Thursday, February 16, 2017

Do I Have to Get a Tax ID (EIN)?

What is an EIN?

Federal Employer Identification Number (EIN or FEIN) is a unique nine-digit  federal tax identification number assigned by the Internal Revenue Service (IRS) to business entities in the United States. The name EIN is somewhat misleading; EIN's are not just for employers. EIN's do not expire. When it comes to EIN's, foreign-owned US business entities are subject to the same rules that apply to US-based owners.

Who Needs an EIN?

Generally speaking, only certain sole proprietors and single-member LLC's do not need to get an EIN. They can use Social Security Numbers instead of EIN's.  However, even though EIN is not required for federal tax purposes, it may still be needed for banking purposes.

So, who needs an EIN? The IRS says that you need one if you answer YES to any of the following questions:

Do you have employees?
Do you operate your business as a corporation or a partnership?
Do you file any of these tax returns:
Employment, Excise, or Alcohol, Tobacco and Firearms?
Do you withhold taxes on income, other than wages, paid to a non-resident alien?
Do you have a Keogh plan?
Are you involved with any of the following types of organizations?
     * Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business  Income Tax Returns
      * Estates
      * Real estate mortgage investment conduits
      * Non-profit organizations
      * Farmers' cooperatives
      * Plan administrators

Note that there is nothing there about the LLC's. A single-member LLC in the eyes of the IRS is essentially the same as an individual filer, sole proprietor. It does not need an EIN, unless it answers yes to any of the above questions. An LLC with more than one member is taxed, by default, as a partnership. It can also elect to be taxed as a corporation. That's why, either way, a multiple-member LLC needs an EIN. All corporations (C corps and S corps) must have an EIN.

How to Get an EIN?

Obtaining an EIN is a fairly straightforward process. You can apply online, by fax, phone or mail. All you need to do is fill in a one-page Form SS-4 and, if you did it correctly, the IRS will issue the EIN pretty much automatically.

When Do You Need a New EIN?

Normally, businesses need to obtain a new EIN when their ownership or structure has changed. Simple business name change or address change does not require you to obtain a new EIN.

Sole proprietors are required to obtain a new EIN if they are subject to a bankruptcy proceeding; take in partners and operate as a partnership; purchase or inherit an existing business.

Corporations will be required to obtain a new EIN if they are a subsidiary of a corporation using the parent's EIN; convert to a partnership or a sole proprietorship; a new corporation is created after a statutory merger. You will not be required to obtain a new EIN if you are a division of a corporation.

Partnerships will be required to obtain a new EIN if your partnership is taken over by one of the partners and is operated as a sole proprietorship; you end an old partnership and begin a new one.  You will not be required to obtain a new EIN if partnership declares bankruptcy.

LLC's will be required to obtain a new EIN if: a new LLC with more than one owner (Multi-member LLC) is formed; an existing partnership converts to an LLC.

Trusts will be required to obtain a new EIN if: one person is the grantor/maker of many trusts; a trust changes to an estate; a living or intervivos trust changes to a testamentary trust; a living trust terminates by distributing its property to a residual trust. You will not be required to obtain a new EIN if the trustee changes; the grantor or beneficiary changes his/her name or address.