Foreigners Must Now Obtain an ITIN to Obtain an EIN

The Internal Revenue Service recently announced a revision to its application process for obtaining an Employer Identification Number (EIN), which is the nine-digit number assigned to business entities, including corporations, limited liability companies, and partnerships, for tax filing and reporting purposes.[1] The IRS indicated that entities will no longer be permitted to use their own EINs to obtain additional EINs for new entities. Instead, the new entity’s “responsible party” must use his or her Social Security number (SSN) or individual taxpayer identification number (ITIN) to obtain the EIN for the new entity.[2] The IRS stated that the change is being made to provide greater security to the EIN process by requiring an individual to be the responsible party and to improve transparency.

The IRS did not state in its release that it is making another change that will impact the EIN process when a foreigner is the responsible party for the new entity. Previously, the agent could write “Non-US” on Line 7b of the Form SS-4 (where the SSN or ITIN would normally be entered) and fax the form to the IRS, which would then manually issue the EIN. [3]

Now, however, the IRS has indicated that it will no longer issue EINs without the responsible party having a SSN or ITIN. Therefore, the only option when a foreigner is the responsible party for a new entity is for the foreigner to first apply for and obtain an ITIN before applying for the EIN. Applying for an ITIN is not a difficult process,[4] but this means that new entities needing an EIN will need to build in more lead time to obtain an ITIN for a foreign responsible party before being able to obtain the EIN.

^[1]See Internal Revenue Service, Release No. IR-2019-58 (Mar. 27, 2019).

^[2]The IRS defines an entity’s “responsible party” as “the 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.” Instructions for Form SS-4 at 3 (Rev. Dec. 2017). Therefore, while a “third party designee” such as the new entity’s accountant can file the Form SS-4 to obtain an EIN on behalf of the entity, the designee cannot be identified as the responsible party on the Form SS-4.

^[3]See eMinutes, How a Foreigner Can Obtain a Tax Identification Number When Forming a US Corporation; Instructions for Form SS-4 at 3 (Rev. Dec. 2017) (cautioning that, as of December 2017, the IRS was no longer issuing EINs by telephone for domestic taxpayers and “[o]nly international applicants can receive an EIN by telephone”).

^[4]See Internal Revenue Service, How Do I Apply for an ITIN?; Form W-7 (Rev. Dec. 2016); Instructions for Form W-7 (Rev. Nov. 2018).