The Internal Revenue Service has issued final regulations requiring any person who has been assigned an Employer Identification Number to provide updated information to the IRS.
The regulations affect people and businesses with EINs and are aimed at enhancing the IRS’s ability to maintain accurate information about persons who have been assigned EINs. The regulations are expected to take effect in 2014.
The final regulations require any person assigned an EIN to provide updated information to the IRS in the manner and frequency prescribed by forms, instructions or other appropriate guidance.
The IRS noted in the regulations that the collection of this information is necessary to allow the IRS to gather correct application information with respect to persons who have EINs. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.
“Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law,” said the regulations. Generally, tax returns and tax return information are confidential, as required by Section 6103 of the Tax Code.
The Treasury Department and the IRS originally published a notice of proposed rulemaking in the Federal Register, on March 14, 2012, requiring persons issued EINs to provide updated application information to the IRS. The IRS did not receive any requests for a public hearing, but several written comments were received. After considering all the comments, the proposed regulations were adopted without amendment.
Two commentators objected to the increased burden on entities resulting from the updating requirement and questioned the necessity of the requirement, and two suggested that the estimated annual average burden of 15 minutes provided in the Paperwork Reduction Act section of the proposed regulations underestimated the actual burden to entities and their agents. One commentator also argued that this rule is “material” because the related costs could reach over $100,000,000.
The Treasury and the IRS considered the objections, but concluded that updating the application information was necessary for effective tax administration. They noted that some EIN applicants continue to list individuals temporarily authorized to act on behalf of EIN applicants (sometimes referred to as “nominees”) as principal officers, general partners, grantors, owners, and trustors on EIN applications. “The listing of nominees or other individuals who are no longer associated with the entity prevents the IRS from gathering and maintaining correct and current information with respect to the responsible party for the EIN applicant,” said the IRS and the Treasury. “The requirement in the final regulations to provide updated application information will allow the IRS to ascertain the true responsible party for persons who have an EIN. This knowledge will prevent unnecessary delays by allowing the IRS to contact the correct persons when resolving a tax matter related to a business with an EIN. In addition, this information will help the IRS combat schemes that abuse the tax system through the use of nominees, which results in the concealing of the true responsible party for entities that hide assets and income.”
The Treasury and the IRS also concluded that the costs related to this rule are not “material,” any associated burden on entities resulting from this requirement would be minimal, and the costs and burden would be outweighed by the benefits to tax administration. They argued that an entity with an EIN would always know the identity of its appropriate responsible party, which is generally defined as the individual with the authority to control, manage or direct the entity and the disposition of its funds and assets. The updating requirement in the final regulations requires entities to keep the IRS informed of the identity of the responsible party.