As part of its ongoing security review, the Internal Revenue Service announced last week that it is implementing new procedures that will allow only certain individual taxpayers qualifying as the "responsible party" to request Employer Identification Numbers (EIN) for a legal entity. The new procedures will apply to both online EIN applications and paper filings of Form SS-4, Application for Employer Identification Number. The procedures are designed to improve transparency and provide increased security to the EIN process.
An EIN is the nine-digit tax identification number required to be used for the federal income tax filings and reporting for employers, corporations, partnerships, limited liability companies, estates, trusts, sole proprietors, nonprofit associations, government agencies, retirement plans and other business entities.
Effective May 13, 2019, only an individual taxpayer that has either a Social Security number or an individual taxpayer identification number (ITIN) will be recognized by the IRS as the responsible party eligible to submit an EIN application. Other entities will no longer be able to obtain additional identification numbers for related entities using their existing EIN.
Generally, the responsible party for a legal entity is the person that owns, controls, or exercises the ultimate effective control over the entity. If more than one person qualifies, the entity may choose which individual will be treated as the responsible party. A detailed explanation of who should be the responsible party for the various types of entities is included in the instructions for Form SS-4.
If the responsible party subsequently changes, the entity should change the official designation by filing Form 8822-B, Change of Address or Responsible Party, within 60 days of the change. Only federal, state, local and tribal governmental entities and the military (including state national guards) are exempt from the responsible party requirements. However, there is no change in the procedures that allow tax professionals to act as third-party designees to apply for EINs for their clients.
The IRS has formally announced the new procedures weeks in advance to ensure that entities and their representatives have adequate time to identify the correct responsible party and comply with the new policy. Please do not hesitate to contact your Whitley Penn tax advisor to assist you in identifying the applicable responsible person for your organizations and ensuring a seamless transition to adhering to the new rules.