Definition and Examples of a Responsible Party
The IRS defines the responsible party as the principal officer of a corporation, a general partner of a partnership, the owner of a disregarded entity (usually a single-member limited liability company (LLC), or a grantor, owner, or trustor of a trust. It’s the person who ultimately owns or who exercises ultimate control over a business or other entity. For business entities, the responsible party is the person who controls, or is entitled to control, the company’s funds or assets. It’s the individual who manages or directs the entity and the “disposition of its funds and assets.” The IRS wants you to identify the true principal officer, general partner, grantor, owner or trustor, not an attorney who isn’t an owner, director, or partner of the company. Multiple partners might qualify as the responsible party in the case of a partnership. You can select the person you want the IRS to recognize and contact as the responsible party in this case. A responsible party must be an individual, not a business, unless a government entity is applying for an EIN. For example, if a corporation is the general partner of a partnership, the responsible party is the principal officer of the corporation. A responsible party must also have a tax identification number (Social Security or individual taxpayer ID number) to request responsible party status on Form SS-4.
How Does A Responsible Party Work?
When your business requests an EIN on Form SS-4, you must name the responsible party on line 7a, and enter the tax ID number of the responsible party on Line 7b. The taxpayer ID can be the individual’s Social Security number, individual taxpayer ID (ITIN) or EIN.
Responsible Party vs. Nominee
The IRS no longer allows nominees to be designated as responsible parties for purposes of applying for an EIN. The IRS wants to be certain that the person they contact with regard to the company is someone who can make all decisions on the business’s behalf.
How To Change Your Responsible Party
You must change your responsible party designation if you don’t have the correct person identified on Line 7a. You can use Form 8822-B to make this change. The instructions for the form include the correct IRS addresses to use to send in the change. The address you would use depends on your state. If you know the state where the business is registered, you can search the records system of that state’s corporations division. It’s easiest to start with the name of the business, then view the details of the EIN for the responsible party. A sole proprietorship without an EIN won’t have a responsible party. If your small business is a partnership or LLC with multiple members, the managing partner or limited liability company (LLC) member-manager may be the responsible party. An LLC may also have a manager to manage day-to-day operations. This person would be the responsible party. Businesses sometimes hire nominees to put their name in organizing documents like articles of organization for a limited liability company (LLC). Using the nominee’s name keeps the names of the owners out of the public document.
