Responsible Party: Everything You Need to Know
A responsible party manages, controls, or directs a business, non-profit, trust, or estate and its funds and assets.3 min read
2. An EIN Responsible Party
3. The Expanded Definition From the IRS
4. IRS Guidelines
5. Identifying the Responsible Party for Corporations
6. Identifying the Responsible Party for All Other Legal Entities
7. Responsible Party and Nominees
8. Item 3 on IRS Form SS-4
9. Taxpayer Identification Number
10. How to Change Your EIN and Your Responsible Party
11. A Responsible Party for Radio Frequency Equipment Compliance
What Is a Responsible Party?
A responsible party manages, controls, or directs a business, non-profit, trust, or estate and its funds and assets.
An EIN Responsible Party
Sometimes referred to as a federal tax identification number, the IRS uses an Employer Identification Number, or EIN, to identify individual entities. The EIN Responsible Party is the contact person for the IRS and is responsible for receiving their correspondence. For a business, the responsible party can be a principal officer, grantor, general partner, owner, or trustor. For an LLC, the responsible party can be a Member (the LLC's owner), an LLC Manager, Managing Member, or another business with the authority to manage the LLC and make decisions about finances and assets.
The Expanded Definition From the IRS
The responsible party has control over the business entity's funds and assets. However, owning or funding an entity doesn't make someone a responsible party unless he or she also manages, controls, and directs it.
The IRS only requires a business entity to have one responsible party. Other LLC Members or Managers are part of an LLC's Operating Agreement, but the IRS doesn't require their contact information.
Identifying the Responsible Party for Corporations
Identifying the Responsible Party for All Other Legal Entities
For other legal entities, the responsible party can have many different names:
- Estates: Administrator, Personal Representative, or Executor
- Trusts: Trustee, Grantor, or Beneficiary
- Partnerships: Partner or General Partner
- Sole Proprietorships: Owner
- Non-Profit Organizations: Officer or Member
Responsible Party and Nominees
The responsible party should be the person managing the business, not an owner who's not very involved. They are the only party authorized to communicate with the IRS.
Nominees, on the other hand, have limited authority to make decisions for a legal entity. They often have a large amount of decision-making power, especially during an organization's formation, but a nominee can't communicate with the IRS like a responsible party. Most nominees are non-employee attorneys and cannot later become a responsible party.
Item 3 on IRS Form SS-4
The IRS recently changed the EIN application so only a responsible party, not a nominee, can fill out the form. The form has also been revised so that in Item 3, also called Question 3, it asks for the name of the responsible party instead of the principal officer, grantor, owner, general partner, or trustor. The IRS wants the ability to contact a genuinely responsible party, not an uninvolved owner or an attorney who isn't an owner, partner, or director, and with these revisions, the IRS representative can be sure that they're contacting the correct person.
Taxpayer Identification Number
You should include the taxpayer identification number of the responsible party on the EIN application. For American citizens, the taxpayer ID number is their social security number, or SSN. Citizens of foreign countries can give their individual tax identification instead. If the responsible party is another business entity, the taxpayer identification number is its EIN.
How to Change Your EIN and Your Responsible Party
To change the name of your responsible party and your EIN, mail or fax a letter describing the change to the IRS.
A Responsible Party for Radio Frequency Equipment Compliance
For radio frequency equipment, the responsible party, also called the grantee, should receive a grant of certification to comply with FCC rules. If anyone other than the grantee modifies the equipment and that person isn't authorized by the grantee, he or she is responsible for making sure the radio frequency equipment complies with all applicable administrative and technical rules. However, the importer becomes the responsible party if the equipment is imported after it's modified.
For radio frequency equipment that's subject to authorization under the FCC's verification procedures, the manufacturer or the importer is the responsible party, unless someone modifies the equipment after manufacture or importation. The responsible party must sign a Declaration of Conformity to guarantee that the equipment meets FCC regulations. A retailer or an original manufacturer can agree with the responsible party to become the new responsible party.
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