January 24, 2014

What You Should Know About a New IRS Rule for 2014

Written By

Stephen A. Sherman
Counsel, Stoll Keenon Ogden PLLC

Business First | Jan. 24, 2014

Stephen Sherman

A new year brings new goals, new dreams and new ambitions — and when government is concerned, new rules and regulations.

Effective Jan. 1, the Internal Revenue Service requires those who have been assigned an Employer Identification Number, or EIN, to provide periodic updated information to the agency. The new regulation serves to enhance the IRS’s ability to maintain accurate information about those who have EINs.

What is an EIN?

An EIN can be issued to corporations, partnerships, trusts, government agencies, limited liability companies and any other organization that would need an identification number to report taxes, open a bank account, etc. It is the equivalent of a Social Security number for taxpayers other than individuals.

Who is affected by this new rule?

The regulation affects people and businesses issued EINs by the IRS. The new rule requires entities to keep the IRS informed of the identity of the “responsible party,” business location or mailing address. The “responsible party” of an entity varies depending upon the type of the entity.

If the ownership interests in the entity are publicly traded or the entity is registered with the U.S. Securities and Exchange Commission, the responsible party is the principal officer of a corporation; the general partner of a partnership; the owner of a disregarded entity; or the grantor, owner or settlor of a trust.

For all other entities, the responsible party is the person with control over or entitlement to the assets in the organization. “Control,” as a practical matter, enables the party to control, manage or direct the entity and the disposition of its funds and assets. The ability to fund the organization or the entitlement to the property of the entity alone (without any additional authority to control, manage or direct the entity) does not cause an individual to be a responsible party.

What exactly is the new rule?

In short, the IRS requires that any taxpayer with an EIN update the information related to responsible parties and business addresses when changes occur. Should the responsible party, business location or mailing address change, the taxpayer must file the updated information with the IRS within a specified period of time.

Why did the IRS make this change?

The IRS stated that this regulation allows the agency to gather correct application information with respect to persons or entities that have EINs and will prevent delays by allowing the IRS to contact the correct people when resolving tax matters.

The update also is anticipated to assist the IRS in combating tax avoidance schemes that conceal the responsible party in an effort to hide assets and income.

How do I update my information?

If an entity has a change in the identity of its responsible party, within 60 days of the change it must file the updated information with the IRS using the Form 8822-B.

The form provides the method by which an entity possessing an EIN may update the name of the responsible party as well as the business location or mailing address of the entity. However, a change of the home address of the responsible party is properly reported using a Form 8822.

If a change in the identity of the responsible party occurred prior to Jan. 1 but has not yet been reported to the IRS, the information related to the most recent change must be submitted to the IRS no later than March 1.

The instructions to the form require that an entity file the Form 8822-B if there is a change in the business location or mailing address. However, unlike the instructions related to responsible parties, the instructions do not provide a time line within which the entity must file to report the change in business location or mailing address.

It is recommended that a change in business location or mailing address be reported within 60 days of the change until further guidance is issued by the IRS.

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