IRS Makes Important Changes to EIN Application Process, With Implications for International Applicants

Morgan Lewis
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Morgan Lewis

The Internal Revenue Service announced that it has revised the Employer Identification Number application process in order to provide greater security and improve transparency. The revision will require that each applicant’s responsible party have either a Social Security number or an individual taxpayer identification number.

In a March 27, 2019, news release, the Internal Revenue Service (IRS) announced that, starting on May 13, 2019, it will only accept applications for employer identification numbers (EINs) that list a “responsible party” who is an individual (i.e., a natural person and not an entity) and who has either a Social Security number (SSN) or an individual taxpayer identification number (ITIN). The requirement will apply to paper Forms SS-4, Application of Employer Identification Number, and online EIN applications. Each applicant is required to list a responsible party and only governmental entities and the military are exempt from this requirement. This announcement is consistent with the updated instructions to the Form SS-4 published in late 2017 (see our prior coverage).

The instructions to the Form SS-4 define the term “responsible party.” Very generally, an entity’s responsible party is the person who owns or controls the entity or who exercises effective control over the entity. For example, in the case of a corporation, the responsible party may be a principal officer and, in the case of a partnership, the responsible party may be the general partner. In the case of many non-US entities, only non-US individuals would meet that definition. Many non-US individuals who might meet the definition with respect to non-US entities do not have an SSN or ITIN.

The news release suggests that as of May 13, 2019, the responsible party requirement will apply to all applicants, including international applicants (i.e., an entity that has no legal residence, principal office, or agency in the United States or a US possession) in instances where the applicant is applying for an EIN for the sole purpose of making an entity classification election on IRS Form 8832, Entity Classification Election. Assuming the IRS applies the requirement strictly, the individual who is the responsible party of an international applicant will need to apply for an ITIN on IRS Form W-7, IRS Application for Individual Taxpayer Identification Number, on that person’s own behalf before the international applicant can request an EIN. It can take the IRS several weeks to process ITIN requests. As a practical matter, this requirement could create significant delays in obtaining EINs for international applicants, which in turn could create delays in setting up bank accounts, filing entity classification elections, etc. Moreover, the responsible parties of many international applicants may be uncomfortable submitting information to the IRS in order to apply for an ITIN.

The IRS has stated that it will continue to pursue enforcement actions to prevent the misuse of EIN applications, and the use of “nominees”—i.e., naming people who do not meet the responsible party criteria—is not authorized.

The following are some additional requirements for completing IRS Form SS-4:

  • EIN issuance is limited to one EIN per responsible party per day.
  • 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 for US applicants.
  • 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 for international applicants.
  • 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.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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