Blog: The Internal Revenue Service (IRS) is reminding entities with Employer Identification Numbers (EINs) of their responsibility to update that information whenever the contact information or responsible party changes. IRS regulations require EIN holders to update responsible party information within 60 days of any change. Notifying the IRS of those changes is easily accomplished by filing Form 8822-B, Change of Address or Responsible Party – Business.
See Relax Tax’s Debt Guide at relaxtax.com/debt
Calling it a key security issue, the IRS is urging those entities with EINs to update their applications if there has been a change in the responsible party or contact information. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts.
According to the IRS, the data around the "responsible parties" for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This results in a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious tax filing.
It is estimated that there are approximately 100,000 EIN holders where it appears the responsible party information is outdated. The IRS is planning a mail campaign to these EIN holders in August.
When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This nondeductible interest penalty is higher than what might be earned from a bank. The penalty is applied quarterly, so making a fourth-quarter estimated payment only reduces the fourth-quarter penalty. However, withholding is treated as paid ratably throughout the year, so increasing withholding at the end of the year can reduce the penalties for the earlier quarters. This can be accomplished with cooperative employers or by taking an unqualified distribution from a pension plan, which will be subject to 20% withholding, and then returning the gross amount of the distribution to the plan within the 60-day statutory rollover limit (but check with this office before using the latter strategy).
Responsible Party - Generally, a responsible party is the individual (that is, a natural person) who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. The person identified as the responsible party should have a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the person, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets.
- Tax-exempt organizations - the responsible party is generally the same as the “principal officer” as defined in Form 990 instructions.
- Trusts - the responsible party is a grantor, owner, or trustor.
- Decedent estates - the responsible party is the executor, administrator, personal representative, or other fiduciary.
- For publicly traded entities and government entities see the instructions with form SS-4 - Application for Employer Identification Number (EIN).
Here are some tips for completing the 8822-B (used by businesses):
- P.O. Box - Enter your box number instead of your street address only if your post office does not deliver mail to your street address.
- Foreign Address - Follow the country’s practice for entering the postal code. Do not abbreviate the country name.
- “In Care of” Address - If you receive your mail in care of a third party (such as an accountant or attorney), enter “C/O” followed by the third party’s name and street address or P.O. box.
- Signature - An officer, owner, general partner or LLC member manager, plan administrator, fiduciary, or an authorized representative must sign. An officer is the president, vice president, treasurer, chief accounting officer, etc. If you are a representative signing on behalf of the responsible party, you must attach to Form 8822-B a copy of your power of attorney. To do this, you can use Form 2848. The Internal Revenue Service will not complete an address or responsible party change from an “unauthorized” third party.
- See the instructions for filing Form 8822-B which are included with the form.
See this related post from Dennis Harabin: An Advisory for All Entrepreneurs: IRS Crisis Arises
For several years now, the IRS has required payments made to merchants through various marketplaces, payment processors (credit & debit cards), and third-party settlement organizations (TPSOs) to be reported on Form 1099-K. The purpose being to uncover merchants that do not report all of their income by comparing the 1099-K amounts to the amount reported on the individual’s or business’s tax return and following up with the under-reporters by correspondence or by audit.
If you need to change both the business and personal contact information, use Form 8822 to change your home address. Although the IRS will automatically update their records to match a taxpayer’s most recent tax filing, it is wise to file Form 8822 to make sure you receive any correspondence from the IRS since the IRS is only required to mail correspondence to your last known address.
If you have a state filing obligation, you should also notify the appropriate state agencies of the changes.
After you file either the 8822-B or Form 8822, please forward a copy to this office so we can update your file. If you need assistance, please give this office a call at 551-249-1040.