The Internal Revenue Service (IRS) in December 2017 released a revised Form SS-4, Application for Employer Identification Number (EIN), and accompanying instructions.The revisions provide much needed clarity to applicants with respect to completing certain entries on the form. The most noteworthy change is the new requirement that only an individual, and not an entity, may be listed as the ‘responsible party’ on Line 7a, and that an individual’s US Social Security number (SSN) or individual taxpayer identification number (ITIN) must be identified on Line 7b. The IRS also updated the definition of ‘responsible party’ to assist applicants in identifying which individual to liston Lines 7a–b. Other significant changes include instructions for disregarded entities completing Lines 9a, Type of Entity, and 10, Reason for Applying.
The requirement to list a responsible party first appeared in the 2010 instructions for Form SS-4. In response to concerns that EINs were being obtained by nominees on behalf of applicants, the IRS required disclosure of a responsible party and the responsible party’s US taxpayer identification number (SSN, ITIN, or EIN). While the instructions have included a definition of the responsible party since that time, the term itself is not used in any other context. Moreover, prior versions of the instructions were open to broader interpretation as to whether the responsible party could be an entity rather than an individual. The revised definition of ‘responsible party’ in the December 2017 instructions clarifies that the applicant’s responsible party must be an individual, unless the applicant is a government agency. The instructions also provide additional clarity regarding the role of the responsible party with respect to the entity applying for an EIN.
The SSN or ITIN of the responsible party generally must be entered on Line 7b. However, Line 7b may be left blank if the individual does not have, and is ineligible to obtain, an SSN or ITIN. In prior versions of the instructions, Line 7b could be left blank when a foreign applicant filed Form SS-4 to obtain an EIN solely for purposes of filing Form 8832, Entity Classification Election. This exception is not present in the revised instructions. Thus, it appears that Line 7b should be left blank without regard to the purpose for obtaining the EIN in those instances where the responsible party is a foreign individual who does not have and is ineligible to obtain an SSN or ITIN. Other exceptions to providing a US taxpayer identification number (e.g., entities
obtaining an EIN to comply with US withholding requirements) set forth in the abbreviated instructions on page 2 of the Form SS-4 also remain intact. Non-US individuals are eligible to obtain an ITIN only (1) if they have a US return filing requirement, and (2) in certain circumstances in which they are claiming treaty benefits. In most cases, a non-US individual listed as the responsible party on a Form SS-4 will not have such a filing requirement, and it is unlikely that the IRS would require an individual to obtain an ITIN solely for purposes of providing it on Line 7b of the Form SS-4. The revised Form SS-4 instructions provide helpful guidance regarding entities in which the sole owner or general partner is an entity rather than an individual. An example in the instructions states that the principal officer of a corporation that is the general partner of a publicly traded partnership is to be identified as the responsible party. Although not stated in the instructions, presumably the same rule could apply to single member limited liability companies and non-publicly traded partnerships. Another important change to the instructions concerns the recent requirement that a domestic entity that is disregarded for federal income tax purposes will be treated as a domestic corporation if the entity has a foreign owner. The domestic entity must file Form 1120, U.S. Corporation Income Tax Return, with a completed Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, attached. If the domestic disregarded entity does not have an EIN, it must obtain one in order to comply with this requirement. The instructions direct a domestic disregarded entity requesting an EIN for these purposes to check the box for ‘Other’ on both Line 9a, Type of Entity, and Line 10, Reason for Applying, and write ‘Foreign-owned U.S. disregarded entity-Form 5472’ on the spaces provided on each line. The revised instructions also clarify that a foreign eligible entity requesting an EIN for the purpose of filing Form 8832 to elect a classification as a disregarded entity should check the box for ‘Other’ on Line 9a, Type of Entity, and write ‘foreign disregarded entity.’
The revised Form SS-4 instructions make clear that the IRS is now requiring an individual, with limited exception, be listed as the responsible party when applying for an EIN. Applicants should take care to include the responsible party’s SSN or ITIN on Line 7b, even when the Form SS-4 is being filed to request an EIN solely for the purpose of filing Form 8832. Applicants should leave Line 7b blank only if the responsible party does not have, and is ineligible to obtain, an SSN or ITIN or as directed in the abbreviated instructions. Finally, while the new rules are not a wholesale change in the EIN application process, they do represent substantive, but discrete, procedural changes. It will take the IRS, taxpayers, and tax practitioners time to appropriately understand and adapt to the revised EIN application rules.