SECTION 1. BACKGROUND AND — Internal Revenue Bulletin 2017-3

DEFINITIONS

The Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act of 2014, enacted on December 19, 2014, as part of The Tax Increase Prevention Act of 2014 (Pub. L. 113–295), added new sections 3511 and 7705 to the Internal Revenue Code (Code) relating to the certification requirements for, and the federal employment tax consequences of being, a certified professional employer organization (CPEO). The ABLE Act requires the establishment of a voluntary program for persons to apply to become certified as a CPEO. Temporary and final regulations under section 7705 of the Code (TD 9768, published May 6, 2016, at 81 FR 27315, as corrected July 12, 2016, at 81 FR 45012) describe the certification requirements necessary for a person to become

and remain a CPEO, and proposed regulations under section 3511 of the Code (REG–127561–15, published May 6, 2016, at 81 FR 27360) describe the federal employment tax consequences of becoming a CPEO. Revenue Procedure 2016–33, 2016–25 I.R.B. 1034, sets forth the detailed procedures for applying to be certified as a CPEO. Notice 2016–49, 2016–34 I.R.B. 265, provides interim guidance and describes modifications to certain certification requirements that the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) intend to make when publishing final regulations and updating Rev. Proc. 2016– 33. This revenue procedure addresses the requirements for a CPEO to remain certified and the procedures relating to suspension and revocation of CPEO certification, and consolidates in one place the ongoing requirements articulated in the regulations (both proposed and temporary) under sections 3511 and 7705 of the Code as well as certain applicable requirements of Rev. Proc. 2016–33, as modified by Notice 2016–49. In addition, this revenue procedure provides guidance, including certain transition relief, to CPEOs with an effective date of certification of January 1, 2017, that receive notice of certification after that date.

.01 Definitions . For purposes of this revenue procedure—

(1) The term “application” means the electronic submission by a CPEO applicant and its responsible individuals of all information required by the online application form for CPEO certification (made available by the IRS on www.irs.gov ), as well as all accompanying forms and documentation required by § 301.7705–2T, Rev. Proc. 2016–33, Notice 2016–49, and instructions accompanying the application.

(2) The term “controlled group” means any controlled group of corporations or trades or businesses under common control within the meaning of sections 414(b) and (c) of the Code, and the regulations thereunder.

(3) The term “certified public accountant” (CPA) means a certified public accountant who—

(a) With respect to a CPEO, is independent of the CPEO (as prescribed by the

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American Institute of Certified Public Accountants’ Professional Standards, Code of Professional Conduct, and its interpretations and rulings);

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

(d) Files with the IRS a written declaration that he or she is currently qualified as a CPA.

(4) The term “covered employee” means, with respect to a customer, any individual (other than a self-employed individual, as defined in section 1.01(14) of this revenue procedure) who performs services for the customer and who is covered by a CPEO contract between the CPEO and the customer.

(5) The term “CPEO” means a person that has been certified by the Commissioner as meeting the requirements of § 301.7705–2T, Rev. Proc. 2016–33, Notice 2016–49, the instructions accompanying the application, and any applicable subsequent guidance and whose certification has not been revoked or voluntarily terminated.

(6) The term “CPEO contract” means a service contract between a CPEO and a customer that satisfies the requirements in section 7705(e)(2) of the Code.

(7) The term “customer” means any person who enters into a CPEO contract with a CPEO, except that a provider of employment-related services that uses its own employer identification number (EIN) for filing federal employment tax returns on behalf of its clients (or that used its own EIN immediately prior to entering into a CPEO contract with the CPEO) is not a customer, even if it has entered into a CPEO contract with the CPEO.

(8) The term “federal employment taxes” means the taxes imposed by subtitle C of the Code.

(9) The term “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.

(10) The term “precursor entity” means an entity described in § 301.7705– 1T(b)(10).

(11) The term “qualified surety” means a surety that meets the requirements of § 301.7705–2T(g)(6).

(12) The term “related entity” means an entity described in § 301.7705– 1T(b)(12). (13) The term “responsible individual” means an individual described in § 301.7705–1T(b)(13).

(14) The term “self-employed individual” means an individual with net earnings from self-employment (as defined in section 1402(a) of the Code and without regard to the exceptions thereunder) derived from providing services covered by a CPEO contract, whether such net earnings from self-employment are derived from providing services as a nonemployee to a customer of the CPEO, from the individual’s own trade or business as a sole proprietor customer of the CPEO, or as an individual who is a partner in a partnership that is a customer of the CPEO, but only with regard to such net earnings.

(15) The term “work site” means a physical location at which an individual regularly performs services for a customer of a CPEO or, if there is no such location, the location from which the customer assigns work to the individual. A work site may not be the individual’s residence or a telework site unless the customer requires the individual to work at that site. For purposes of this section 1.01(15), work sites that are contiguous locations will be treated as a single physical location and thus a single work site, and noncontiguous locations that are not reasonably proximate will be treated as separate physical locations and thus separate work sites. A CPEO may treat noncontiguous locations that are reasonably proximate as a single physical location and thus a single work site. Any two work sites that are separated by 35 or more miles or that operate in a different industry or industries will not be treated as reasonably proximate for purposes of this section 1.01(15).

(16) The term “work site employee” means, with respect to a customer, a covered employee who performs services for such customer at a work site where, at any time during a calendar quarter, at least 85 percent of the individuals performing services for the customer are covered employees of the customer. To be a work site

employee, a covered employee regularly performing services for a customer at a work site during a calendar quarter is not required to be performing services for the customer at the time the work site coverage requirement is met at that work site.

(a) Solely for purposes of determining whether the 85 percent threshold described in this section 1.01(16) is met, a self-employed individual described in section 1.01(14) of this revenue procedure is treated as a covered employee if such individual is performing services at the work site and would be a covered employee but for the exclusion of selfemployed individuals from the definition of covered employee in section 1.01(4) of this revenue procedure.

(b) In determining whether the 85 percent threshold described in this section 1.01(16) is met, an individual who is an excluded employee described in section 414(q)(5) of the Code is not treated either as an individual providing services or a covered employee.

(c) Notwithstanding the first sentence of this section 1.10(16), a covered employee will be considered a work site employee for the entirety of a calendar quarter with respect to all services performed for a customer at one or more work sites if the employee qualifies as a work site employee with respect to such customer at any work site during that calendar quarter.

(d) The determination of whether a work site meets the 85 percent threshold described in this section 1.01(16) is made separately with respect to each customer of a CPEO and with respect to each work site of a customer. In making this determination, a covered employee is taken into account at each work site of a customer at which the employee regularly performs services for such customer.

.02 Changes and request for com- ments . This revenue procedure may be updated periodically to improve CPEO program procedures. The IRS solicits comments on this revenue procedure and the administration of the CPEO program. All comments will be available for public inspection and copying. Comments may be submitted in one of three ways:

(1) By mail to CC:PA:LPD:PR (Rev. Proc. 2017–14), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

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(2) Electronically to Notice.Comments@ irscounsel.treas.gov. Please include “Rev. Proc. 2017–14” in the subject line of any electronic communications.

(3) By hand-delivery Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Rev. Proc. 2017–14), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC 20224.