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Jean   Murray

What is a "Responsible Party" for an Employer ID Application?

By March 4, 2010

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Because of confusion regarding the term "responsible party" on the Employer ID (EIN) application (Form SS-4), the IRS has issued a clarification.  In Question 3, instead of requesting that the applicant identify the "principal officer, general partner, grantor, owner, or trustor", the application now asks for the identity of the "responsible party".  I wrote about the issue of nominees on EINs in November, letting you know that the IRS does not allow "nominees" (most likely non-employee attorneys who are helping set up the company) to be designated as responsible parties for an EIN. The IRS wants to be certain that the person they contact with regard to the company is the correct person.  Makes sense to me.

Who is a  Responsible Party?

The IRS defines "responsible party" as follows:

For public companies, "responsible party" is the principal officer of a corporation, a general partner of a partnership,  the owner of a disregarded entity, or a grantor, owner, or trustor of a trust.

For all other entities, "responsible party" is the personal who controls, or is entitled to control, the funds or assets in the entity; in other words, the person who controls, manages, or directs the entity and the "disposition of its funds and assets." The IRS wants you to provide "the true principal officer, general partner,
grantor, owner or trustor," not an attorney who is not an owner, director, or partner of the company.

Just to make this really clear, read what the IRS says:

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.

What if there are Multiple Responsible Parties?
In the case of a partnership, for example, there may be multiple partners who could qualify as the responsible party. In this case, you may select the person you want the IRS to recognize and contact as the responsible party.

How to Change Your EIN

If you do not have the correct person in Item 3, you will need to change your EIN.  To do this, you must write a letter to the IRS describing the change, and send or fax it to one of two locations, based on which state your business has its principal location.  See my article on How to Change Your EIN for the details.

For More Information

All About Employer ID Numbers (EINs)

How to Apply for an Employer ID Number


Comments
February 28, 2011 at 2:35 pm
(1) Laura says:

This all makes sense, but the main question I have is about the implications of calling yourself a “responsible party”. What liability comes along with that? If the companies goes bust, is the responsible party vulnerable?

August 4, 2011 at 10:57 am
(2) Erica says:

I have the same concerns as “Laura.” the only thing I found regarding the matter of liability for responsible parties was a comment from a lawyer that if taxes are not filed under the ein then the responsible party can be penalized. http://www.avvo.com/legal-answers/ein-responsible-party-436720.html

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