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Note: While the May 13th 2019 IRS update to the EIN Application affects all entities, this article is only focused on the EIN application process for LLCs. Specifically, we will discuss how this affects the following:
- LLC owned by an American citizen
- LLC owned by a non-US resident or non-US citizen
- LLC owned by a US company (owned by Americans)
- LLC owned by a US company (owned by foreigners)
- LLC owned by a foreign company
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The IRS issued a news release (IR-2019-58) titled “IRS revises EIN application process; seeks to enhance security.”
This IRS update isn’t something new.
It’s rather just an “enforcement” of rules released around December of 2017 (that went into effect on January 1st 2018).
The EIN application rules (and “enforcement”) are as follows:
The EIN Responsible Party cannot be a company (a “legal person”). It must be an individual (a natural person).
And therefore, after May 13th 2019, the IRS is no longer accepting EIN Applications where an EIN is used for the Responsible Party.
(Prior to this, an EIN Responsible Party could either be a company or a person.)
Note: There is one small exception to this rule, but this affects less than 1% of our readers. The EIN Responsible Party can be a company only if it is a government entity (federal, state, local and tribal) or the military, including state national guards.
The reason these new rules are only being “enforced” now is this is a major change to the way EINs have been obtained for many years.
The IRS allowed 15-16 months for the industry to become aware and make the necessary adjustments.
The two questions that matter
In this article, we will focus on the two biggest questions:
1. If an LLC is owned by another company, what Tax Identification Number should be used for the EIN Responsible Party?
2. If a US LLC is “foreign-owned” by a non-US resident or non-US citizen, how can they get an EIN for their LLC?
We will also discuss the 5 scenarios listed at the top.
What is an EIN Responsible Party?
An EIN Responsible Party is defined by the IRS in Form SS-4 instructions (see “Responsible Party Defined“):
“The ‘responsible party’ is 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 more information on EIN Responsible Party, please see our article: who can be the EIN Responsible Party for an LLC.
What’s the confusion about?
While the new rules that an entity can’t be the EIN Responsible Party are straight-forward, the opening sentence of the May 13th IRS update has many non-US residents and non-US citizens confused:
“As part of its ongoing security review, the Internal Revenue Service announced today that starting May 13 [2019] only individuals with tax identification numbers may request an Employer Identification Number (EIN) as the ‘responsible party’ on the application.”
Additionally, there’s also this part:
“Individuals named as [the] responsible party must have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN).”
What’s adding to this confusion is that most websites commenting on the IRS update are just copying and pasting what the update says instead of actually doing the research and figuring out how it affects all EIN applicants, especially those who don’t have an SSN or ITIN, but own (or want to form) a US LLC.
The main thing missing from this update is context.
The IR-2019-58 page fails to make any commentary about non-US residents and non-US citizens who don’t have an SSN or ITIN.
So the update is only “partially true”.
The IRS wanted to clarify that you can’t list an entity (and its existing EIN) on a new EIN application. This is correct.
The IRS used very confusing language (they are only speaking to people that have an SSN or ITIN; mostly Americans) and they made no comment about people who don’t have an SSN or ITIN.
So the part about “Individuals named as responsible party must have either an SSN or ITIN” is not correct.
Note: Our team has verified this information with the IRS over the phone numerous times. You can still get an EIN for your LLC even if you don’t have an SSN or ITIN.
Non-US residents and non-US citizens that have formed an LLC in the US can still obtain an EIN for their LLC. That has not changed.
If you formed an LLC and don’t have an SSN or ITIN, you can still get an EIN for your LLC by submitting Form SS-4 to the IRS by fax or mail.
On line 7b you’ll just write “Foreign”.
We have detailed instructions on how to complete form SS-4 here: how to get an LLC EIN without an SSN or ITIN.
Again, non-US residents and non-US citizens who form an LLC in the US can still get an EIN.
This has not changed. The May 13th IRS update does not affect non-US residents and non-US citizens obtaining EINs.
Let’s discuss a few other situations about who should be the EIN Responsible Party for an LLC.
LLC owned by American citizen(s)
When getting an EIN for an LLC owned by an American citizen (or citizens), one of the LLC Members must be the EIN Responsible Party. They’ll use their Social Security Number.
(related article: who can be LLC members)
LLC owned by a non-US resident or non-US citizen
When getting an EIN for a US LLC owned by a non-US resident or non-US citizen, one of the LLC Members must be the EIN Responsible Party.
Again, if the LLC Member doesn’t have an SSN or ITIN, they’ll just write “Foreign” on line 7b of Form SS-4.
Form SS-4 must be faxed or mailed to the IRS. Non-US residents and non-US citizens cannot apply for an EIN online.
LLC owned by US company (owned by Americans)
When getting an EIN for a US LLC owned by another US company (which is owned by Americans), you can no longer use the parent company’s EIN as the Responsible Party.
Instead, the IRS wants an owner of the parent company to be listed as the EIN Responsible Party using their SSN or ITIN.
LLC owned by US company (owned by foreigners)
The rules here are the same as an LLC owned by a non-US resident or non-US citizen.
Meaning, you can’t use the parent company as the EIN Responsible Party. Instead, one of the Members of the parent company must be the Responsible Party. And on line 7b of Form SS-4, they will need to enter “Foreign”.
Again, the online EIN application cannot be used. They must fax or mail Form SS-4 to the IRS.
These changes to the EIN rules are really about national security (not about preventing foreigners from forming US LLCs and opening bank accounts)
The US government, through various ways, has been strengthening national security to combat sanction evasion, money laundering, fraud, and tax evasion.
In our how foreigners can open a US LLC bank account article, we’ve spoken about the effects of the following:
- Customer Identification Program (CIP)
- Know Your Customer (KYC)
- Anti-Money Laundering (AML)
- Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act)
These are numerous rules and laws which require banks to know more about their customers.
Furthermore, in 2018, the Financial Crimes Enforcement Network (FinCEN) has enforced new regulations on banks and financial institutions for US bank accounts owned by LLCs. The banks are now required to obtain a Beneficial Ownership Declaration which states who the actual owners of an LLC are, whether they are American or non-American.
Due to all the above, it’s impossible for an LLC owned by non-US residents or non-US citizens to be opened remotely (the bank account must be opened in person by visiting the bank).
In fact, it’s impossible to open any (legitimate) US bank account remotely, whether you’re a US citizen or not.
(If you find a service that says they can open a bank account for you remotely, there’s a 99% chance it’s a scam… and the person opening the account for you has the ability to steal your money.)
In 2017, we also saw new requirements for foreign-owned Single-Member LLCs needing to file Form 5472 and Form 1120 every year. This information is required to be submitted to the IRS every year. If not, there are large penalties.
Form 5472 closes a “loophole” where foreign-owned Single-Member LLCs didn’t need to file an informational return with the IRS.
(Foreign-owned Multi-Member LLCs don’t have this loophole since they need to file Form 1065, an informational return, every year.)
The US just wants to know who is doing business here and wants to prevent people from committing financial crimes against the US government.
In summary
Nothing has changed for how an EIN is obtained by non-US residents or non-US citizens who own US LLCs.
However, if a company owns another company, it can no longer use its existing EIN on the new EIN application and the parent company cannot be listed as the EIN Responsible Party.
The IRS requires a person (“the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity“) to be listed as the EIN Responsible Party.
Ultimately, the US government doesn’t want to prevent foreign investment from coming into the US. They just want to prevent financial crimes.
References
IRS: How to Apply for an EIN
IRS: Internal Revenue Bulletin: 2013-23
IRS: Responsible Parties and Nominees
IRS: Instructions for Form SS-4 (12/2017)
IRS: Online EIN Frequently Asked Questions
IRS: IRS revises EIN application process; seeks to enhance security
Internal Revenue Code: 26 US Code Section 6109, Identifying numbers
Internal Revenue Code: 26 CFR Section 301.6109-1, Identifying numbers
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
Hello Matt, you have an excellent website loaded with valuable information about LLs. Matt wanted to consult you as a non-resident foreigner in the USA, regarding online business as for some cases it applies and so others do not. For which case is ITIN required? Case 1. Sale of physical products on Amazon. Case 2. Sale of Physical Books on Amazon/Kindle. Case 3. Sale of Digital Books on Amazon/Kindle. Thank you for your support.
Hi Billy, thank you very much! If you are forming an LLC, you can get an EIN by following these instructions: Get EIN for LLC without SSN. An ITIN is only needed if you personally have a US tax filing requirement. It’s not so much based on the activity of the business, but more so who the taxpayer is. There is a chance you don’t have to pay US taxes (you may need to file Form 5472 though; but Form 5472 is only informational). You’ll need to speak with an accountant who works with non-US residents. We don’t have any recommendations at this time. Thanks for your understanding and hope that helps.
Thank you very much for addressing these questions.
I am in Colorado and am trying to obtain EINs for 3 new LLCs formed in May, 2019.
Each LLC has only one member (each is a single member LLC) which is an LLP, for which my wife and I are the only members.
Since the only member of these LLCs is an entity (company) and cannot be the “responsible party” for requesting EINs, I followed the advice on page 4 of 11 in the document entitled “The IRS May 2019 requirements for EIN applications” and used my name and Soc Sec number in that I am a member of the LLP that is the sole member of the new LLPs.
Unfortunately, when I got to the end of the first EIN application, the final form shows me listed as a “member” of the LLC for which I was trying to obtain an EIN. In that I, personally, am not a “member” of the LLC, I did not finalize the application.
Suggestion(s)?
Thank you
Steve Dreskin
Denver
Hi Stephen, this is an excellent question. We’ve spoken to the IRS about it a few times. The printing of “SOLE MBR” (for Single-Member LLCs) or “MBR” (for Multi-Member LLCs) still hasn’t been fixed. Meaning, for entities owned by other entities, the EIN Responsible Party is being shown as a Member even though they technically are not a Member of the entity applying for the EIN. The IRS says it doesn’t matter and it’s not a big deal. I think it’ll eventually be fixed, but these changes re: “responsible party must be an individual” are still so new that not all of the IRS systems have caught up yet. Not the best answer, I know, but most people don’t worry too much about it. The IRS stating your are a Member doesn’t make you a Member of the LLC. That is controlled via the Operating Agreement. Hope that helps.
Hello Matt,
I recently filed for member managed LLC (Two members, me and my husband). We live in a community state (TEXAS). When I applied for our EIN, I just entered me as the responsible party, and the number of members as “1”. When I received my EIN it has my name followed by “Sole MBR”. Should I have entered both of us as the responsible party?
Thank you,
Christy
Hi Christy, did you want for your husband + wife LLC to be taxed as a Qualified Joint Venture or a Partnership?
A Qualified Joint Venture
Hi Christy, thanks. You were supposed to select 2 Members and then on the next step (when a community property state has been selected), it’ll ask you if you’d like the LLC to be taxed as a Partnership (default status) or a Sole Proprietorship (Qualified Joint Venture). Funny enough, when an EIN Confirmation Letter is issued for a Qualified Joint Venture, it just has one of the spouse’s name up to and it says “Sole MBR”, denoting the husband and wife are being taxed as “one unit”. However, in your case, the IRS still thinks you have 1 Member. The best course of action is to call the IRS and see how they’d like to fix it. They will most likely ask for a written letter explaining the situation and then telling them you’d like your LLC to be taxed as a Qualified Joint Venture. It is best to call though and reference your EIN with them over the phone just to check beforehand. Hope that helps!
Thank you Matt, very helpful.
Thanks for you quick answer Matt :)
The third party designee corrected the fax mistake and I just received my EIN number :) It’s all done.
Once again I congratulate you for owning this wonderful website! It surely provides everyone with all the instructions necessary for incorporating their LLC and getting the EIN or ITIN number without any need of external paid services :)
Thank you so much Gustavo!! Man, that’s great news to hear. Best wishes with your business!
Hello Matt. First of all I would like to congratulate you in owning such a wonderful and informative website.
I have recently attempted to get my EIN number from the IRS using a third party designee (a website that charges for obtaining your EIN number). I’m from Brazil.
Are you sure that foreigners can still get their EIN number after May 13 2019 without having an ITIN number? The IRS has requested that my third party designee send them the fax again because it was ilegible or incomplete, so maybe it was nothing important. But I got a little worried anyway.
Thank you very much Matt,
Gustavo Ramgrab
Hey Gustavo, thank you for the kind words! We’ve confirmed with multiple sources (inside the IRS and outside of the IRS) that foreign nationals can still get an EIN without an ITIN or SSN. Think of the May 13th update as an “update for Americans”. If you still have issues with that third party designee, you can find instructions to fax it yourself here: how to get an EIN for LLC without ITIN or SSN. Hope that helps :)
Hello, I have a question relating to the recent changes. I’ve followed the changes and know that officially the IRS will no longer accept EINs of a company that is the sole member of an LLC. My situation is a little different. We applied for an EIN on behalf of a company that has a PA LLC (foreign owned LLC) as the sole member. We didn’t follow the insturctions that you explain in this article and apply by fax inserting “foreign” at 7b. Instead we listed an officer of the sole member (someone who did have a ss#). We intended to file a change of Responsible Party 8822-B form to update the IRS and insert the correct responsbile party. It is now time to so this and we thought we could apply for an ITIN for the new correct responsible party (owner of the sole member). However, if I understand correctly, if this individual doesn’t have a federal tax filing due, then he can’t apply for an ITIN. Is that true? If so, what do you suggest? Is there a way to file 8822-B and at question 9 “New responsible party’s SSN, ITIN or EIN” can we insert “Foreign” here? Will this be accepted? Thank you for your guidance, it’s really helpful after reading so many inaccurate explanations regarding the new changes.
Kelly
Hi Kelly, entering “Foreign” on line 9 of 8822-B should work. We haven’t found it to be “official”, but they are generally accepted. Regarding the ITIN, the easiest way to apply for one is when there is a federal tax filing requirement, however, there are also a handful of exceptions. We’ve written about them here: how to apply for an ITIN (search for “qualify under an exception”). Feel free to keep us posted on whether or not your 8822-B goes through. At this point in time, due to all the changes, we’ve realized that nearly half the people we speak with at the IRS are confused… so it can often depend on how experienced and knowledgeable the processing agent is who receives the 8822-B. Hope that helps!