Legal-Ease: Who needs tax identification numbers?


By Lee R. Schroeder - Guest Columnist



Federal Tax Identification Numbers (TINs) and Employer Identification Numbers (EINs) refer to the same thing: a unique number assigned by the IRS to identify various businesses, trusts and relationships. EINs can be thought of as being social security numbers for businesses, trusts and various other collective or individual endeavors. EINs have nine digits: two digits followed by a hyphen and then the remaining seven digits.

EINs can usually be retrieved from the IRS via the IRS website. If the name for an entity seeking an EIN is similar to the name of another entity that already has an EIN, the IRS usually requires that the application for an EIN be filed by fax, which allows a human employee of the IRS to re-check the circumstances and avoid any eventual confusion on the IRS’s end.

Although “EIN” is the term most often used by the IRS, not everyone who is an employer has an EIN. However, almost all businesses that are employers will have EINs.

A business that has one human being owner (a sole proprietorship), whether organized as an LLC or not, is not usually required to get an EIN. Nevertheless, most sole proprietorships do secure an EIN to streamline the business’s reporting to the IRS. Having or not having an EIN does not affect actual tax obligation amounts.

Businesses with more than one human owner (like most corporations, partnerships and LLCs) are required to get an EIN to do business in the United States. Any business or trust with an EIN only needs one EIN unless the business owns separate subsidiary businesses, each of which will have its own EIN.

Irrevocable trusts are also usually required to get EINs, even though trusts are essentially sets of rules. This is because some irrevocable trusts can become taxable entities themselves due to having multiple beneficiaries (owners). In that regard, a collective group of beneficiaries of an irrevocable trust is like a business group. Even if a trust has only one beneficiary/owner, if the trust is irrevocable, the IRS often treats the trust as a taxable entity, because it allows the IRS to track the money paid into the trust (and made subject to the trust rules) to ensure that that money is timely distributed to the beneficiaries. Generally speaking, as an aside, many irrevocable trusts are required to annually disburse their earnings or face a tax rate of up to 37% for the amounts not distributed.

If a business with an EIN goes from having a single owner to multiple owners, or vice versa, that business will be required to get a new EIN.

For farmers and farmland owners, many circumstances/entities/business structures that would otherwise not require an EIN actually require an EIN. This is because the software used by the Farm Service of the USDA requires detailed organization and reporting of indirect ownership interests. This detailed organization and reporting information is used by the Farm Service Agency to ensure that no individual person receives more than the federal government’s maximum, annual subsidy amount.

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By Lee R. Schroeder

Guest Columnist

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

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