CPEOs: Outsource HR and Employee Management

A Professional Employer Organization (PEO) (or employer leasing company) provides a service under which an employer can outsource the burdens associated with human resources, payroll administration, and benefits negotiation. Specifically, PEOs advertise the following benefits to their services:

1.      Expert payroll, employee benefits, and personnel administration—from simple payroll and benefits compliance to complete human resources administration. Many PEOs market their services as freeing businesses from payroll administration and personnel matters.

2.      The ability to get larger group discounts on medical and retirement benefits, more comprehensive fringe benefit programs and, possibly, improved worker's compensation rates.

If your businesses is experiencing one or more of the following problems, you may want to look into utilizing a PEO: (1) delinquent payroll taxes; (2) payroll and/or benefit administration headaches; (3) spiraling benefit costs; (4) inability to retain key employees because of the lack of a competitive benefits program; (5) difficulty hiring good employees; or (6) exposure to discrimination, immigration, or employee benefit claims.

Relationships with PEOs can be structured in numerous ways, depending on the PEO and the business. However, up until now, regardless of the type of arrangement and even if all the employment tax obligations are performed by the PEO, the employer remained liable for employment taxes for wages the PEO paid to its employees. Fortunately, a new type of PEO that may be worth looking into has recently hit the market—a Certified PEO, or CPEO. CPEOs offer a number of benefits over a traditional PEO.Most importantly, the CPEO is solely liable for the federal employment taxes of certain workers covered under the CPEO contract. This means that  you, the employer, are not liable for these payroll taxes if the CPEO fails in taking care of them.

CPEOs receive their certification from the IRS by meeting a number of requirements, including posting a bond, paying a $1,000 annual fee and submitting audited financial statements to the IRS. A list of CPEOs can be found on irs.gov on the “Voluntary Certification Program for Professional Employer Organizations (CPEOs)” page. Click on the “CPEO Public Listing” link in the left hand column. This list should continue to grow as the IRS certifies more PEOs.

If you have any questions or need assistance in this or any other matter, please give us a call. We stand ready to help.

How to deduct Charitable Contributions

One of the most popular deductions for taxpayers is the one allowed for donations to charitable organizations—from the local church or synagogue to the Red Cross and various other national organizations. Unfortunately, over the last several decades, this deduction has been among the most abused. Thus, perhaps it’s not surprising that Congress has responded to the problem by regularly enacting more rules around documenting donations.

What we’re left with is a confusing array of rules that you have to comply with in order to claim a deduction. A recent Tax Court case illustrates how easy it is to run afoul of the documentation requirements.

In the case, a partnership purchased a remainder interest in a web hosting facility for $2.95 million. The following year, it assigned the remainder interest to the University of Michigan. On its federal income tax return, the partnership claimed a charitable contribution deduction of approximately $33 million. Because the value of the donated property exceeded $5,000, the partnership got a formal appraisal and filed Form 8283 (Noncash Charitable Contributions) with its return. However, the space on the form was left blank for the partnership’s cost or other adjusted basis of the remainder interest.

Upon audit of the partnership, the IRS disallowed the charitable contribution deduction. It claimed the partnership had failed to comply with the substantiation requirements because it omitted a key part of Form 8283. The partnership, however, argued that it had substantially complied with the regulations. The Tax Court sided with the IRS, finding that the partnership’s omission of the basis amount prevented the appraisal summary from achieving its intended purpose. In other words, if the partnership had disclosed its basis in the remainder interest, the IRS would have seen the huge disparity between the amount of the deduction and the price the partnership had paid for the property.

While this letter has given you just a glimpse at the substantiation rules for charitable donations, the rules can get much more complicated. This is because the requirements vary based on donation type (cash versus property) and the value of the property contributed. We’d be happy to discuss with you any of the requirements for specific types of donations. Please feel free to call us as the need arises.