Starting in August, the Internal Revenue Service will begin issuing letters to approximately 100,000 businesses, partnerships, trusts and estates, charities, and other entities with an Employer Identification Number (EIN), where it appears the ‘responsible party’ is outdated.
To combat identity theft and fraud, the IRS urges entities to update their responsible party or contact information whenever there has been a change. IRS regulations require entities with EINs to update their information by filing Form 8822-B, Change of Address or Responsible Party - Business, within 60 days of any changes. The IRS reasons that it is critical for the agency to have the correct contact information in the event of theft or fraud.
A ‘Responsible Party’ is the person who ultimately owns or controls the entity or exercises ultimate effective control over the entity. The responsible party is the individual or entity that controls, manages, or directs the business and its funds and assets. Generally, the responsible party is the principal officer for a corporation and a general partner for a partnership if the entity is publicly traded, or registered with the Securities and Exchange Commission. It is important to note, except for government entities, the responsible party must be an individual, not an entity.
Furthermore, when a corporation or other entities go through a merger and acquisition or a reorganization, the entity must timely update its status or name with the IRS. This will prevent the mismatch of information on IRS records and thwart any problems with processing the entity’s return. The updated information also serves to avoid any complications with the entities’ vendors.
The IRS’s general intent of maintaining up-to-date information facilitates timely communication between the entities and the IRS. The updated information will permit the IRS to protect the taxpayer’s information more securely.
Takeaways:
Entities with Employer Identification Number (EIN) must update their name, status, and responsible party whenever there is a change to avoid compliance issues with the IRS. If you have any questions, please contact a member of RSM’s Tax Controversy Team.
