To amend the Internal Revenue Code of 1986 to establish procedures relating to the attribution of errors in the case of third party payors of payroll taxes, and for other purposes.

This bill sets clear rules for when a payroll company or other third party handling payroll taxes can rely on an employer’s written certification, and who is responsible if that certification is wrong. If the payroll company knew or should have known there was an error, it can be responsible, but only for the part it should have known about; otherwise, the employer alone is responsible. It also says what “constructive knowledge” means and gives a safe harbor for payroll tax credits if the employer certified eligibility, the payroll company reported the credit accurately, and it verified total wages used to claim the credit. The IRS cannot delay an employer’s payroll tax credit or start an audit of that employer just because the payroll company filed an incorrect return for a different employer. The IRS may ask the payroll company for information it could otherwise require from the employer. “Third party payor” includes fiduciaries, agents, and professional employer organizations. These rules apply to audits, exams, and assessments started after the law takes effect.

Key points

• Who is affected: Employers that use payroll companies, payroll companies and similar third parties, and the IRS.
• What changes: Clear liability rules tied to employer certifications; a defined “constructive knowledge” standard with a safe harbor; no IRS delays or audits of one employer just because of another employer’s error through the same payroll company; and required record sharing upon request.
• When: Applies to audits, examinations, and assessments begun after enactment.