Small Business Taxes & ManagementTM--Copyright 2009, A/N Group, Inc.
The IRS has become aware that nominee individuals are being listed as principal officers, general partners, grantors, owners, and trustors in the Employer Identification Number (EIN) application process. A nominee is not one of these people. Rather, nominees are temporarily authorized to act on behalf of entities during the formation process. The use of nominees in the EIN application process prevents the IRS from gathering appropriate information on entity ownership, and has been found to facilitate tax non-compliance by entities and their owners.
The IRS does not authorize the use of nominees to obtain EINs. All EIN applications (mail, fax, phone, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the “responsible party,” controls, manages, or directs the applicant entity and the disposition of its funds and assets.
To properly submit a Form SS-4, the form and authorization should include the name, Taxpayer Identification Number and signature of the responsible party. Third party designees filing online applications are reminded of their obligation to retain a complete signed copy of the paper Form SS-4 and signed authorization statement for each entity application filed with the IRS. Nominees do not have the authority to authorize third party designees to file Forms SS-4, and should not be listed on the Form SS-4.
If a nominee is used in the state formation process (e.g. incorporation or organization of an LLC) and the true responsible party has not yet been identified, the entity must identify that individual before applying for an EIN.
The IRS will continue to pursue enforcement actions to prevent the misuse of EIN applications.
If you used a nominee for the EIN Application process, you should correct your information. Any entity that applied for an EIN listing a nominee as the “principal officer”, etc., and listing the nominee’s Taxpayer Identification Number as that of the principal officer, should send the IRS a letter providing the name and Taxpayer Identification Number (Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number) of the true responsible party. Entities that submitted applications that showed, as the principal officer, an individual or entity who is no longer the true responsible party also should update the entity’s information.
What the Terms “Nominee” and “Responsible Party” Mean
A “nominee” is someone who is given limited authority to act on behalf of an entity, usually for a limited period of time, and usually during the formation of the entity. The “principal officer, general partner,” etc., as defined by the IRS, is the true “responsible party” for the entity, instead of a nominee. The “responsible party” is the individual or entity that controls, manages, or directs the entity and the disposition of the entity’s funds and assets, unlike a nominee, who is given little or no authority over the entity’s assets. If there is more than one responsible party, the entity may list whichever party the entity wants the IRS to recognize as the responsible party.
Why the Information should be corrected
In the event that the IRS has a need to contact an entity about a tax matter relating to the business, we must be certain we are contacting the correct party. Otherwise, information regarding an entity could be disclosed to someone who is not authorized to receive such information. The IRS is considering several ways to identify the responsible parties of entities. However, by updating the information itself, an entity can establish that it is a reliable partner of the IRS in complying with the Federal tax laws.
How to Update the Information
There is no form available to update the information, and the IRS asks entities updating their information NOT to submit a second EIN application. Instead, the IRS asks that the entity send a letter, on company letterhead, if available, providing the name and Taxpayer Identification Number of the current principal officer, general partner, grantor, owner, or trustor. Be sure to include the entity’s complete name, EIN, and mailing address so we can correctly identify your IRS account. Depending upon the entity’s principal business address, the entity should send the letter to the one of the following IRS campus:
For entities in Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia or Wisconsin mail or fax to:
Internal Revenue ServiceFor entities in Alabama, Alaska, Arkansas, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming, or any place outside of the United States, mail or fax to:
Cincinnati, OH 45999
Fax Number: 859-669-5748
Internal Revenue ServiceFor more information, go to the IRS Web site at www.irs.gov/businesses/small/article/0,,id=98350,00.html
Ogden, UT 84201
Fax Number: 801-620-7116
Copyright 2009 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 11/11/09