Every business must file taxes with the IRS. When forming a partnership, filling out an application for sole proprietorship with employees, creating an LLC or starting a corporation, the first step is to apply for tax ID number, or an EIN.
The only person authorized to submit an EIN application – and handle correspondence with the IRS afterwards – is called the “responsible party.” This responsible party can only be someone who owns or controls the business entity, like an owner or general partner. Every company only has one responsible party.
Normally, no. A business manager can only be the responsible party if he or she is also a general partner. This also applies to multi-member LLCs. Any member or general partner can serve as the IRS contact person, but only one. Changing the responsible party afterwards requires filling out a form with the IRS.
Nominees are used as temporary representatives for company owners, generally when you want to maintain certain anonymity or have help with certain details related to starting up a new company. As owner, you hire a nominee to take care of preliminary details like setting up the business’s name, handle registration and other tasks.
The IRS does not allow nominees to apply for a tax ID number on behalf of owners. Instead, the responsible party must provide their own social security number on the EIN application.
In reality, the IRS views all partners as equally liable to pay their share of taxes on profits, not specifically the one serving as responsible party. In legal matters like lawsuits, partnership provides little protection since personal assets are vulnerable. To protect your own finances from liability, it’s better to structure as an LLC or corporation, which separates company assets from your personal holdings.
Once you know which business structure is right for your needs, filling out an EIN application online is effortless. Contact our experienced advisors for more information or help getting started right away.