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

We have recently discussed important issues for foreign residents in forming either a Limited Liability Company or Corporation in the US. While there are many important considerations that go into forming and structuring an entity, there are also other issues involved in carrying out business and transactions.

First, as we have discussed in the formation articles, an entity must be registered as a business in order to actually carry out transactions and do business. Registering with the State and City in which the business is based is a fairly straightforward process; a UBI number is already provided with forming the entity so this number is used for the business licensing stage. As long as there are no zoning issues or issues specific to certain types of specialty businesses then both state and city business licenses should be processed and approved within a standard timeframe of 2-4 weeks.

A much trickier process exists for obtaining an Employment Identification Number (EIN) with the Internal Revenue Service for US businesses wholly or majority owned by foreign residents. An EIN is required for taxation purposes for an entity such as a multiple-member Limited Liability Company or a Corporation.

An EIN further enables:

• Opening a separate Bank Account
• Hiring Employees
• Electing to be taxed as a Corporation
• Further separation of business from personal finances

It used to be quite simple to submit an SS-4 form to the IRS and obtain an Employment Identification Number (EIN) for an LLC or Corporation owned by foreign residents, however it has lately become much more difficult.

Now the IRS requires that a “Responsible Party” be listed on the SS-4 form. What constitutes being a “Responsible Party” and how does one qualify as such? A responsible party must meet the following requirements:

• Either an individual or entity
• Must control, manage, or direct the entity applying for the EIN
• Have control over the disposition of the funds and assets