IRS revises EIN application process to enhance security, transparency

The IRS on March 27 announced that starting May 13, 2019, as part of its ongoing security review, only individuals with either a Social Security Number (SSN) or an Individual Tax Identification Number (ITIN) may be listed as the ‘responsible party’ on an entity’s Employer Identification Number (EIN) application, i.e., Form SS-4. This requirement to list an individual as the responsible party was included in the current Instructions to Form SS-4, released in December 2017. (See our insight Revised Form SS-4 instructions provide needed clarity.) Although this requirement was announced over a year ago, the IRS has continued to process applications for EINs — i.e., nine-digit TINs assigned to sole proprietors, corporations, partnerships, estates, trusts, employee retirement plans, and other entities for tax filing and reporting purposes — that list another entity and its EIN as the responsible party.
The March 27 announcement is intended to provide greater security and transparency to the EIN application process by requiring individuals to be designated as responsible parties. Entities and their advisors must be diligent in identifying the proper responsible officials and preparing to comply with this policy by May 13.

This responsible officer requirement prohibits entities from using their own EINs to obtain an EIN for a second entity. Federal, state, local, and tribal governmental and military (including state national guards) entities are exempt from the responsible party requirement. There are no changes for tax professionals who act as third-party designees for entities and complete the paper or online applications on behalf of clients. The March 27 announcement does not address how a business entity should complete its application for an EIN if the only individuals who meet the definition of ‘responsible party’ do not have SSNs or ITINs. The March 27 announcement also does not reference the current Instructions for Form SS-4 that provide that an SSN or ITIN does not have to be provided on the application if the responsible party does not have and is ineligible to
obtain an SSN or ITIN. The responsible party requirement applies to both (1) the paper Form SS-4 and (2) the online EIN application. The Instructions for Form SS-4 provide a detailed explanation of who should be the responsible party for various types of entities. The responsible party generally is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity.

The entity may decide which individual should be the responsible party if more than one person meets that definition. The entity also can change the responsible official designation by filing Form 8822-B, Change of Address or Responsible Party, within 60 days of a change.

 

The takeaway

The March 27 announcement makes clear that starting May 13, 2019, the IRS will begin enforcing the requirement that an individual with an SSN or ITIN must (1) be listed as the responsible party when an entity applies for an EIN and (2) list his or her SSN or ITIN on the application. The IRS no longer will accept applications for EINs that list abusiness entity as a responsible party (with limited exceptions). However, it remains to be seen whether the IRS will continue to allow a foreign individual who is ineligible to obtain an SSN or ITIN to be listed as the responsible party, as provided in the December 2017 Instructions for Form SS-4.

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