Text: H.R.2447 — 111th Congress (2009-2010)All Information (Except Text)

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Introduced in House (05/14/2009)


111th CONGRESS
1st Session
H. R. 2447


To amend the Internal Revenue Code of 1986 to clarify the employment tax treatment and reporting of wages paid by professional employer organizations.


IN THE HOUSE OF REPRESENTATIVES

May 14, 2009

Mr. Pomeroy (for himself and Mr. Brady of Texas) introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To amend the Internal Revenue Code of 1986 to clarify the employment tax treatment and reporting of wages paid by professional employer organizations.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “Small Business Efficiency Act of 2009”.

SEC. 2. No inference.

Nothing contained in this Act or the amendments made by this Act shall be construed to create any inference with respect to the determination of who is an employee or employer—

(1) for Federal tax purposes (other than the purposes set forth in the amendments made by section 3), or

(2) for purposes of any other provision of law.

SEC. 3. Certified professional employer organizations.

(a) Employment taxes.—Chapter 25 of the Internal Revenue Code of 1986 (relating to general provisions relating to employment taxes) is amended by adding at the end the following new section:

“SEC. 3511. Certified professional employer organizations.

“(a) General rules.—For purposes of the taxes imposed by this subtitle—

“(1) a certified professional employer organization shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization, but only with respect to remuneration remitted by such organization to such work site employee, and

“(2) the exemptions and exclusions which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.

“(b) Successor employer status.—For purposes of sections 3121(a) and 3306(b)(1)—

“(1) a certified professional employer organization entering into a service contract with a customer with respect to a work site employee shall be treated as a successor employer and the customer shall be treated as a predecessor employer during the term of such service contract, and

“(2) a customer whose service contract with a certified professional employer organization is terminated with respect to a work site employee shall be treated as a successor employer and the certified professional employer organization shall be treated as a predecessor employer.

“(c) Liability with respect to work site employees.—

“(1) GENERAL RULES.—Solely for purposes of its liability for the taxes imposed by this subtitle—

“(A) the certified professional employer organization shall be treated as the employer of any individual (other than a work site employee or a person described in subsection (e)) who is performing services covered by a contract meeting the requirements of section 7705(e)(2), but only with respect to remuneration remitted by such organization to such individual, and

“(B) the exemptions and exclusions which would (but for subparagraph (A)) apply shall apply with respect to such taxes imposed on such remuneration.

“(d) Special rule for related party.—Subsection (a) shall not apply in the case of a customer which bears a relationship to a certified professional employer organization described in section 267(b) or 707(b). For purposes of the preceding sentence, such sections shall be applied by substituting ‘10 percent’ for ‘50 percent’.

“(e) Special rule for certain individuals.—For purposes of the taxes imposed under this subtitle, an individual with net earnings from self-employment derived from the customer’s trade or business (including a partner in a partnership that is a customer), is not a work site employee with respect to remuneration paid by a certified professional employer organization.

“(f) Regulations.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.”.

(b) Certified professional employer organization defined.—Chapter 79 of such Code (relating to definitions) is amended by adding at the end the following new section:

“SEC. 7705. Certified professional employer organizations.

“(a) In general.—For purposes of this title, the term ‘certified professional employer organization’ means a person who applies to be treated as a certified professional employer organization for purposes of section 3511 and who has been certified by the Secretary as meeting the requirements of subsection (b).

“(b) Certification.—A person meets the requirements of this subsection if such person—

“(1) demonstrates that such person (and any owner, officer, and such other persons as may be specified in regulations) meets such requirements as the Secretary shall establish with respect to tax status, background, experience, business location, and annual financial audits,

“(2) represents that it will satisfy the bond and independent financial review requirements of subsections (c) on an ongoing basis,

“(3) represents that it will satisfy such reporting obligations as may be imposed by the Secretary,

“(4) computes its taxable income using an accrual method of accounting unless the Secretary approves another method,

“(5) agrees to verify the continuing accuracy of representations and information which was previously provided on such periodic basis as the Secretary may prescribe, and

“(6) agrees to notify the Secretary in writing of any change that materially affects the continuing accuracy of any representation or information which was previously made or provided.

“(c) Requirements.—

“(1) IN GENERAL.—An organization meets the requirements of this paragraph if such organization—

“(A) meets the bond requirements of subparagraph (2), and

“(B) meets the independent financial review requirements of subparagraph (3).

“(2) BOND.—

“(A) IN GENERAL.—A certified professional employer organization meets the requirements of this paragraph if the organization has posted a bond for the payment of taxes under subtitle C (in a form acceptable to the Secretary) that is in an amount at least equal to the amount specified in subparagraph (B).

“(B) AMOUNT OF BOND.—

“(i) IN GENERAL.—For the period April 1 of any calendar year through March 31 of the following calendar year, the amount of the bond required is equal to the greater of—

“(I) 5 percent of the organization’s liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year (but not to exceed $1,000,000), or

“(II) $50,000.

“(ii) SPECIAL RULE FOR NEWLY CREATED PROFESSIONAL EMPLOYER ORGANIZATIONS.—During the first three full calendar years that an organization is in existence, subclause (I) of clause (i) shall not apply. For this purpose—

“(I) under rules provided by the Secretary, an organization is treated as in existence as of the date that such organization began providing services to any client which were comparable to the services being provided with respect to work site employees, regardless of whether such date occurred before or after the organization is certified under subsection (b), and

“(II) an organization with liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year in excess of $5,000,000 shall no longer be described in this clause (ii) as of April 1 of the year following such calendar year.

“(3) INDEPENDENT FINANCIAL REVIEW REQUIREMENTS.—A certified professional employer organization meets the requirements of this subparagraph if such organization—

“(A) has, as of the most recent audit date, caused to be prepared and provided to the Secretary (in such manner as the Secretary may prescribe) an opinion of an independent certified public accountant as to whether the certified professional employer organization’s financial statements are presented fairly in accordance with generally accepted accounting principles, and

“(B) provides to the Secretary an assertion regarding Federal employment tax payments and an examination level attestation on such assertion from an independent certified public accountant not later than the last day of the second month beginning after the end of each calendar quarter. Such assertion shall state that the organization has withheld and made deposits of all taxes imposed by chapters 21, 22, and 24 of the Internal Revenue Code in accordance with regulations imposed by the Secretary for such calendar quarter and such examination level attestation shall state that such assertion is fairly stated, in all material respects.

“(4) SPECIAL RULE FOR SMALL CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.—The requirements of paragraph (3)(A) shall not apply with respect to a fiscal year of an organization if such organization’s liability under section 3511 for taxes imposed by subtitle C during the calendar year ending on (or concurrent with) the end of the fiscal year were $5,000,000 or less.

“(5) CONTROLLED GROUP RULES.—For purposes of the requirements of paragraphs (2), (3) and (4), all professional employer organizations that are members of a controlled group within the meaning of sections 414(b) and (c) shall be treated as a single organization.

“(6) FAILURE TO FILE ASSERTION AND ATTESTATION.—If the certified professional employer organization fails to file the assertion and attestation required by paragraph (3) with respect to a particular quarter, then the requirements of paragraph (3) with respect to such failure shall be treated as not satisfied for the period beginning on the due date for such attestation.

“(7) AUDIT DATE.—For purposes of paragraph (3)(A), the audit date shall be six months after the completion of the organization’s fiscal year.

“(d) Suspension and revocation authority.—The Secretary may suspend or revoke a certification of any person under subsection (b) for purposes of section 3511 if the Secretary determines that such person is not satisfying the representations or requirements of subsections (b) or (c), or fails to satisfy applicable accounting, reporting, payment, or deposit requirements.

“(e) Work site employee.—For purposes of this title—

“(1) IN GENERAL.—The term ‘work site employee’ means, with respect to a certified professional employer organization, an individual who—

“(A) performs services for a customer pursuant to a contract which is between such customer and the certified professional employer organization and which meets the requirements of paragraph (2), and

“(B) performs services at a work site meeting the requirements of paragraph (3).

“(2) SERVICE CONTRACT REQUIREMENTS.—A contract meets the requirements of this paragraph with respect to an individual performing services for a customer if such contract is in writing and provides that the certified professional employer organization shall—

“(A) assume responsibility for payment of wages to the individual, without regard to the receipt or adequacy of payment from the customer for such services,

“(B) assume responsibility for reporting, withholding, and paying any applicable taxes under subtitle C, with respect to the individual’s wages, without regard to the receipt or adequacy of payment from the customer for such services,

“(C) assume responsibility for any employee benefits which the service contract may require the certified professional employer organization to provide, without regard to the receipt or adequacy of payment from the customer for such services,

“(D) assume responsibility for hiring, firing and for recruiting workers in addition to the customer’s responsibility for hiring, firing and recruiting workers,

“(E) maintain employee records relating to the individual, and

“(F) agree to be treated as a certified professional employer organization for purposes of section 3511 with respect to such individual.

“(3) WORK SITE COVERAGE REQUIREMENT.—The requirements of this paragraph are met with respect to an individual if at least 85 percent of the individuals performing services for the customer at the work site where such individual performs services are subject to 1 or more contracts with the certified professional employer organization which meet the requirements of paragraph (2) (but not taking into account those individuals who are excluded employees within the meaning of section 414(q)(5)).

“(f) Determination of employment status.—Except to the extent necessary for purposes of section 3511, nothing in this section shall be construed to affect the determination of who is an employee or employer for purposes of this title.

“(g) Regulations.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.”.

(c) Conforming amendments.—

(1) Section 45B of such Code (relating to credit for portion of employer social security taxes paid with respect to employees with cash tips) is amended by adding at the end the following new subsection:

“(e) Certified professional employer organizations.—For purposes of this section, in the case of a certified professional employer organization that is treated, under section 3511, as the employer of a work site employee who is a tipped employee, the credit determined under this section does not apply to such organization, but does apply to the customer of such organization with respect to which the work site employee performs services. For this purpose the customer shall take into account any remuneration and taxes remitted by the certified professional employer organization.”.

(2) Section 3302 of such Code is amended by adding at the end the following new subsection:

“(h) Treatment of certified professional employer organizations.—If a certified professional employer organization (as defined in section 7705) (or a client of such organization) makes a payment to the State’s unemployment fund with respect to a work site employee, such organization shall be eligible for the credits available under this section with respect to such payment.”.

(3) Section 3303(a) of such Code is amended—

(A) by striking the period at the end of paragraph (3) and inserting “; and” and by inserting after paragraph (3) the following new paragraph:

“(4) a certified professional employer organization (as defined in section 7705) is permitted to collect and remit, in accordance with paragraphs (1), (2), and (3), contributions during the taxable year to the State unemployment fund with respect to a work site employee.”, and

(B) in the last sentence—

(i) by striking “paragraphs (1), (2), and (3)” and inserting “paragraphs (1), (2), (3), and (4)”, and

(ii) by striking “paragraph (1), (2), or (3)” and inserting “paragraph (1), (2), (3), or (4)”.

(4) Section 6053(c) of such Code (relating to reporting of tips) is amended by adding at the end the following new paragraph:

“(8) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.—For purposes of any report required by this section, in the case of a certified professional employer organization that is treated, under section 3511, as the employer of a work site employee, the customer with respect to whom a work site employee performs services shall be the employer for purposes of reporting under this section and the certified professional employer organization shall furnish to the customer any information necessary to complete such reporting no later than such time as the Secretary shall prescribe.”.

(d) Clerical amendments.—

(1) The table of sections for chapter 25 of such Code is amended by adding at the end the following new item:


“Sec. 3511. Certified professional employer organizations.”.

(2) The table of sections for chapter 79 of such Code is amended by inserting after the item relating to section 7704 the following new item:


“Sec. 7705. Certified professional employer organizations.”.

(e) Reporting requirements and obligations.—The Secretary of the Treasury shall develop such reporting and recordkeeping rules, regulations, and procedures as the Secretary determines necessary or appropriate to ensure compliance with the amendments made by this Act with respect to entities applying for certification as certified professional employer organizations or entities that have been so certified. Such rules shall be designed in a manner which streamlines, to the extent possible, the application of requirements of such amendments, the exchange of information between a certified professional employer organization and its customers, and the reporting and recordkeeping obligations of the certified professional employer organization.

(f) User fees.—Subsection (b) of section 7528 of such Code (relating to Internal Revenue Service user fees) is amended by adding at the end thereof the following new paragraph:

“(4) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.—The fee charged under the program in connection with the certification by the Secretary of a professional employer organization under section 7705 shall not exceed $500.”.

(g) Effective dates.—

(1) IN GENERAL.—The amendments made by this Act shall take effect on the January 1st of the first calendar year beginning more than 12 months after the date of the enactment of this Act.

(2) CERTIFICATION PROGRAM.—The Secretary of the Treasury shall establish the certification program described in section 7705(b) of the Internal Revenue Code of 1986 not later than 6 months before the effective date determined under paragraph (1).