Critical in Cases of Identity Theft or Fraud
A news release issued by the Internal Revenue Service (IRS) on July 30, 2021, reminds holders of Employer Identification Numbers (EINs) that a change in responsible party requires an update to be provided to the IRS within 60 days of the change by filing IRS Form 8822-B. This form is also used to report a change of address to the IRS. Not only is providing such updates required, but the IRS calls it a key security issue in the event of identity theft or other fraud issues in connection with EINs or business accounts.
EIN and Responsible Party
In order to apply for an EIN—which is a nine-digit number assigned to an entity, including corporations, partnerships, sole proprietors, estates, trusts and others for the purpose of tax filings and other reporting—a Form SS-4 must be filed with the IRS, which can be done (a) online for applicants in the United States or U.S. possessions, (b) by telephone for applicants outside the United States or U.S. possessions, (c) by fax, or (d) by mail. The information provided on Form SS-4 is used to establish the entity’s business tax account with the IRS. Among the information required on Form SS-4 is the name and Social Security number (SSN), individual taxpayer identification number (ITIN), or EIN of the “responsible party” of the entity applying for the EIN. The responsible party is defined as the “person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity.” The instructions to Form SS-4 provide that the “person identified as the responsible party should have a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the person, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets.” Except for government entities, the responsible person is required to be a natural person, not another entity.
The following persons are considered appropriate responsible parties:
- Principal officer of a corporation with shares traded on a public exchange or registered with the Securities and Exchange Commission (SEC)
- General partner of a partnership with interests traded on a public exchange or registered with the SEC
- Principal officer of a tax-exempt organization (i.e., person with ultimate responsibility for implementing the decisions of the organization’s governing body, or for supervising the management, administration or operation of the organization)
- For a government entity, the agency or agency representative in a position to legally bind that government entity
- Grantor, owner or trustor of a trust
- Executor, administrator, personal representative or another fiduciary of a decedent’s estate
Responsible Party and Security Issue
The news release issued by the IRS states that updating any changes in a responsible party is critical for the IRS to have accurate information in the case of identity theft or other fraud issues related to an EIN or a taxpayer’s business accounts. If the information is outdated or incorrect, the IRS will not be able to make appropriate contact if issues of identity theft arise, which then means precious time will be lost in identifying the appropriate contact for the IRS to inquire about a suspicious filing. To bring awareness to this issue, in August, the IRS is sending letters to thousands of EIN holders whose information appears outdated.
Finally, the IRS reminds entities with EINs that are no longer in use to close their IRS tax accounts and follow the steps to close a business account.
How Manatt Can Help: Manatt professionals are prepared to assist taxpayers with questions about obtaining an EIN, who is an appropriate responsible party for an organization, updating IRS records or closing business tax accounts.
For More Information: For assistance with EINs, please contact Megan Christensen, partner, Manatt Tax, at mchristensen@manatt.com or 202.585.6594, or Jeffrey Mannisto, partner, Manatt Tax, at jmannisto@manatt.com or 310.312.4212.