SECTION 9. SUSPENSION

AND REVOCATION OF CPEO CERTIFICATION

.01 In general . The IRS may suspend and revoke the certification of any CPEO as a result of one or more failures to comply with any of the requirements for CPEOs described in sections 3511 and 7705, §§ 31.3511-1, 301.7705-1, and

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301.7705-2, this revenue procedure, and any applicable subsequent guidance, and will do so if the IRS determines, in its sole discretion and based on a review of the relevant facts and circumstances, that one or more such failures present a material risk to the IRS’s collection of federal employment taxes. In determining whether one or more failures present a material risk, the IRS generally will consider all relevant facts and circumstances, including the size, scope, nature, significance, recurrence, and timing of and reason for the failure and, in the case of a CPEO, any prior failures of the CPEO to meet the requirements of sections 3511 and 7705, §§ 31.3511-1, 301.7705-1, and 301.77052, this revenue procedure, and any applicable subsequent guidance. In examining the facts and circumstances concerning one or more failures to comply with CPEO program requirements, the IRS has sole discretion in determining which facts and circumstances are relevant and should be considered, and how those relevant facts and circumstances affect the determination as to whether the failures present a material risk. Section 9.02 provides examples of specific failures that may result in the issuance of a notice of suspension and proposed revocation, the consequences of which are described in section 9.03(1). A CPEO may request review of the proposed revocation, in the manner described in section 9.03(2), which may result in the lifting of the suspension or the issuance of a notice of final revocation. Consequences of revocation of certification are described in section 9.09.

.02 Specific failures resulting in sus- pension and proposed revocation . Specific circumstances that may result in suspension and proposed revocation of certification include, but are not limited to- (1) Failure to complete annual and quarterly requirements . A failure to timely complete an annual verification, timely submit annual audited financial statements and an accompanying CPA opinion, or timely submit a quarterly assertion, attestation, or working capital statement, as provided in sections 8.02, 8.04, and 8.05;

(2) Failure to maintain bond . A failure to maintain a bond or bonds in the required bond amount, as provided in section 8.03;

(3) Failure to satisfy reporting re- quirements or report a material change . A failure to satisfy the reporting requirements provided in section 8.06, including a failure of the CPEO or a responsible individual of the CPEO to notify the IRS of a material change (as provided in sections 8.06(3) and 8.06(4)); (4) Criminal Offenses . The charging or conviction of the CPEO, or a related entity or a responsible individual of the CPEO, with or for any criminal offense under the laws of the United States or a state or political subdivision;

(5) IRS Criminal Investigation . The CPEO, or a related entity or a responsible individual of the CPEO, being the subject of an active IRS criminal investigation;

(6) Failure to pay or report taxes . A failure (other than an immaterial and isolated failure that does not reflect a meaningful lapse in compliance with federal employment tax withholding and deposit requirements) by the CPEO or any responsible individual to pay any applicable federal, state, or local taxes or file any required federal, state, or local tax or information returns in a timely and accurate manner, unless the failure is determined to be due to reasonable cause and not due to willful neglect;

(7) Tax Fraud . The assessment of fraud penalties against the CPEO or any of its responsible individuals or related entities by the IRS or another tax authority; and

(8) Errors or omissions . The discovery of any errors or omissions in any annual audited financial statements, working capital statements, or CPEO application previously submitted to the IRS in accordance with sections 2.05, 2.06, 8.04 and 8.05, and § 301.7705-2(e) and (f), that would require a restatement of previously submitted statements.

.03 Notice of suspension and proposed revocation . If the IRS CPEO program office determines that suspension and proposed revocation of certification is appropriate, the IRS will issue a notice of

suspension and proposed revocation to the CPEO through the CPEO’s IRS Online Registrations System account that will explain the reason(s) for and consequences of the suspension and proposed revocation, as described in section 9.03(1), and advise the CPEO of its opportunity to request review of the proposed revocation, as described in section 9.03(2). The CPEO’s suspension is effective as of the date on the notice. For questions concerning the specific reasons for suspension and proposed revocation, the consequences of suspension and proposed revocation, or questions concerning the review process, the CPEO may contact the individual listed at the top of the notice of suspension and proposed revocation. ⁴

(1) Consequences of suspension of cer- tification . Within 10 days of the date of the notice of suspension and proposed revocation, the CPEO must provide written notice to its customers of its suspended status and upload a copy of this notice to its IRS Online Registration System account. Moreover, the IRS will include the suspended CPEO in the published list of suspended CPEOs, available on IRS.gov, and may also individually notify the CPEO’s customers of the suspension. A CPEO that has received a notice of suspension and proposed revocation is still responsible for meeting all applicable certification requirements in the regulations, this revenue procedure, and any applicable subsequent guidance. However, section 3511 will not apply to any new CPEO contract (not including modifications to, or extensions of, existing contracts) that the CPEO enters into while its certification is suspended. Notwithstanding the foregoing, any new CPEO contract entered into while the CPEO’s certification is suspended is still subject to the applicable provisions of § 31.3511-1(g) and sections 8.06(1), (2), and (6), assuming the contract otherwise constitutes a service agreement described in § 31.3504-2(b)(2).

(2) Request for review of proposed re- vocation . A notice of suspension and proposed revocation will advise the CPEO of its opportunity to request review of the

4 In order for the individual requesting further information to discuss a return of the CPEO or a related entity of the CPEO with the IRS, the individual must be authorized by section 6103(e) to inspect the return of the CPEO or related entity or have a Form 8821, Tax Information Authorization, for that CPEO or related entity and that return on file with the IRS.

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proposed revocation. To request a review, the CPEO, using its IRS Online Registration account, must submit, within 30 days of the date of the notice, a written request for review that contains a statement of the facts, law, and arguments in support of the CPEO’s position, including a description of the actions it has taken, is taking, or intends to take to cure the failure(s) identified in the notice (if possible) and to prevent the failure(s) from reoccurring. The arguments in support of the CPEO’s position should focus on the factual information being provided by the CPEO concerning its failure(s) to comply with the requirements for CPEOs and on the factual information being provided as evidence disputing any underlying facts on which the IRS based its conclusion, as well as on the actions it has taken or intends to take to cure the failure(s) (if possible) and to prevent the failure(s) from reoccurring. Although arguments concerning whether the actions the CPEO has taken or intends to take have cured or will cure the failure(s) (if possible) and will prevent the failure(s) from reoccurring are appropriate for the CPEO to make in its request for review, arguments concerning whether the failure(s) presented or continue to present a material risk to the IRS’s collection of federal employment taxes are outside the scope of review and will not be considered.

(3) Administrative Record . Subject to the exceptions in sections 9.05(1) and (3), after a CPEO has submitted a written request for review, the CPEO may not submit any additional information as part of its request for review or any additional arguments in support of the CPEO’s position. The IRS CPEO program office will not consider any information or arguments described in the preceding sentence as part of the IRS CPEO program office’s handling of the request for review under section 9.05, unless new information is provided pursuant to section 9.05(1) or (3). The IRS CPEO program office also will not forward any such information or arguments to OPR under section 9.05(5), unless new information is provided pursuant to section 9.05(1) or (3).

(4) Extension of time to request review. The IRS CPEO program office may extend the deadline for submitting a request for review by an additional 30 days. To

request this 30-day extension, a CPEO must submit a written request through its IRS Online Registration System account and include an explanation of the need for the extension. A CPEO must submit its request not later than 20 days after the date of the notice of suspension and proposed revocation. A CPEO may request only one extension.

(a) The IRS CPEO program office will grant the extension if, in its sole discretion and based on a review of the relevant facts and circumstances, it determines that the extension is in the interest of sound tax administration.

(b) A request for an extension, a denial of an extension, or any other matter related to this section 9.03(4) is not subject to the review described in section 9, including section 9.06.

.04 Notice of final revocation issued if no request for review of the proposed re- vocation is submitted . If the CPEO does not timely submit a request for review of the proposed revocation in accordance with section 9.03(2), including any extension of time under section 9.03(4), a notice of final revocation will be issued to the CPEO by the IRS CPEO program office.

.05 How the IRS handles a request for review of the proposed revocation . The IRS CPEO program office will first review the request to determine if the CPEO’s actions have cured or will cure the failure(s) (if possible) and will prevent the failure(s) from reoccurring, so that the suspension can be lifted.

(1) Request for additional Information . In reviewing a CPEO’s request for review, the IRS CPEO program office may request additional information from the CPEO, if it determines that further materials are required to sufficiently evaluate the initial request for review.

(a) The CPEO must provide the requested information or materials by the date specified in the request. The IRS CPEO program office will consider any request by the CPEO for an extension of the time by which the requested information or materials must be provided on a case-by-case basis.

(b) In accordance with section 9.03(3), a CPEO should not send any additional information or documentary materials to the IRS CPEO program office, unless the

information or materials are requested, and the IRS CPEO program office will not consider any unrequested information or materials received from the CPEO.

(c) Similarly, if the IRS CPEO program office requests additional information or materials, the IRS CPEO program office will also not consider any additional information or materials not timely provided by the CPEO (by the date specified in the request or any extended date) or that is not factually responsive to or is outside the scope of the request.

(2) IRS CPEO Program Office Review . In conducting its review, the IRS CPEO program office will consider the initial request for review, any additional information and documentation requested by the IRS CPEO program office and provided by the CPEO as part of the review process, any additional failures, as defined in section 9.05(3), to comply with any of the requirements for CPEOs that arise after the issuance of the notice of suspension and proposed revocation, and any timely responses by the CPEO to the additional failures.

(3) Additional Failures . Before referring a suspension and proposed revocation to OPR for review, the IRS CPEO program office will provide written notice to the CPEO of, and give the CPEO additional time to respond to, any failures to comply with any of the requirements for CPEOs that have arisen or were discovered since the notice of suspension and proposed revocation was issued. The CPEO must provide any response to the additional failures by the date specified by the IRS CPEO program office. The IRS CPEO program office will consider any request by the CPEO for an extension of the time by which the response must be provided on a case-by-case basis. The IRS CPEO program office will not consider any additional information or materials not timely provided by the CPEO by the date specified in the request or any extended date or that is not factually responsive to or is outside the scope of the request.

(4) Lifting the suspension . If the IRS CPEO program office finds that the CPEO’s actions have cured or will cure the failure(s) (if possible) and will prevent the failure(s) from reoccurring, the suspension will be lifted. The IRS CPEO program office will provide to the CPEO writ

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ten notice of this finding that will include the date the suspension is lifted. Section 3511 will apply to any new CPEO contract that the CPEO enters into on or after the date the suspension is lifted. However, section 3511 does not apply to any CPEO contract that the CPEO entered into while it was suspended. The IRS will remove the listed CPEO from the published list of suspended CPEOs as soon as practicable, but no later than the next update of the list that occurs after the suspension is lifted.

(5) Forwarding to OPR . If, upon review of the CPEO’s request for review of the proposed revocation, the IRS CPEO program office determines that the CPEO’s actions have not cured or will not cure the failure(s) and will not prevent the failure(s) from reoccurring, it will forward the administrative record to OPR for review. The administrative record will consist of the notice of suspension and proposed revocation, the CPEO’s request for review, the IRS CPEO program office’s written analysis in response to the CPEO’s request for review, any other information timely provided by the CPEO in response to a request by the IRS CPEO program office, including with regard to any additional failures, and all accompanying supporting documentation, to OPR. The administrative record will include only information about (i) failures that were stated in the notice of suspension and proposed revocation or in a notice described in section 9.05 and all supporting documentation; and (ii) failures related to the IRS CPEO program office’s determination, upon review of all information subject to consideration under sections 9.03(2) and 9.05(1)-(3), that the CPEO’s actions have not cured or will not cure the failure(s) and will not prevent the failure(s) from reoccurring. The IRS CPEO program office will notify the CPEO when it forwards the administrative record to OPR for review, including the forwarding date.

.06 Consideration by OPR . (1) OPR Consideration . OPR will consider only the information provided in the administrative record.

(2) Conducting the review . (a) During OPR’s review, subject to the exception described in section 9.06(2)(b), neither the IRS CPEO program office, nor the CPEO may contact OPR with respect

to the pending review, except as provided below, and OPR will not contact the IRS CPEO program office or the CPEO or its authorized representative with respect to the pending review. Further, except as provided below, during OPR’s review, a CPEO and its authorized representative may not:

(i) Submit any information or documentation to OPR;

(ii) Request or offer to have a telephone conference with OPR;

(iii) Request the name or contact information of any OPR employee who has been assigned to conduct the review; or

(iv) Attempt to contact the OPR employee, such as by telephone or email.

(b) Notwithstanding 9.06(2)(a), the IRS CPEO program office and the CPEO may contact OPR to request the status of a pending review and an estimate of when OPR expects to complete its review. Either OPR or the CPEO program office will provide the CPEO applicant with contact information for these purposes.

(c) All communications between OPR and either the CPEO applicant or the IRS CPEO program office will conform to current IRS security and authentication policies and procedures, as applicable.

(3) OPR will establish procedures to ensure that no additional information is considered . To facilitate an independent review, OPR will establish procedures to ensure that any information from a CPEO or authorized representative that is sent to OPR outside of the administrative record, will not be considered.

(4) Standard of review . OPR will apply an abuse of discretion standard to its review, and if, applying this standard, OPR finds that the IRS CPEO program office erred (i) in proposing revocation; or (ii) in determining that the CPEO’s actions have not cured or will not cure the failure(s) (if possible) and will not prevent the failure(s) from reoccurring, the CPEO’s certification will not be revoked, and its suspension will be lifted. Under an abuse of discretion standard, the Director, OPR will not set aside the IRS CPEO program office’s determination unless the determination is arbitrary, capricious, clearly unlawful, or without a sound basis in fact or law. See Ewing, 122 T.C. at 39, see also Woodral, 112 T.C. at 23 (1999).

(5) Written Notice . If OPR finds no abuse of discretion, OPR will provide written notice of its finding to both the CPEO and the IRS CPEO program office and will issue a notice of final revocation to the CPEO, which is described in section 9.08. If OPR concludes that the IRS CPEO program office’s determination constituted an abuse of discretion, OPR will provide written notice of its finding to both the CPEO and the IRS CPEO program office, which will include the date the suspension is lifted. As of the date the suspension is lifted, the CPEO will be restored to full status as a CPEO, section 3511 will once again apply to any new CPEO contract that the CPEO enters into. However, section 3511 does not apply to any CPEO contracts that the CPEO entered into while it was suspended. The IRS will remove the listed CPEO from the list of suspended CPEOs as soon as practicable, but no later than the next update of the list that occurs after the suspension is lifted.

.07 A request for review may be with- drawn . A CPEO may withdraw its request for review of the notice of proposed revocation before OPR provides written notice of its finding to the CPEO. A request for review may be withdrawn only upon the written request of an application submitter, submitted through the CPEO’s IRS Online Registration System account. Upon receipt of the CPEO’s withdrawal request, the IRS will issue a notice of final revocation.

.08 Notice of final revocation . The notice of final revocation will incorporate by reference the notice of suspension and proposed revocation (including an explanation of the reason(s) for the suspension and proposed revocation) and explain the consequences of revocation of certification, as described in section 9.09. If the CPEO requested review of the proposed revocation (and did not withdraw its request for review), the notice of final revocation will also include additional discussion of the IRS’s rationale for revocation of certification in response to arguments made in the CPEO’s request for review. The notice of final revocation will state the effective date of the revocation, which will ordinarily be the first day of the first quarter following the date of the notice of final revocation.

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.09 Consequences of revocation . A CPEO is no longer a CPEO as of the effective date of revocation stated in the notice of final revocation, and the provisions of section 3511 no longer apply to the organization as of that date. Unless otherwise stated in the notice of final revocation, within 10 days after the date of the notice of final revocation, the former CPEO must provide written notice to each of its customers that its CPEO certification has been revoked, that the provisions of section 3511 no longer apply to the customer’s relationship with the former CPEO, and that the customers may also be liable (as of the effective date of revocation) for federal employment taxes imposed on remuneration remitted by the former CPEO to all employees covered by the customer’s contract with the former CPEO. The former CPEO will also be removed from the list of CPEOs that the IRS publishes on IRS.gov, which is updated by the 15th day of the first month of every calendar quarter. Moreover, the IRS will include the former CPEO in the published list of revoked CPEOs, available on IRS.gov, as soon as practicable, but no later than the next update of the list that occurs after the effective date of revocation, and may also individually notify the former CPEO’s customers of the revocation.

.10 Reapplication after revocation . A former CPEO whose certification has been revoked may not reapply to be certified as a CPEO until one year has passed after the effective date of its revocation. In seeking re-certification, the former CPEO must submit a completely new application, complying with the applicable procedures set forth in sections 2 thru 8 concerning application for and maintenance of certification. As part of the re-application process, the former CPEO must disclose that it has previously been certified and that its CPEO certification was revoked, provide the reasons for the revocation and explain what procedures the former CPEO has taken in the time since the revocation to ensure that it no longer poses a material risk to the IRS’s collection of federal employment taxes. Specifically, the former CPEO should explain procedures that were instituted in order to correct its past failures and should describe how those procedures will prevent any new failures to comply with the requirements

of a CPEO, were it to be certified again. The former CPEO must also submit to the IRS CPEO program office a copy of the written notice sent to the clients informing them of the former CPEO’s revocation, and a list of the clients that were notified of the former CPEO’s revocation.