Most business entities, including corporations, LLCs, partnerships, and non-profit organizations, obtain employer identification numbers (or “EINs”) for their businesses from the Internal Revenue Service (“IRS”) in order to facilitate their required federal tax filings and reporting. Effective January 1, 2014, a new IRS rule obligates all entities that have EINs to report to the IRS any changes in the “responsible party” with respect to that EIN. Beginning January 1, 2014, any changes to the identity of an entity’s responsible party must be reported to the IRS using Form 8822-B, Change of Address or Responsible Party – Business within 60 days of the change occurring. For any such changes occurring prior to January 1, 2014 that have not yet been reported to the IRS, those changes must be reported on or before March 1, 2014.
The “responsible party” is initially identified by an EIN applicant on Form SS-4, which is the IRS form of application for an employer identification number. Form SS-4 provides that for most entities (excluding entities with publicly traded shares or interests and entities that are registered with Securities and Exchange Commission), the entity’s “responsible party” is the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets. Responsible parties can be individuals or entities. If the responsible party is an individual, then this new reporting requirement may be triggered by that individual’s death, retirement, or change in employment duties. If the responsible party is an entity, then this new reporting requirement may be triggered by a merger, sale, or consolidation involving that entity or the dissolution of that entity .
The instructions to Form 8822-B provide that the use of that form to update a change in responsible party is mandatory, while other use of the form (e.g., change in business address) is optional. Importantly, the instructions also provide that there is not any penalty for failure to file Form 8822-B, though such a failure may result in the taxpayer not receiving a notice of deficiency or notice of demand for tax, in which case penalties and interest could continue to accrue on any tax deficiencies.
Should you have any questions about this new rule change or its potential impact on you or your business, please do not hesitate to contact Scott Townsend in the Louisville offices of Stites & Harbison PLLC at [email protected] or (502) 681-0577.