Carrying on Business II: Obtaining a Federal Tax ID Number for a Foreign-owned U.S. Business

Published February 24, 2016

Previously, the IRS would allow one to simply designate somebody without such governing power much in the way that a Registered Agent operates. It is important to note that with the new requirements, an individual who merely provides funding for the entity does not qualify as a Responsible Party because the individual (or entity) is also required to directly or indirectly control the management of the funds.

It is important to discuss with your Attorney how these requirements of control and management apply to your specific business entity, as there are different considerations that go into each type such as:

• LLC (Member-Managed)

• LLC (Manager-Managed

• Corporation (Either S or C-Corps)

  
  

For larger entities that are traded on public exchange or that are registered with the SEC the Responsible Party is the:

• Principal Officer (if a Corporation)

• General Partner (if a Partnership)

• Grantor, owner, or trustor (if a Trust)

  
  

Once the Responsible Party has been established, Form SS-4 will ask for an identification number for the responsible party which can be:

• Social Security Number

• Individual Tax Identification Number

• Employment Identification Number (if the Responsible Party is an entity)

  
  

This is where the process gets much more complicated for businesses that are wholly or majority owned by foreign residents or foreign entities with no U.S. tax identification number. Most of these types of businesses do not have a U.S. individual or entity that qualifies as a Responsible Party, and as foreign residents they will not have a SSN themselves.

That leaves either the ITIN or EIN. Applying for an ITIN number by filing Form W-7 with the IRS can take up to two months to get approved which is not a viable option for most businesses because they want to open as soon as possible.

Therefore, for an entity that does not have a Responsible Party with either an ITIN or SSN, the most efficient and fastest way for the entity to obtain an EIN is to file the SS-4.