The Internal Revenue Service (IRS) recently announced that an individual must have her own tax identification number (TIN) in order to be the “responsible party” on the application to obtain an Employer Identification Number (EIN). This change is effective as of May 13, 2019.
What’s the difference between a TIN, SSN, ITIN & EIN?
TIN: An identification number used by the IRS in the administration of tax laws. A Social Security Number (SSN), Individual Tax Identification Number (ITIN) and EIN are each a form of TIN.
SSN: Issued by the U.S. Social Security Administration to identify and accurately record an individual’s covered wages, self-employment earnings, and Social Security benefits.
ITIN: A tax processing number only available to certain nonresident and resident aliens, their spouses, and dependents who cannot get an SSN.
EIN: A nine-digit TIN assigned to corporations, partnerships, estates, trusts and other entities for U.S. tax filing and reporting purposes.
Who is the Responsible Party?
The EIN responsible party is not the same concept as a FATCA Responsible Officer. It may end up being the same person but the criteria for each are different. [See my blog November 8, 2017, FATCA: Responsible Officer Basics November 8, 2017].
The EIN responsible party is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity including disposition of its funds and assets. If there is more than one responsible party, the IRS permits the entity to select one person from qualifying individuals.
A nominee used in the entity formation process may not be the responsible party on the EIN application. The IRS defines a “nominee” as someone who is given limited authority to act on behalf of an entity, usually for a limited period of time, and usually during the formation of the entity. A nominee is given little or no authority over an entity’s assets.
What is the reason for the change?
By requiring that the responsible party have an SSN or ITIN, the IRS can ensure that the responsible person is a natural person. Prior to this change, an entity which already had an EIN could obtain EINs for other companies. This process obfuscated the individual who ultimately owned or controlled the entity.
The change is consistent with other IRS tax transparency efforts such as FATCA.
Review existing internal EIN application records to determine whether an individual was named as the responsible party.
If so, check to see if the individual’s SSN or ITIN was provided to the IRS.
If an individual was not named and/or the SSN or ITIN was not provided, complete Form 8822-B, Change of Address or Responsible Party – Business.