Obtaining an employer identification number (EIN) has traditionally been a once-in-a-lifetime process for a business entity. You submit your Form SS-4 information to the IRS, you receive your EIN, and you’re good to go.
However, all this changes starting in 2014. Anyone with a current EIN will have to provide updated application information to the IRS.
New follow-up filings required
Starting in 2014, the IRS will require anyone with an EIN to provide it with updated application information, as required by forms, instructions, or future IRS guidance. This includes keeping the IRS up-to-date on the name and tax ID number of the responsible party of the business.
The IRS says it is requiring updating by all EIN holders because some older EIN applications continue to list a party who is no longer associated with the business. Also, it says the updated information will help it combat abusive schemes that use nominees and conceal the true responsible party for entities hiding assets and income.
TipThe IRS will issue only one EIN per responsible party per day. If your business set up involves multiple entities, you may or may not need to allot extra time for obtaining your EINs.
The IRS will publish the relevant form to use to update application information in the future. The exact details of the updating requirement remain to be seen, but we should know them by 2014.
What is an EIN?
The EIN is the taxpayer identifying number of a business. It identifies the business on its tax returns, similar to the way a Social Security number (SSN) identifies individuals.
Both the SSN and the EIN are nine-digit numbers. The SSN takes the form of 000-00-0000, while the EIN takes the form of 00-0000000.
TipAlthough sole proprietors may be able to get by without an EIN (by using a SSN), the IRS requires other businesses to use an EIN. If a sole proprietor later incorporates or forms an entity, an EIN becomes necessary.
EIN application information
You can apply for an EIN online, by phone, by fax, or by mail, using Form SS-4, Application for Employer Identification Number.
TipThe information provided on Form SS-4 will establish your business tax account with the IRS.
The application asks for information about the business, including:
- Legal name, trade name, and address
- Type of entity (e.g., sole proprietorship, corporation, partnership, LLC)
- Reason for applying (e.g., new business, hired employees, changed type of business)
- Date business started
- Highest number of employees expected in next 12 months
- Principal business activity
The application also asks for the name and tax ID number of the “responsible party” of the business. The responsible party is generally the person with the authority to control, manage, or direct the entity and the disposition of its funds and assets.
TipThe IRS started requiring “responsible party” information several years ago. Previously, it asked for the name and tax ID number of a principal officer, general partner, grantor, owner, or trustor. However, some EIN applications listed people who were only temporarily authorized to act for the business. Any authority to act for the business would expire shortly after the application was processed, but the temporary person would still be listed on the original EIN application. Accordingly, the IRS switched to requiring responsible party information.
For publicly traded entities or those registered with the Securities and Exchange Commission (SEC), the responsible party is generally the principal officer of a corporation, the general partner of a partnership, or the owner of an entity that is disregarded from (i.e., considered part of) its owner.
