SECTION 2. PROCEDURES FOR

APPLYING FOR CERTIFICATION AS A CPEO

.01 Method of submission . A person seeking certification as a CPEO must electronically submit through its IRS Online Registration System account a properly completed and executed online application for CPEO certification and all accompanying forms and documentation required by § 301.7701-2, this revenue procedure, the instructions in the online application, and any applicable subsequent guidance. Paper submissions will not be accepted and will be treated as an incomplete application as described in section 4.02. Except as otherwise provided in this revenue procedure or the instructions in the online application, documents required to be submitted after the application is submitted must also be submitted electronically through the CPEO

applicant’s IRS Online Registration System account. Only an application submitter can submit the online application for CPEO certification and all accompanying forms and documentation. In addition, each of the CPEO applicant’s responsible individuals must electronically submit a properly completed and executed RIPA at the time and in the manner described in the instructions in the online application. ² As of June 1, 2022, responsible individuals must also submit fingerprints electronically using Fieldprint, or by another method permitted in the instructions in the online application. Fingerprint submissions on an FD-258, Fingerprint Card, will no longer be processed. All current CPEO responsible individuals will have until June 1, 2023, to submit new fingerprints electronically. For more information on the electronic fingerprinting process, including scheduling an appointment, see Publication 5249, Fingerprint Card Instructions for Voluntary Certifi- cation of Professional Employer Orga- nizations . For more information on how to electronically submit the information and documents required in this revenue procedure, see instructions in the online application or responsible individual’s RIPA accessible through the CPEO’s IRS Online Registration System account.

.02 Controlled groups . If more than one member of a controlled group seeks to be certified as a CPEO, each such member must submit a separate online application. Members of a controlled group may not apply jointly on one online application. However, CPEOs and CPEO applicants that are members of a controlled group in which more than one member is a CPEO or CPEO applicant must create a controlled group license within the IRS Online Registration System. The controlled group license will formalize the link between members of the controlled group in the system and will allow for certain documents to be submitted only once for all CPEO and CPEO applicant members in the controlled group. See sections 2.04, 2.05(6), and 2.06(5) for details regarding the necessary documentation relating to the bond and financial review require

2 Once the RIPA is submitted, the information contained in the RIPA becomes return information, under section 6103, of the CPEO applicant and may be disclosed to the CPEO applicant if the IRS determines that the disclosure will not seriously impair federal tax administration.

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ments that CPEO applicants that are members of a controlled group must submit.

.03 User fee . Consistent with section 7528(b)(4), upon submission of the online application for certification through the IRS Online Registration System, the application submitter will be automatically directed to pay a user fee in the amount of $1,000. No CPEO application will be processed until the IRS receives the user fee. Once processing of the application has begun, the user fee will not be returned, even if the application is withdrawn or denied.

.04 Surety letter . With its online application, a CPEO applicant must submit through its IRS Online Registration System account a signed letter from a qualified surety confirming that the surety agrees to issue a bond to the CPEO applicant if and when it is certified as a CPEO (a “surety letter”). The surety letter must also state that the surety agrees to issue a bond in the amount required by § 301.7705-2(g)(2) and pursuant to the terms set forth in Form 14751, Certified Professional Employer Organization Surety Bond . If a CPEO applicant is a member of a controlled group of which other members are CPEO applicants or CPEOs, the surety letter must also contain the name and EIN of each CPEO applicant and each CPEO that is or will be covered by the bond. All CPEO members of a controlled group are required to be on the same bond in the amount required by § 301.7705-2(g)(2), applied as if all such CPEO members (and any of their precursor entities, if applicable) were one organization.

.05 Submission of annual audited fi- nancial statements, CPA opinion, and statement of working capital .

(1) Copy of annual audited financial statements . With its online application, a CPEO applicant must submit through its IRS Online Registration System account a copy of its annual audited financial statements for the most recently completed fiscal year, except as provided in the next sentence. If a CPEO applicant submits its application before the last day of the sixth month following its most recently completed fiscal year, and the audit of the financial statements for that fiscal year has not been completed at the time it submits its application, the CPEO applicant must provide with its application the annual audited financial statements for

the fiscal year immediately preceding the most recently completed fiscal year, and the CPEO applicant must subsequently provide to the IRS the annual audited financial statements for the most recently completed fiscal year by the last day of the sixth month after such fiscal year ends. In addition, for any fiscal year that ends after the CPEO applicant submits its application for certification and on or before the effective date of certification, the CPEO applicant must provide the annual audited financial statements by the last day of the sixth month after such fiscal year ends. The obligations described in this section 2.05(1) continue even if the CPEO applicant is certified as a CPEO before the IRS has received the annual audited financial statements. See section 8.04 for obligations concerning annual audited financial statements that continue after certification.

(2) CPA opinion . With each of these annual audited financial statements, the CPEO applicant must submit an opinion of a CPA that the financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP). The CPA opinion must be an unmodified opinion (i.e., it cannot be a qualified opinion, an adverse opinion, or a disclaimer of opinion), accompanied by a written and signed declaration that the CPA is currently qualified as a CPA.

(3) Working capital statement . Each of the annual audited financial statements submitted to the IRS must include a statement in the Note to the Financial Statements covered by the CPA opinion that the CPEO applicant’s annual audited financial statements reflect positive working capital or, only if the CPEO applicant satisfies the requirements of section 2.05(4) of this section, reflect negative working capital. The statement must set forth a detailed calculation of the CPEO applicant’s working capital as reflected in the annual audited financial statements (a working capital statement).

(4) Exception for negative working cap- ital . A CPA statement described in section 2.05(3) may state that a CPEO applicant’s annual audited financial statements reflect negative working capital, but in that case the statement will meet the requirements of section 2.05(3) only if- (a) The CPEO applicant has negative working capital for no more than two con

secutive fiscal quarters of the fiscal year, as demonstrated by the required annual audited financial statements, or the statements described in section 2.06(3), or the submission of quarterly unaudited financial statements;

(b) The CPEO applicant provides with the statement a detailed calculation of its negative working capital and an explanation to the IRS describing the reason for the failure to demonstrate positive working capital; and

(c) The IRS determines, in its sole discretion, that the failure to demonstrate positive working capital does not present a material risk to the IRS’s collection of federal employment taxes. The determination of whether the failure to demonstrate positive working capital presents a material risk to the IRS’s collection of federal employment taxes may depend, in part, on whether the CPEO applicant has identified facts and circumstances that will result in positive working capital in the near future.

(5) Newly established CPEO appli- cants . A CPEO applicant that was not operating as a provider of payroll services for all or part of the most recently completed fiscal year as of the date it applies for certification must also provide for the entity or entities listed in section 2.05(5)(a) and (b) a copy of each entity’s audited financial statements for the most recently completed fiscal year, subject to the exception provided in section 2.05(1), accompanied by an unmodified opinion of a CPA that such financial statements are presented fairly and in accordance with GAAP, and including a statement in the Note to the Financial Statements that the annual audited financial statements reflect positive working capital or, only if the requirements of section 2.05(4) are met (as applied to the entity), reflect negative working capital, with the statement in either case setting forth in detail a calculation of the entity’s working capital as reflected in the financial statements. The entity or entities for which this information is required are:

(a) Any precursor entity of the CPEO applicant; or

(b) If the CPEO applicant does not have a precursor entity, any related entity described in § 301.7705-1(b)(12)(ii)(B).

(6) Annual Audited Financial state- ments for controlled groups . In satisfaction of the requirement in section 2.05(1),

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if a CPEO applicant is a member of a controlled group of which other members are also CPEO applicants or CPEOs, the CPEO applicant must submit copies of combined or consolidated annual audited financial statements for all CPEO applicants and CPEOs in the controlled group, with an accompanying unmodified opinion of a CPA that such financial statements are presented fairly and in accordance with GAAP. The combined or consolidated annual audited financial statements may, but are not required to, also include all members of the controlled group that are not CPEO applicants or CPEOs. The statements and opinion must contain the name and EIN of each CPEO applicant and CPEO in the controlled group. If the statements and opinion include members of the controlled group that are not CPEOs or CPEO applicants, the name and EIN of these members must also be included. Although the CPEO applicant is not required to provide a copy of its separate financial statements as part of its application, if the financial position of a CPEO applicant is unclear from the combined or consolidated financial statements of the controlled group of which the CPEO applicant is a member, the IRS may request additional financial information that is needed to evaluate the CPEO applicant’s financial position, such as the annual balance sheet, income statement, and statement of cash flow, of the individual CPEO applicant. Notwithstanding the foregoing, and as required by section 2.05(3), the annual audited financial statement submitted by a CPEO applicant that is a member of a controlled group of which other members are also CPEO applicants or CPEOs must include a statement in the Note to the Financial Statements that each individual CPEO applicant’s financial statements reflect positive working capital or, if the requirements of section 2.05(4) are met, reflect negative working capital, with each statement in either case setting forth in detail a calculation of the individual CPEO applicant’s working capital. For purposes of the requirements of section 2.05(4), if it is unclear whether the CPEO applicant has positive or negative working capital for the last quarter of the fiscal year based on the combined or consolidated financial statements of the controlled group of which the CPEO applicant is a member,

the IRS may request additional financial information on an individual CPEO applicant basis. The status of other CPEO applicants and CPEOs in the controlled group is not affected if the CPEO applicant is denied certification because the annual audited financial statements reflect that the CPEO applicant has negative working capital and the CPEO applicant fails to meet the exception described in section 2.05(4).

(7) Fiscal year . A fiscal year will be considered completed once the last day of that fiscal year has ended, regardless of whether the CPEO applicant was in operation or certified for all 12 months of the fiscal year or the fiscal year consisted of fewer than 12 months.

.06 Submission of quarterly assertions, attestations, and working capital state- ments . For the most recently completed calendar quarter as of the date of its application for certification, a CPEO applicant must submit through its IRS Online Registration System account an assertion, as described in section 2.06(1), that it has withheld and made deposits of all federal employment taxes for which the CPEO applicant is liable for the quarter; an examination level attestation from a CPA, as described in section 2.06(2), stating that this assertion is fairly stated in all material respects; and a statement verifying that the CPEO applicant has positive working capital, as described in section 2.06(3). The CPEO applicant must continue to provide this documentation for every subsequently completed calendar quarter during which its application for certification is pending for some or all of the quarter. This documentation must be provided by the last day of the second month after the end of each subsequent quarter, even if the CPEO applicant receives its certification before this deadline.

(1) Assertion . The assertion must be signed under penalties of perjury by a responsible individual of the CPEO applicant and state that the CPEO applicant has withheld and made deposits of all federal employment taxes for the calendar quarter as required by subtitle C of the Code (except that federal employment taxes imposed by chapter 23 are not required to be included in the assertion).

(2) Examination level attestation . The examination level attestation from a CPA

must state that the assertion described in section 2.06(1) is fairly stated in all material respects and complies with the requirements of the American Institute of Certified Public Accountants’ Statements of Standards for Attestation Engagements, including the specific requirements for Examination Reports. The attestation must be accompanied by a written declaration, signed by the CPA or the accounting firm where the CPA is employed or is an owner, or with which the CPA is otherwise affiliated, that the CPA is currently qualified as a CPA. A CPEO applicant will not fail to meet the requirements of this section 2.06(2) if the examination level attestation indicates that the CPEO applicant has failed to withhold or make deposits in certain immaterial respects, provided that- (a) The attestation provides a summary of the immaterial failures that were found;

(b) The attestation states that, and explains why, the failures were immaterial and isolated (including how the failures were addressed, if applicable) and do not reflect a meaningful lapse in compliance with federal employment tax withholding and deposit requirements; and

(c) The IRS determines, in its sole discretion, that the isolated and immaterial failures identified by the CPA do not present a material risk to the IRS’s collection of federal employment taxes.

(3) Statement of positive working capi- tal . The statement verifying positive working capital must be signed by a responsible individual under penalties of perjury and verify that the CPEO applicant has positive working capital (as defined by GAAP) with respect to the most recently completed fiscal quarter. The statement must include a detailed calculation of the CPEO applicant’s working capital and be accompanied by a copy of the CPEO applicant’s unaudited financial statements for the most recently completed fiscal quarter, if such statements are available. A CPEO applicant will not fail to meet the requirements of this section 2.06(3) as a result of having negative working capital at the end of the fiscal quarter if- (a) The CPEO applicant does not have negative working capital at the end of each of the two fiscal quarters immediately preceding such fiscal quarter, as demonstrated by the required annual audited financial statements described in section 2.05

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or the statements described in this section 2.06(3), or the submission of quarterly unaudited financial statements;

(b) The CPEO applicant provides a detailed calculation of its negative working capital, unaudited financial statements for the quarter, if available, and an explanation to the IRS describing the reason for negative working capital; and

(c) The IRS determines, in its sole discretion, that the negative working capital does not present a material risk to the IRS’s collection of federal employment taxes. The determination of whether the failure presents a material risk to the IRS’s collection of federal employment taxes may depend, in part, on whether the CPEO applicant has identified facts and circumstances that will result in positive working capital in the near future.

(4) CPEO applicant with precursor entity . If a CPEO applicant was not operating as a provider of employment-related services for all or part of the most recently completed calendar quarter as of the date of its application for certification or during any calendar quarter that ends while its application for certification is pending, the CPEO applicant must provide the assertion, examination level attestation, and working capital statement described in this section 2.06 with respect to any precursor entity, if applicable. The information required by this section 2.06(4) must be provided by the last day of the second month after the end of each applicable calendar quarter, beginning with the most recently completed calendar quarter as of the date of the application (or as of the date the entity became a precursor entity while the application was pending) and for all subsequent quarters while the application is pending and the CPEO applicant is not operating as a provider of employment-related services for all or any portion of a quarter.

(5) Quarterly assertions, attestations, and working capital statements for con- trolled groups . In satisfaction of the requirement in this section 2.06, if a CPEO applicant is a member of a controlled group of which other members are CPEO applicants or CPEOs, the CPEO applicant must submit the quarterly assertions and

attestations described in this section 2.06 for all CPEO applicants and CPEOs in the controlled group on a combined or consolidated controlled group basis, rather than for the CPEO applicant individually. The quarterly assertions and attestations must include the name and EIN of each CPEO and CPEO applicant in the controlled group. However, the quarterly working capital statement described in section 2.06(3) must relate to the CPEO applicant alone and must not be prepared on a combined or consolidated basis with other members of the controlled group. For purposes of the requirements of section 2.06(3), if it is unclear whether the CPEO applicant has positive or negative working capital for the last quarter of the fiscal year based on the combined or consolidated financial statements of the controlled group of which the CPEO applicant is a member, the IRS may request additional financial information about the individual CPEO applicant. The status of other CPEO applicants and CPEOs in the controlled group is not affected if the CPEO applicant is denied certification because the quarterly working capital statement described in section 2.06(3) reflects negative working capital and the CPEO applicant fails to meet the exception described in section 2.06(3).