Reference: Chief Counsel Advice 201724025

An S corporation used a PEO to “lease” its employees with the contracted understanding that the PEO would remit all payroll taxes to the IRS.  The PEO failed to pay those taxes and the IRS concluded that they were still the liability of the S corporation employer in spite of its contract with the PEO.

The CCA did point out that IF the PEO goes through the process of being certified by the IRS, becoming a CPEO, then the S corporation would NOT have been held responsible for the CPEO’s failure to remit the taxes to the IRS.

Take away: If you’re using a PEO for “employee leasing,” be sure that they have gone through the process of being certified with the IRS and are a CPEO.