Is There an Anti-Money Laundering (AML) Component to the Revision of the IRS EIN Process? was published by JD Supra on 6/25/19.
An EIN is also known as a Federal Entity Tax Identification Number (EIN) and is used to
identify a business entity such as a sole proprietorship, corporation, partnership, estate, trust, and other entities for tax filing and reporting purposes. An EIN can be obtained on line or via paper form by filing IRS Form SS-4. On March 27, 2019, IRS announced (IR-2019-58) that ONLY INDIVIDUALS that have a Taxpayer Identification Number (TIN) or a Social Security (SSN) number may act as the “Responsible Party” on an application for an Employer Identification Number (EIN). This means that after May 13, 2019, “entities” will no longer be able to apply for an EIN using their own EIN.
An EIN is needed when:
- Starting a new business
- Hiring employees
- Opening a bank account that requires an EIN for banking purposes
- Changing the legal character or ownership of an organization
- Purchasing an ongoing business
- Creating a trust
- Creating a pension plan as a plan as an administrator
- An Individual is a foreign person and needs an EIN to comply with IRS withholding regulations
- Acting as a withholding agent for taxes on non-wage income paid to an alien (individual, a corporation, or a partnership)
- You are a state or local agency, federal government unit or agency
- Forming a corporation
- Forming a partnership
- Administering an estate formed as a result of a person’s death
- Representing an estate that operates a business after the owner’s death
An EIN can be obtained on line or via paper form by filing IRS Form SS-4.
The Responsible Party
EIN applications must disclose the name and Taxpayer’s TIN or SSN of the true (natural person) principal officer, general partner, grantor, owner or trustor. IRS defines the 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. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person); not an entity”.
- For Public Companies, the Responsible Party is the: (a) the principal officer, if the entity is a corporation; or (b) a general partner, if a partnership.
- For Tax-Exempt organizations, the Responsible Party is the “principal officer”.
- For Government Entities, the Responsible Party is the agency or agency representative in a position to legally bind the government entity.
- For Trusts, the Responsible Party is a grantor, owner, or trustor.
An “AML component” within the revision of the EIN process?
IRS states that this new requirement will provide greater security to the EIN process as well as provide a higher level of transparency. IRS’ Revised EIN process can also be viewed as a way for the IRS to further obtain Ultimate Beneficial Ownership (UBO) Disclosure information as it now requires the TIN or SSN of the Responsible Party. The U.S. Government is determined to enforce financial transparency and combat the misuse of companies used for engaging in illicit activities. This transparency push assists international financial industry/government partnerships with identifying UBOs during key events such as:
- Entity account openings at Financial Institutions.
- Entity formation.
- Transfers of entity ownership.
- Misusing the multi-faceted U.S. entity system for banking and tax haven purposes and other illicit activities by a foreign entity.
- Disguising the source of funds being deposited by a foreign entity into the U.S. banking system.
Don’t be a Victim of your own Making
The revised instructions for the EIN process narrow the definition of a Responsible Party to include only Individuals. The Responsible Party in the EIN process needs to submit an ITIN or SSN. As a result, the Individual’s identity will be revealed to the IRS. Consult a specialized tax advisor.
https://www.jdsupra.com/legalnews/is-there-an-anti-money-laundering-aml-92031/
