Three things to know about updates to the EIN application form

In an effort to improve security and transparency around the Employer Identification Number (EIN) application process, the Internal Revenue Service has published updated instructions to Form SS-4, Application for Employer Identification Numbers.

An EIN is an identification number assigned to sole proprietors, corporations, partnerships, estates, trusts, employee retirement plans and other entities. It is the equivalent to a Canadian Business number and all businesses operating in the U.S. must have an EIN in order to file tax returns or entity classification elections with the IRS. In some cases, it is also required to open a U.S. bank account.

If you are a Canadian doing business in the U.S., there are three key takeaways from these updates:

1) Requirement for an SSN or ITIN. EFFECTIVE MAY 13, 2019, taxpayers cannot apply for an EIN unless the responsible party named on the application has either a social security number (SSN) or Individual Taxpayer Identification Number (ITIN). While it is not expressly described in the new instructions to the application, it is understood that an EIN can be assigned to an international applicant (i.e. an entity that has no legal residence, principal office, or agency in the United States or a U.S. possession) if an SSN, ITIN, or EIN for the responsible party is not available. In this case, the applicant can enter “foreign domicile” on line 7b of Form SS-4.

2) Change to the definition of “responsible party”. As of December 2017, the IRS requires that an EIN applicant’s “responsible party” must be an individual who owns or controls the entity or exercises ultimate effective control over the applicant. The responsible party can be a U.S. or non-U.S. person, but it can no longer be an entity. (Government entities and military are exempt.)

3) Elimination of the “check-the-box” exception. The “check-the-box” exception no longer applies. Prior to this change, a SSN or ITIN was not required to apply for an EIN if the reason for obtaining an EIN was to file IRS Form 8832, Entity Classification Election (i.e. a “check-the-box” election to change the entity’s classification for federal tax purposes). In the most recent version of the application, the IRS has eliminated this exception.

The check-the-box election as a planning tool

The “check-the-box” election has been a popular post-mortem planning tool used by Canadians to avoid the U.S. estate tax on U.S. situs assets held by a non-U.S. taxpayer at death. A Canadian partnership is initially created to own the U.S. situs assets and, following the death of the non-U.S. taxpayer, a check-the-box election is made to treat the Canadian partnership as a corporation for U.S. tax purposes. A non-U.S. decedent who, at death, holds shares of a foreign corporation (which serves as a “blocker”) that owns U.S. situs assets is not subject to the U.S. estate tax. The “check-the-box” election can be effective up to 75 days prior to the date the election is filed, which effectively permits the ownership by the non-U.S. decedent of the “foreign corporation” to occur prior to the date of death.

The U.S. estate tax is assessed at up to 40% of the fair market value (and not the gain) of the U.S. situs assets, however, the lifetime estate tax exclusions that are permitted under the Canada-U.S. Treaty may provide relief from the U.S. estate tax. Because the lifetime estate tax exclusions have doubled for 2018 through 2025 under the Trump Administration’s new tax Act, this planning tool may prove to be less effective until the end of 2025.

Advance Planning is Highly Recommended

Limited Liability Companies (“LLC”) that are wholly-owned by non-US persons must now comply with the reporting requirements of Form 5472, Information returns of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.  The Form must be attached to a proforma U.S. tax return (i.e. Form 1120, U.S. Corporation Income Tax Return) and is due by the 15th day of the fourth month following the end of the foreign owner’s tax year or calendar year. For a calendar year foreign owner, the tax return is due April 15.

Because the ITIN application process is quite onerous and may take months to complete, advance planning is critical to ensure that elections are made in a timely manner and the U.S. filing requirements are met by the due date.

There is no change to the application process for tax professionals who act as a designated third-party in completing the process for an entity.



With the United States government shutdown in its fifth week — the longest government shutdown in U.S. history — its effects are beginning to take a toll on those north of the border.

For Canadians with financial interests in the U.S., the shutdown of non-essential government agencies such as the Internal Revenue Service may prove to be more than just a minor inconvenience.

Azam Rajan, lawyer and director of U.S. tax law at Moodys Gartner Tax Law in Calgary, says the “procedural snafu” created by the shutdown of the IRS can mean higher than anticipated costs and complications during the upcoming tax season that may stifle cross-border investment.

Transactions involving Canadian sellers of U.S. real estate are being delayed as well, as non-residents are typically required to abide by the Foreign Investment in Real Property Tax Act. The law requires non-residents to withhold 15 per cent of the sale price as tax, Rajan says. However, sales resulting in a net profit loss are not subject to taxation and the seller is permitted to obtain that money back from escrow, but only through the submission of a withholding certificate from the IRS.

“Unfortunately, now that money is being held in the escrow agent’s office and they then are required to submit it to the IRS,” Rajan says. “You now have to file a tax return with the IRS to get the money back and this is the wrong way of doing it.”

Elena Hanson, founder and managing director of Hanson Crossborder Tax, says that since the shutdown of the IRS on Dec. 22, taxpayers and tax practitioners with past or future U.S. tax obligations have been unable to access services that may be required to comply with Canada Revenue Agency regulations such as notice of assessments for past foreign tax credits.

Given the duration of the shutdown, many of these concerns are expected to continue once the IRS commences operations for the upcoming tax season on Jan. 28. The IRS Lapsed Appropriations Contingency Plan stipulates that only 57.4 per cent of furloughed workers will be retained, leading to immense and inevitable backlog.

“During normal operations, there were a lot of inefficiencies. It typically takes somewhere from half an hour to two hours if you want to address an inquiry over the phone with an agent,” Hanson says. “We cannot even imagine how long it’s going to take to ask a question.”

The subsequent backlog may lead to a delay in returns that will extend far into 2019, Hanson says, and cause some Canadians to file late with the CRA if they choose to wait for the funds from U.S. returns to finance CRA tax payments.

As of this moment, Hanson says she is not aware of any accommodations the CRA plans to make for those filing abroad. However, she says, in the past, they have been quite lenient.

“This is a major hurdle for everyone affected and, unfortunately, we don’t have control or we don’t have any other options,” Hanson says. “We just have to wait and be organized once the revenue services are back to normal or semi-normal.”

Marsha Dungog, also a director of U.S. tax law at Moodys Gartner Tax Law, says the IRS shutdown can affect Canadians on a more personal level as well. A few years prior, the U.S. began a controversial passport revocation program in which individuals owing more than $50,000 in taxes would have their U.S. passports revoked by the Department of State when crossing the border and not returned until payment was made, Dungog says.

There is currently no staff available to either process payments owed or contact the State Department for re-certification of the passport, which severely hampers the ability of those individuals to travel for either business or personal reasons, Dungog says.

A lack of staff may also impact lawyers with clients involved in the tax appeal process.

“Lawyers dealing with the IRS already on what we call appeals or higher-level administrative review of the file for their clients, all the correspondences are going to get delayed because there are no actual IRS personnel there to answer,” Dungog says. “The IRS was supposed to be rescheduling, but they don’t know when they’re going to open.”

As those delays in appeals endure, not only do penalties and interest continue to accrue but individuals may be subject to tax liens imposed through the IRS’s functioning automated system, Dungog says. Although these are remediable conditions, Dungog anticipates they would require a “Herculean effort” to amend once the IRS is up and running.

“We’ll just have to learn how to deal with uncertainty for now on both sides of the border,” she says.

Written By Julia Nowicki
Source CanadianLawyer article published January 23,2019

Some foreign banks trying to report Americans’ accounts to the IRS could face a tougher time in 2018 if they can’t get taxpayer identification numbers (whether Social Security Numbers (SSNs) or Individual Taxpayer Identification Numbers (ITINs) for the account holders. The Internal Revenue Service said April 11 that after 2017, it will no longer let the banks report the accounts through a special technical system without the numbers. That information can be hard to get in some cases as overseas financial institutions work to comply with the Foreign Account Tax Compliance Act. The law requires them to report U.S.-held accounts to the IRS or face penalties and higher withholding taxes.

The new guidance, set out in question-and-answer format, emphasizes that banks will have to report ID numbers with the accounts starting Jan. 1, 2018. The move could reflect an increasing IRS insistence on learning ID numbers for U.S. and foreign people with U.S. money overseas.

(Per BNA Daily reporter as of April 12, 2017)

New ITIN Requirements

Every taxpayer with US filing obligations, whether in the form of a tax return, a declaration of estimated tax payment or an informational disclosure, must be identified by a taxpayer’s identification number.  Typically, such identification number is an individual’s social security number.  If an individual is not eligible for a social security number, he or she can apply for an individual taxpayer identification number ITIN.

The 2015 Protecting Americans from Tax Hikes Act (the 2015 Path Act) has modified both procedural requirements on obtaining new ITINs and prescribed terms of the existing and new ITINs.  The new rules are codified in the newly introduced Section 6109(i) of the Internal Revenue Code and are effective after December 18, 2015.

Under the new rules, the requirements for an ITIN application differ whether the applicant resides in the US or abroad.  For applicants residing outside the US, the IRS allows to submit an ITIN application either (a) in-person to an IRS employee or a designee of the Secretary at a US diplomatic or consular post or (2) by mail with the IRS.  The IRS is responsible for establishing procedures on submission by mail.  It appears that there are no significant changes with the types of documents for proof of an applicant’s identity, foreign status and residency.  Either original or certified copies should remain valid.

Under the 2015 Path Act, the ITINs will be differentiated between all-purpose ITINs and treaty-benefits ITINs with distinguished numbers.

The new provision changes how long ITINs will remain in effect.  For an ITIN obtained as of January 1, 2013 or later, it should become permanent for as long as its owner has filed a federal income tax return (claimed as a dependent on a return) for three consecutive tax years.  Failure to meet the three-year reporting window will cause the ITIN to expire on December 31 of the third consecutive tax year.

For ITINs issued before January 1, 2013, the expiry date is determined based on whether or not a tax return has been filed for three consecutive tax years.  If not filed, the ITIN invalidates on the earlier of the two: (1) the last date of the third consecutive tax year or (2) December 31, 2015.  For filed returns, the ITINs are scheduled to expire on a staggered schedule between 2016 and 2019, based on the issuance year (pre-2008 through 2012).  Unless, timely renewed, no pre-2013 issued ITINs will be valid past 2019.

Considering that the condition for an ITIN retention under the new rule is a three-year filing requirement of an income tax return as opposed to other disclosures, such as Form 8840, Closer Connection Exception Statement for Aliens, or Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition, taxpayers who wish to file the latter forms with an ITIN may want to start attaching them to 1040NR returns.

If the above changes apply to you and you need assistance in renewing an ITIN, please feel free to contact us here.

tax identification numbers


There are several types of tax identification numbers available in the US. The most commonly used are social security numbers (SSNs), individual tax identification numbers (ITINs) and employer identification numbers (EIN). All three types are jointly known as taxpayer identification numbers (TINs) and contain nine digits. EINs have a slightly different format than the other two assigned to individuals. EINs take the form XX-XXXXXXX whereas SSNs and ITINs take the form XXX-XX-XXXX.

Any person other than an individual, such as corporations, partnerships, non-profit associations, trusts, estates, whether foreign or domestic, must use an EIN. In addition, an individual who is either a US or non-US citizen and is either an employer or self-employed must also use EIN on the returns, schedules, forms and documents with respect to his/her employer and self-proprietor role. EIN is necessary for completion of any certificates under the Tax Withholding and Reporting Requirements and FATCA (e.g., W-8BEN-E, W-8ECI, etc.).

Foreign individuals who are not eligible to receive a US SSN must obtain a US ITIN when filing a US tax return or complete certain certification forms. There are a number of options of how an ITIN can be obtained, including the one through an acceptance agent, who is authorized to do so under a written agreement with the IRS. We have been authorized by the IRS to act as a Certifying Acceptance Agent to facilitate the processing of ITIN applications.

CRA mandates that all non-resident individuals, corporations and trusts who are either subject to filing of a Canadian income tax return, Canadian tax withholdings waiver or Taxable Canadian Property disposition reporting, must obtain a Social Insurance number (SIN), an individual tax number (TIN) or a temporary taxation number (e.g. business number (BN) for business entities). For individuals, a number can be obtained through completion and filing of Form T1261 and accompanied by certain proof of identity. For businesses, a number can be obtained through either the Business Registration Online (BRO) application or directly by visiting one of the designated tax service offices. We would be happy to assist you in obtaining an applicable taxpayer number.

To read information on the IRS and CRA website use the links below