals of the provider of employment-related services at the time of its substantial asset transfer, ceasing of operations, or dissolution, as applicable, and the ownership and responsible individuals of the CPEO applicant at the time of its application.

Provider of employment-related services means a person that provides employment tax administration, payroll services, or other employment-related compliance services to clients, including, but not limited to, collecting, reporting, and paying employment taxes with respect to wages or compensation paid by the person to individuals performing services for the clients. A provider of employment-related services includes, but is not limited to, a CPEO.

Related entity means, with respect to a CPEO applicant or CPEO, any person that meets one or more of the following criteria:

The person is a member of a controlled group of which the CPEO applicant or CPEO is also a member. For purposes of this paragraph (b)(12)(i), controlled group has the meaning given to such term by sections 414(b) and (c) and the regulations thereunder, except that—

With respect to a person that is not a provider of employment-related services “more than 50 percent” will be substituted for “at least 80 percent” each place it appears in section 1563(a) (which is cross-referenced in section 414(b)) and § 1.414(c)-2 of this chapter); and

With respect to a person that is a provider of employment-related services, “more than 5 percent” will be substituted for “at least 80 percent” each place it appears in section 1563(a) and § 1.414(c)-2 of this chapter; or

The person is a provider of employment-related services and—

A majority of the directors or a majority of the officers (as described in paragraph (b)(13)(ii) of this section) of the CPEO applicant or CPEO are directors or officers (as described in paragraph (b)(13)(ii) of this section), respectively, of the provider of employment-related services; or

An individual is a responsible individual of both the provider of employment-related services and the CPEO applicant or CPEO by reason of paragraph (b)(13)(i) of this section.

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:

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—

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

In the case of a partnership, the capital interest or profits interest of such partnership.

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.

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.

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.

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.

In the case of a partnership, any individual who is a managing member or general partner.

In the case of a sole proprietorship, the sole proprietor.

Any other individual with primary responsibility for the organization's federal employment tax compliance.

Self-employed individual. [Reserved]

Substantial asset transfer means any transfer of 35 percent or more of the value of the operating assets of the person making the transfer, whether through one or a series of transactions and whether accomplished through sale, lease, gift, assignment, succession, merger, consolidation, corporate separation, or any other means. For purposes of this paragraph (b)(15), operating assets include both tangible and intangible resources related to the conduct of the person's trade or business, including but not limited to such intangible assets as contracts, agreements, receivables, employees, and goodwill (which includes the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factors). In the case of a contract described in section 7705(e)(2) or a service agreement described in § 31.3504-2(b)(2) of this chapter entered into by a provider of employment-related services, even if the contract or agreement is not sold, gifted, assigned, or otherwise formally transferred to a CPEO applicant, it will be considered transferred from the provider of employment-related services to the CPEO applicant if the CPEO applicant reports, withholds, or pays, under its employer identification number (EIN), any applicable federal employment taxes with respect to the wages of any individuals covered by the contract or agreement.

Effective/applicability date—(1) In general. Except as provided in paragraph (c)(2) of this section, this section applies on and after July 1, 2016.

Definitions related to section 3511. [Reserved]

Expiration date. The applicability of this section expires on or before May 3, 2019.