Sole Prop >> LLC - New FEIN needed?

[Ephesians3-14]

I have a client who is a sole proprietor and now wants to move the assets into an LLC. The sole proprietor already has an FEIN and doesn't want to get a new FEIN because it would require the sole proprietor to get new bank account, set up a new payroll account with IRS, notify hundreds of vendors, etc. Big hassle.

Can she set up a new LLC, move the sole proprietor assets into the LLC without having to apply for a new FEIN?

[Just-Lisa-Now- · Accepted solution]

SMLLCs are disregarded for federal tax purposes, with that said, heres the rules on when you need a new EIN

When to get a new EIN | Internal Revenue Service

You don’t need a new EIN if you:

• Change your name or locations
• Report income tax as a branch or division of another entity and you don’t have employees or owe excise tax
• Convert a partnership to an LLC classified as a partnership
• Change your tax election to a corporation or S corporation
• Form a single-member LLC and don’t choose to be taxed as a corporation or S corporation and don’t have employees or owe excise tax

Since they have employees, looks like a new EIN is needed.

[Ephesians3-14]

 Ugh - I didn't think there was a way around it in this particular case. 

[qbteachmt]

Under this condition, make sure to use the phrase "successor employer" as that will often allow them to keep their old, typically lower, UI and worker comp rates. And of course, now there will be new YTD and 2 x W2 and 940 and 941 for payroll. Unless you are catching this before the first paychecks of the year.

[TaxGuyBill]

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@Ephesians3-14 wrote:

it would require the sole proprietor to get new bank account,

set up a new payroll account with IRS,

notify hundreds of vendors, etc.

The LLC's EIN is ONLY use for payroll and excise taxes.  For income tax purposes it uses the EIN of its owner.

Some banks want the LLC's EIN, but my bank gave me a W-9 which means it was my personal EIN (not the EIN of the LLC).

Payroll stuff, yes.

Vendors?  If it is for W-9s, you still use the EIN of the owner (not the EIN of the LLC).

[IRonMaN]

You got me a little confused with that.  If the client transfers the assets into an LLC and conducts business as an LLC, why would you be operating with two different EIN numbers?

[TaxGuyBill]

It is disregarded for income tax purposes.  Disregard it.  Use the owner's ID number.

It is not disregarded for payroll or excise tax.  Use the LLC's EIN.

In regards to W-9s (and therefore receiving 1099s), the W-9 instructions say:

"If you are a single--member LLC that is disregarded as an entity separate from its owner, enter the owner’s SSN (or EIN, if the owner has one)."

And this IRS webpage says:

"For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner's social security number (SSN) or employer identification number (EIN) for all information returns and reporting related to income tax. For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN."

https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-compan...

[IRonMaN]

Weird.  I've never had a single member LLC that wasn't an LLC right out of the starting blocks so I have never run into that before.

[TaxGuyBill]

Even if it is an LLC right off the starting blocks, the same rules apply.  Disregard it for income tax purposes (which includes disregarding the LLC's EIN, if it even has one).