EIN

What is an EIN Responsible Party

ein tax definition - responsible party

An Employer Identification Number or EIN is a number used by the Internal Revenue Service to identify individual businesses, non-profits, trusts or estates. They also call it a federal tax-identification number. According to the IRS, any entity that has employees must have an EIN number. When you fill out your application, you will have to disclose the name and taxpayer identification number of the responsible party. Well, what’s an EIN-responsible party? Basically, the IRS defines a responsible party as the person who controls, manages or directs the applicant entity’s funds and assets. How do you identify this person?

Identifying the Responsible Party

The IRS determines the identity of the responsible party based on the way your entity is structured. Here’s a list to help you identify the responsible party in your organization:

  • Limited Liability Corporation: Owner, Member, Managing Member.
  • C-Corporation: President, CEO, Corporate Officer.
  • S-Corporation: President, CEO, Corporate Officer.
  • Personal Service Corporation: President, CEO, Corporate Officer.

For all other legal entities, the responsible party is the individual who has final control over the organization’s finances and has the ability to make financial decisions.

  • Estate: Personal Representative, Administrator, Executor.
  • Non-Profit: Member, Officer.
  • Trust: Grantor, Trustee, Beneficiary.
  • Partnership: Partner, General Partner.
  • Sole Proprietor: Owner.
  • Church: Member, Officer.

To qualify as a responsible party, the individual in control of the organization’s finances must also have the ability to manage the business itself. For example, a minor child might have financial authority over a trust, but they don’t have the authority to manage the trust itself. In this instance, the responsible party would be the manager of the fund.

Nominees

Sometimes, individuals receive limited authority to make decisions for a legal entity. The IRS defines these people as nominees. Such nominees often have a great deal of authority within an organization, especially when the organization is first forming. However, the IRS will not consider a nominee to be a legitimately responsible person.

Taxpayer Identification Number

On the EIN application, you’ll have to include the responsible party’s taxpayer identification number. If the responsible party is an American citizen, then this number will be their social security number (SSN). If the responsible party is a citizen of a foreign country, then give their individual tax-identification number (TIN). For some entity types, the responsible party can be another entity as well, in that case, the taxpayer identification number will be the EIN number of the entity.