EIN Responsible Party for a Business Entity

By HBS Monday, June 18, 2018

responsble party for an einIf you apply for an EIN, aka a Federal Tax ID Number, you will have to provide the IRS with what is known as a Responsible Party. This individual manages, directs and/or controls the entity behind the EIN.

If there is technically more than one person running the entity, you can choose whichever one you want the IRS to consider the Responsible Party, since the IRS only requires a single Responsible Party. For example, in an LLC, the Responsible Party is the person who possesses the authority to oversee and control the finances and assets belonging to the LLC.

Keep in mind that the best choice for an EIN Responsible Party varies from one company to another.

To be clear, the Responsible Party must be an individual. Furthermore, no other person within the entity can make IRS-related changes other than the assigned Responsible Party.

IRS.gov defines the Responsible Party as:

For entities with shares or interests traded on a public exchange, or which are registered with the Securities and Exchange Commission, “responsible party” is (a) the principal officer, if the business is a corporation, (b) a general partner, if a partnership, (c) the owner of an entity that is disregarded as separate from its owner (disregarded entities owned by a corporation enter the corporation’s name and EIN), or (d) a grantor, owner, or trustor if a trust.

For all other entities, “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. The ability to fund the entity or the entitlement to the property of the entity alone, however, without any corresponding authority to control, manage, or direct the entity (such as in the case of a minor child beneficiary), does not cause the individual to be a responsible party.

Another way to think about the Responsible Party is as the contact person for the IRS. All communication (hard copies and digital versions) will be mailed to the Responsible Party listed on the EIN form.

An entity can change its Responsible Party by filling out IRS Form 8822-B on the IRS website.

However, just because you are the Responsible Party does not mean you are liable for any financial or legal issues in which the entity may become involved.  

Disclaimer

THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.

More By HBS

There are 2 comments left for EIN Responsible Party for a Business Entity

Mary said: Wednesday, May 15, 2019

My situation is a little different. I would like to remove myself from a company my husband and I started a few months ago. We would also like to remove him from my company. Should i fill out the 8822-B if we are both listed as a manager on each other's company?

HBS Staff replied: Wednesday, May 15, 2019

Mary - As far as Delaware is concerned, the updating of members/managers is handled within the company's internal records. The 8822-B form would be filed with the IRS if the responsible party information is changing. Typically there is only one responsible party per company.

Trevor said: Saturday, November 24, 2018

If you file 8822-b changing responsible party from person 1 to person 2, does that remove person 1 totally from any obligations or liability ?

HBS Staff replied: Monday, November 26, 2018

Form 8822-B is used to change the company address with the IRS and can be used to change the name of the responsible party as well.  Only one person can be listed and can manage the company account with the IRS, but for liability concerns, it would be best to consult with an accountant or a tax specialist. 

Leave a Comment
* Required
* Required, will not be published