The IRS issued emailed advice discussing Certified Professional Employer Organizations (CPEO) and self-employed individuals that has general information on the issue of a partner or proprietor being as an employee when such an organization is used. ECC 201916004 restates the IRS’s view that such individuals generally cannot be treated as an employee of the unincorporated entity they hold an ownership interest in.
First, the ruling clarifies that IRC §3511, which generally provides protection for the taxes that end up not being deposited by a CPEO, does not apply to self-employed individuals:
The reporting of amounts paid to self-employed individuals is provided for in section 6041. CPEOs must report remuneration they pay to self-employed individuals (within the meaning of section 6041 and the regulations thereunder) in accordance with the rules under these and other applicable provisions. Section 3511(f) of the Code provides that a self-employed individual is not a work site employee with respect to remuneration paid by a CPEO to the self-employed individual. Section 3511(c) provides that a CPEO is not treated as an employer of a self-employed individual. Consistent with these two provisions, section 31.3511-1(f)(2) of the proposed regulations provides that section 3511 does not apply to any self-employed individual.Read More