Change in “Responsible Party” Must Be Reported to the IRS

Editor: Michael Dell, CPA

Employment Taxes

As previously reported, the IRS in May 2013 issued final regulations (T.D. 9617) requiring any person assigned an employer identification number (EIN) to provide updated responsible-party information to the IRS (see News Notes, “Final Regs. Require EIN Holders to Update Information With IRS,” 44 The Tax Adviser 426 (July 2013)).

The IRS has since released revised Form 8822-B, Change of Address or Responsible Party—Business, for this purpose, as well as instructions stipulating the manner and frequency with which such information must be provided.

Beginning Jan. 1, 2014, entities with an EIN must file Form 8822-B, completing boxes 8a through 9b to report any changes in their responsible-party information.

Who Is a Responsible Party?

For entities with shares or interests traded on a public exchange or that are registered with the SEC, a responsible party is defined according to the chart in the exhibit.

For all other entities, a responsible party is defined as “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” (Instructions to Form 8822-B). However, the ability to fund the entity or the entitlement to the property of the entity alone, without any corresponding authority to control, manage, or direct the entity (such as in the case of a minor child beneficiary), does not cause an individual to be a responsible party.

If the responsible party is an alien individual, the entity must enter the person’s individual tax identification number (ITIN) in the space provided and submit a copy of an official identifying document or, if necessary, complete Form W-7, Application for IRS Individual Taxpayer Identification Number.

The taxpayer must enter the responsible party’s old and new Social Security number, individual taxpayer identification number, or EIN unless the only reason the taxpayer obtained an EIN was to make an entity classification election (see Regs. Secs. 301.7701-1 through 301.7701-3) and the taxpayer is a nonresident alien or other foreign entity with no effectively connected income from sources within the United States.

When Is Form 8822-B Due?

Form 8822-B must be filed within 60 days of a change in the identity of the responsible party or the party’s identifying information. If a change in the identity of the entity’s responsible party occurred before 2014 and the entity had not previously notified the IRS of the change, the entity must file Form 8822-B before March 1, 2014, reporting only the most recent change.

Penalties

The form states that if the responsible party of an entity with an EIN has changed, use of the form is mandatory, but otherwise, use of the form is voluntary. In addition, an entity will not be subject to penalties for failure to file the form. However, if the entity fails to provide the identity or the current mailing address of the responsible party and that party fails to receive a notice of deficiency or demand for tax, penalties and interest will accrue, notwithstanding that the responsible party fails to receive these documents.

Practice tip: For each EIN, businesses should review the responsible-party information originally filed on Form SS-4, Application for Employer Identification Number, and file Form 8822-B with the IRS to report changes. Prospectively, filing Form 8822-B should be a work plan action item whenever a change in ownership or management results in a change in the responsible party.

EditorNotes

Michael Dell is a partner at Ernst & Young LLP in Washington, D.C.

For additional information about these items, contact Mr. Dell at 202-327-8788 or michael.dell@ey.com.

Unless otherwise noted, contributors are members of or associated with Ernst & Young LLP.