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Outdated “Responsible Party” Information May Slow Down Your Tax Refund

Aug 23, 2021

Identity theft and fraud issues have challenged the IRS for years. These issues significantly impact the time it takes for the IRS to process a tax return and issue a tax refund. In an effort to combat this key security issue, the IRS is urging corporations, partnerships, trusts and estates and other entities with Employer Identification Numbers (EINs) to update their information if there has been a change in the responsible party or contact information. This month, the IRS will send letters to approximately 100,000 taxpayers with EINs where there are indications the responsible party and address information appear to be outdated.

The “responsible party” is the person who controls, manages, or directs the entity and the disposition of its funds and assets. Unless the EIN applicant is a government entity, the responsible party must be an individual, not an entity.  The responsible party is also the person the IRS contacts for tax issues related to that EIN.  If there is more than one responsible party, the entity decides which person it wants the IRS to recognize as the responsible party.

For entities on a public exchange, or which are registered with the SEC, the responsible party is either the principal officer, if the entity is a corporation, or a general partner, if a partnership.  If a corporation is the general partner of a publicly traded partnership, then the responsible party of the partnership is the principal officer of the corporation. 

Assignment of an entity’s responsible party is first made when an entity applies for an EIN by filing Form SS-4.  Taxpayers are required to update their responsible party and address information within 60 days of a change.  Changes to the responsible party are made by filing Form 8822-B, Change of Address or Responsible Party-Business with the IRS.

Due to the lasting impact of COVID-19, the IRS continues to experience significant backlogs with the processing of tax returns and refund claims.  As of June 2021, the IRS was processing returns received over the summer and fall of 2020 due to the extended July 15, 2020 tax filing due date. Submissions are handled by the IRS in the order in which they are received.  Many of the outstanding returns require manual processing due to potential errors or identity theft flags, or are temporarily suspended while the IRS awaits additional information from the taxpayer.  Requests for additional information are typically sent to the entity’s responsible party, which can contribute to further delays if the IRS does not have the most current information on who the responsible party is. 

According to the Taxpayer Advocate, as of the end of 2021 filing season, the IRS had a backlog of approximately 35 million tax returns that require manual processing. This includes approximately 16.8M paper tax returns waiting to be processed, approximately 15.8 million returns suspended, and approximately 2.7M amended returns awaiting processing.  These numbers are approximately four times higher than pre-pandemic years.  The IRS is asking taxpayers not to submit duplicate returns as that will only result in additional delays. 

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Miri Forster

Miri Forster, National Leader of the Tax Controversy & Dispute Resolution practice group, has over 20 years of experience providing tax dispute resolution services to public and private corporations, partnerships and high net worth individuals on a wide range of technical and procedural issues.

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