The Mystery of the Shifting ID Numbers
Although, coincidentally, both of these cases are related to household employees; the issues really have nothing to do with Schedule H.
Case 1 - A tax professional was trying to finish up her own annual tax return this year and found herself having a problem with the state filing for the household employee. She had been filing and paying on this same individual for nearly a decade without problems.
She got divorced in 2006. She sorted out the usual variety of mutual and non-mutual assets, liabilities, etc. Then, when blithely on her way with her life.
Suddenly, 6 years later, the state of Illinois tells her that the employer ID number she’s been filing and paying under is closed. It was never hers. It seems that the EIN had been issued under her husband’s name and Social Security number.
Solution: Naturally, she got a new EIN immediately in order to take care of the problem. That’s no big deal.
Lesson: It was a surprise – and gives another thing to watch for during divorces – list all EINs used by the couple and sort out which is whose – and/or apply for new ones, if necessary
Case 2 – An EA had been preparing the payroll for a doctor’s household employee for many years. The EA had properly filed all the relevant payroll tax returns with the State of California. She was certain the client’s wife had always paid all the quarterly payments, since the woman was a stickler for deadlines. They were in close contact.
The EA did not prepare their personal tax returns. Those were prepared by a CPA in Beverly Hills. So she never saw how they handled the Schedule H reporting.
Suddenly, after years of working together like this, the clients get a notice from the IRS about a new EIN having just been issued for this payroll arrangement. After a very unpleasant experience with the IRS lady at the phone number on the new notice, the EA called the Practitioner Priority Service to sort out the problem. She was able (after faxing over a ton of documentation) to prove that they have been using the correct EIN all these years – and have been filing and paying properly.
So, where did the new EIN come from?
The CPA had been filing the Schedule H without entering the EIN.
I must admit, we’re still sitting here, scratching our heads, wondering how this CPA managed not to get an error message from his software. What did he do? Not investigate? Not ask any questions? Not ask for the payroll documents before filling out the Schedule H? Did he just shrug it all off and file the tax returns on paper? A great reason for the IRS’s insistence on electronic filing.
This was sufficiently disturbing to the client to seek out a new CPA. (Note: This particular EA works with a CPA firm – who picked this doctor up as a client.)
Lesson: What did we learn here? I don’t know. Surely, there can’t still be many practitioners out there who do such sloppy work. To the rest of us? I think there are three lessons here:
- The IRS will issue new EINs if you don't use one where needed.
- Where EINs are needed, if you don’t see one – ask for it.
- Anytime you prepare any form or schedule that is based on the results of (or data from) other forms or schedules – get copies of them.
- Payroll tax amounts – get copies of payroll tax returns
- Payroll amounts – get copies of the payroll tax returns
- Sales – get copies of the sales tax returns
- Sales taxes – get copies of the sales tax returns
Getting the idea?
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.