When a foreign company wants to start up in the U.S., it usually creates a separate corporation here so U.S. obligations and liabilities will not flow back to the overseas parent. The U.S. corporation needs a federal Employer Identification Number (EIN) – at the very least, to open a bank account, even if the corporation will have no employees in the U.S. In a recent post on its website (Use of Nominees in the EIN Application Process), the Internal Revenue Service recently made it more difficult for foreign companies to obtain an EIN.
To obtain an EIN, the corporation typically provides the social security number (SSN) of a “principal officer”. In the past, the IRS was rather vague as to what this term meant, stating that it referred to a “president, vice president, or other principal officer”. So, for example, if the corporation’s overseas president did not have an SSN because s/he never worked in the U.S., the corporation could temporarily appoint as vice president an individual who has an SSN, which the corporation then would use to apply for an EIN.
The IRS now states that it “does not authorize” this approach because it facilitates tax non-compliance. Instead, the principal officer must be someone who “controls, manages, or directs the applicant entity and the disposition of its funds and assets”.
Update as of March 19, 2014:
To obtain an EIN quickly and easily online, the corporation’s principal officer must have a US social security number (SSN).
However, if the president is a foreign national, then s/he probably does not have an SSN (or an Individual Taxpayer Identification Number). In this situation, the following process should be followed:
Update: Effective January 6, 2014, the Internal Revenue Service implemented a new cost-saving procedure that, unfortunately, extends the time that I require to obtain an EIN for my international clients by several days (by fax after one week rather than by telephone in real time). The new procedure is reflected below.
- Retain a lawyer, or another qualified individual, to act as the third party designee for the corporation. See How Much Does It Cost to Obtain an EIN?
- The designee should prepare Form SS-4 (Application for Employer Identification Number) and Form 8821 (Tax Information Authorization) for the corporation’s president to sign and return.
- The designee faxes the signed Forms SS-4 and 8821 to the Internal Revenue Service at +1 859-669-5760.
- Approximately one week later, the IRS faxes an EIN confirmation letter to the designee.
Update as of October 23, 2014:
- The principal value (to me) of the 8821 referenced above was that the IRS (supposedly) would send a 147C letter confirming the EIN. However, the vast majority of the time the IRS did not comply with this request. Instead, it just wrote the EIN on the SS-4 and faxed it back to me. So I recently stopped sending the 8821.
- Today, for the first time, when requesting an EIN for a limited liability company (LLC) I received fax stating that I needed to fax back to the IRS the original documents that I sent plus the LLC’s Articles of Organization, because the IRS wants to know the state of formation. While that is relevant information, and the SS-4 requests it for corporations, neither the form nor its instructions requests that information for LLCs!
The IRS never ceases to amaze….
Update as of December 16, 2014:
Last week, the IRS surprised me, again.
I received a fax back stating that “FOREIGNUS” on Line 7b (see discussion below) is not valid – despite the fact that I had submitted dozens of Forms SS-4 completed that way during the past several years!
I called the IRS to ask what the problem was. The gentleman who answered was friendly, but he was not able to help me. He pointed out that the IRS has thousands of employees, and some of them interpret rules differently. (Great….)
The fax that I received provided a hint, referring to non-resident aliens. So, I changed Line 7b to “NONE – NON-RESIDENT ALIEN”. A few days later, I received an EIN for my client.
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The following information is out of date and continues to be included in this post solely for archival purposes:
The bottom line: A foreign company looking to start up in the U.S. will need to include, among its officers, at least one who (a) controls, manages, or directs the corporation and the disposition of its funds and assets and (b) has an SSN.
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Update as of December 7, 2009
A tax practitioner in Florida provided the following information:
I work in the tax advisory service line and focus on mostly international tax services.? This of course includes helping foreign entities establish US operations, which I see is one of your specialties.? I took a minute to browse your blog and saw that you?ve run into the principal officer SSN problem on the EIN application.? From my experience, the IRS does not reject the application if an SSN is not included.? We simply enter ?FOREIGNUS? on line 7b of the SS-4.? The only issue is that the EIN cannot be applied for online because the system rejects anything that is not in a ###-##-#### format.
Another couple of tips for the SS-4 for foreign applicants:
- Enter a US c/o person on line 3
- Use a US address for mailing address and the foreign address for street address
- Call (267) 941-1099 [number updated October 2010] to obtain the EIN directly from an agent and they will? give you a fax number so you can fax them the SS-4
The bottom line: Foreign companies whose officers do not have Social Security Numbers should use the telephone, rather than the IRS website, to obtain an EIN. But be prepared for a long wait – when I called to confirm the procedure, I hung up after being on hold for about ten minutes.
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Update as of March 15, 2010
Dealing with the IRS has been much worse than I expected. Repeated problems include:
- Calls that do not go through
- Calls that, once they go through, have sound quality so poor that I must re-dial
- Calls that, once they go through, are on music hold for an extended time
- Fax machines that receive transmissions properly from dedicated fax machines (which I do not have) but not from computers or multifunction (all-in-one) devices (which, of course, I have)
I have wasted hours during the past two working days, yet I still do not have an EIN for one of my clients. Tomorrow I will traipse over to a storefront office-services company to see whether their fax machine can communicate successfully with the IRS.
Now I know, first-hand, why people speak so poorly about the Internal Revenue Service.
Postscript: The fax machine at nearby FedEx Office worked successfully with the IRS equipment.
Post-postscript: I ended up buying a traditional fax machine so I wouldn’t have to leave my office to work with the IRS.
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Update as of December 3, 2013
During the past year or so, in connection with a geographic relocation of responsibility for issuing EINs, the IRS has dramatically improved its level of service.
- Personnel are more friendly and more gracious.
- Wait times appear to have been reduced significantly.
- A new, more-reliable fax capability has been implemented.
- Am I in Trouble if My Accountant Used His SSN to Get My Corporation?s EIN?
- Help – I Lost My SSN!
- You *Don’t* Need an ITIN to Bring Your Company to the US
- How Much Does It Cost to Obtain an EIN?
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.