The Internal Revenue Service issued new instructions for the Employer Identification Number application process in December 2017. Unless an applicant is a government entity, the applicant’s “responsible party” must now be an individual—no longer an entity—who owns or controls, or exercises ultimate effective control over, the applicant.
The Internal Revenue Service (IRS) published updated instructions to Form SS-4, Application for Employer Identification Numbers (EINs), in December 2017. An EIN is a federal tax identification number used by business entities—such as corporations or partnerships—and is required to file tax returns (e.g., Form 1120) or entity classification elections (Form 8832) with the IRS, and, in some cases, to open US bank accounts. EIN applications are made to the IRS using its online system or by phone, fax, or mail, and the December 2017 updates to the Form SS-4 instructions are generally applicable to all these methods. The following is a high-level summary of key changes to the application process.
EIN applications require naming a “responsible party,” defined as a person who ultimately owns or controls the applicant or who exercises ultimate effective control over the applicant, such as the principal officer of a publicly traded corporation, the general partner, or a person who, as a practical matter, manages the applicant. Whereas prior to the updated instructions the responsible party was itself permitted to be an entity, the responsible party must now be an individual (i.e., a natural person), unless the applicant is a government entity. This individual must also provide a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) unless he or she is ineligible to obtain an SSN or ITIN. Markedly absent from the updated instructions is the guidance that an SSN, ITIN, or EIN is not required for the responsible party if the applicant is a nonresident alien or other foreign entity applying for an EIN solely to make an entity classification election. Notwithstanding this omission, we understand from discussions with several IRS representatives that an EIN can be assigned to an international applicant (i.e., an entity that has no legal residence, principal office, or agency in the United States or a US possession) if an SSN, ITIN, or EIN for the responsible party is not available, and the Internal Revenue Manual supports this advice. In this instance, the applicant can write “foreign domicile” on line 7b of Form SS-4.
Needing an EIN—sometimes multiple EINs—is often time sensitive, particularly if a US bank account must be opened quickly. The following are some application requirements of which to be aware:
- Applicants with a principal business, office, or agency, or in the case of an individual, legal residence, located in the United States or a US territory may apply online (EIN will be issued immediately), by fax, or by mail. Note that an application by phone is not available.
- International applicants (as defined above) may apply by phone (EIN will be issued immediately), by fax, or by mail. Note that an online application is not available.
- EIN issuance is limited to one EIN per responsible party per day.
- The responsible party must be an individual and must provide an SSN or ITIN, unless the individual is ineligible to obtain an SSN or ITIN. If the applicant is a government entity, however, then the responsible party may also be an entity.
- The responsible party must be a true principal officer, general partner, grantor, owner, or trustor of the applicant. The IRS has stated that it will continue to pursue enforcement actions to prevent the misuse of EIN applications, thus the use of “nominees”—i.e., naming people who do not meet the responsible party criteria—is not authorized.
- If a third-party designee is using the online application process, Form SS-4 must still be completed and fully executed, and retained in the third-party designee’s files.