New Requirement Applies to Any Business Seeking a Tax ID Number
May 7, 2019
Starting May 13, an important change will affect the way the IRS issues employer identification numbers, or EINs.
With identity theft on the rise in the business community, the agency also offered business taxpayers tips and resources for protecting their data from theft.
EINs and Responsible Parties
Beginning May 13, only individuals with tax identification numbers – either a Social Security number (SSN) or an individual taxpayer identification number (ITIN) – may request an employer identification number. This new requirement, which was first announced by the IRS in March, will provide greater security to the EIN process by requiring an individual to be the responsible party and will also improve transparency.An EIN is a nine-digit tax identification number assigned to sole proprietors, corporations, partnerships, estates, trusts, employee retirement plans and other entities for tax-filing and reporting purposes.
The change prohibits entities from using their own EINs to obtain additional EINs. The new requirement applies to both the paper Form SS-4, Application for Employer Identification Number (PDF), and online EIN applications.
Individuals are not the only ones who need to protect their identities. Businesses and other organizations, especially trusts, estates and partnerships, can also be victims of identity theft. For example, criminals may file Forms 1120 (corporations), 1120S (S corporations) or Schedules K-1 in their names. Last year, 2,450 businesses reported that they were victims of tax-related identity theft, a 10-percent increase over 2017.
Businesses and other organizations can help combat identity theft by educating their employees, clients and customers. They can share Publication 4524, Taxes. Security. Together: Security Awareness for Taxpayers (PDF), or create their own messages urging employees, clients or customers to protect their data and beware of phishing emails, the most common tactic used by criminals to steal data.
Businesses should also educate their payroll and human resources employees about a dangerous phishing scam. The Form W-2 scam tricks payroll and human resources employees into sharing employee wage and income information by posing as a company executive. See Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers.
Businesses that retain sensitive financial data should review and update their security plan. Publication 4557, Safeguarding Taxpayer Data (PDF), provides a good starting point and includes helpful recommendations.