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Last year, the IRS issued final regulations on Employer Identification Numbers (EINs). The regs are intended to improve the IRS’s ability to maintain accurate information on people assigned EINs and became effective Jan. 1, 2014. If your company already has, or is planning to obtain, an EIN, you’ll need to take note of the new regs.
The Responsible Party
The biggest difference under the new regs is that they require disclosure of an EIN applicant’s “responsible party.” Just who can be a responsible party? For private companies, the responsible party is the individual(s) who can control or manage the entity and its assets.
While this requirement may seem like common sense, some EIN applicants have listed what the IRS calls “nominees” as responsible parties. Nominees typically are individuals who have limited authority to act on behalf of an entity; often, their authority extends only through the company’s start-up phase. In addition, nominees usually have little or no authority over the company’s assets.
When businesses list nominees, rather than the actual responsible parties, in their EIN applications, it can become more difficult for the IRS to identify and contact the appropriate person to resolve tax questions. In some cases, the use of nominees has facilitated applicants’ noncompliance with tax regulations, according to the IRS.
When applying for an EIN, a business must complete Form SS-4, “Application for Employer Identification Number,” and provide the responsible party’s name, signature and taxpayer identification number. This may be a Social Security number, Individual Taxpayer Identification Number (ITIN) or another EIN.
If you prefer, you can skip Form SS-4 and apply for an EIN online at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online. But keep in mind that the IRS currently can’t process an online application if your responsible party previously received an EIN via the Internet.
What should you do if you used a nominee on a past EIN application and now want to correct the information on file with the IRS? Don’t submit a second EIN application. Rather, you must send the IRS a letter written on company letterhead with the correct information. Again, you can find more information on the correct procedures on the IRS website.
Dot the I’s and Cross the T’s
Nothing is easy when it comes to dealing with the government. But it’s crucial that you abide by the new regulations set forth when applying for an EIN.