Foreign Formed Entities Don’t need ITIN to Get EIN/FEIN By: Michael J. Fleming
We have been receiving quite a number of calls recently from owners of foreign formed entities or their advisors. These owners and their advisors are being told they have to get an individual tax identification number or ITIN in order to apply for an employer identification number (EIN) or as it is sometimes called a federal employer identification number (FEIN). We have even seen a few articles suggesting the same. This information is incorrect. The owners of foreign formed entities do not need to get an ITIN in order to apply for an EIN/FEIN.
It appears that this information stemmed from a recent change in IRS policy effective May 13, 2019, stating that responsible parties on EIN/FEIN applications must have either a Social Security number or ITIN. The new policy is to enhance security and was intended to prevent an entity from using it’s own EIN/FEIN to create an EIN/FEIN for a new entity.
Before we go further, let's discuss what an ITIN is. The definition per the IRS website is:
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a Social Security number (SSN) from the Social Security Administration (SSA)
ITINs are required to file federal tax returns when the taxpayer is eligible for a social security number. The application process often requires the application (W-7) to be filed with the federal income tax return. The IRS frowns on ITINs being issued when returns will not be filed. In fact ITINs not used to file an income tax return in the previous three years were canceled in 2018.
The problem for the responsible party of a foreign formed entity is that they often have no US tax return filing requirement especially if they are taking a tax treaty position. When we called the IRS to question them about the impact of their new policy on responsible parties we were told we should continue following the instructions and placing N/A when asked for a social security number or ITIN.
The foreign entity taking a tax treaty position still has a responsibility to file a federal return, usually along with form 8833. Since these returns often just provide information and do not require payment of the tax they are often referred to as informational returns.
While an ITIN is not required for sales tax registrations either, an EIN/FEIN is often required for a sales tax registration. For clarification an EIN is the same number as a FEIN. The only difference is what some states or people prefer to call it. The process for an international applicant is to call the IRS who will complete the application (SS4) while on the phone with you. Once complete they will provide the number to you. The number to call is US 1- 267-941-1099. Third-parties may also apply for the EIN/FEIN on your behalf. This is a service we offer. For more information your may call 972-619-5928 or email firstname.lastname@example.org.