Wednesday, July 16, 2014

Form 8822-B: What is it and Who Needs to File it?

To maintain correct ownership details, curb abusive tax schemes, and ensure that the correct individual is contacted regarding tax matters, the IRS has mandated new requirements to report a change in the identity of a "responsible party" for entities that have an employer identification number ("EIN").  Effective as of January 1, 2014, an entity (e.g.,a plan sponsor, plan administrator or plan trust) must report a change in its "responsible party" by completing and filing IRS Form 8822-B with the IRS within 60 days of the change. 

Background.  As a general rule, every entity must obtain an EIN for tax filing and reporting purposes. To obtain an EIN, the IRS requires an entity to complete Form SS-4, "Application for Employer Identification Number." Before January 2010, the name and identifying number (i.e., social security number) of the principal officer, general partner, grantor, owner or settlor was reported on Form SS-4.  Effective January 2010, the IRS revised Form SS-4 to instead report the name and social security number of the entity's "responsible party."  IRS, however, believed that, in many circumstances, the individual originally reported on Form SS-4 was either acting on behalf of the entity or no longer in that position.   

Who is a "Responsible Party"?  Form 8822-B instructions define "responsible party" as the "person who has a level of control over, or entitlement to, the funds or assets in the entity that as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets."   

In the context of retirement plans, the IRS has published guidance as to whom is a "responsible party."  (See Issue 2013-8 of Employee Plans News.)  According to the IRS, a responsible party for retirement plans "is the person who has a level of control, directly or indirectly, over the funds or assets in the retirement plan." 

For benefit plans where the entity that serves as the plan administrator is not the plan sponsor, such entity will have its own EIN.  Consequently, in cases where the plan administrator's "responsible party" has changed, a separate Form 8822-B must be filed.    
Penalty for Failing to File Form 8822-B.  Currently, there is no penalty for failing to file a Form 8822-B.  However, entities that fail to provide the IRS with a current mailing address or the identity of its responsible party run the risk of not receiving a notice of deficiency or a notice of demand for tax, meaning that penalties and interest will continue to accrue on any tax deficiency.   

Action Steps.  Going forward, plan sponsors and plan administrators are advised to report changes in their "responsible party" by filing Form 8822-B with the IRS within 60 of such change.  Currently, Form 8822-B cannot be e-filed.