In an announcement that was overshadowed by the significant tax legislation enacted in December, 2017, the IRS has released updated instructions for its Form SS-4, Application for Employer Identification Number (EIN). This application must now disclose an individual as the “responsible person”, i.e., the person listed in the application who owns or controls, or exercises ultimate effective control over, the applicant. An exception is made for government-related entities.
By way of background, an EIN is a federal tax identification number used by business entities, estates and certain trusts to file federal tax returns and to make certain tax elections (such as those that relate to tax classification). For the most part, banks, securities brokers and other financial institutions require that applicants for accounts provide an EIN so that proper tax reporting can take place.
Since 2010, the Internal Revenue Service (IRS) has required any applicant for an EIN to disclose on lines 7 and 7b on Form SS-4 the name and federal tax identification number of the “responsible party.” Prior to the release of the updated instructions, the responsible party could itself be an entity. With the change in instructions, the responsible party must be an individual. The updated instructions indicate that for businesses, the individual who should be listed in the application as the responsible party will be the principal officer (such as the CEO, President or Managing Partner) or other individual who is charged with responsibility to manage the operations of the applicant. This new requirement is intended to identify the individual with effective control over the applicant. The IRS has also indicated that it will pursue those involved in the misuse of EIN applications by applicants who list as a responsible party individuals who do not meet the requirements to be a responsible party.
With this change, an applicant for a taxpayer identification number should take care in completing the application in order to comply with the updated instructions for applications. The IRS did not make any changes to the other aspects of the application process, such as the requirement that a third party designee that submits the application for the taxpayer obtain a signed copy of the SS-4 from the taxpayer for its records.