EIN Basics Part 2: When Does a Business Need to Change its EIN?by
In Part 2 of her discussion on Employer Identification Numbers, CorpNet Founder Nellie Akalp details the different situations when a business client may need to change their EIN.
Over time, your business clients will likely make changes to their companies, be it a name or corporate structure for tax purposes. But, in some cases, those adjustments may require clients to change or replace their EIN.
So, when does a business need a new EIN? According to the IRS, the primary changes that require a new EIN are either a change in ownership or business structure. There are, however, exceptions (and additions) to that rule of thumb which we will discuss below.
When a Business Needs a New EIN – By Business Structure
The IRS website has a comprehensive list of the scenarios (by business entity type) that make it necessary to replace an EIN with a new one.
Your clients must obtain a new EIN if any of the following statements apply to them:
- They form a new corporation in a state
- Their corporation is a subsidiary of a parent corporation, and it uses that parent's EIN. Or, the corporation becomes a subsidiary of a corporation
- The corporation changes to a partnership or a sole proprietorship
- A new corporation is created after a statutory merger
If any of the below statements are true for a client, they will not have to obtain a new EIN:
- The unit is a division rather than a subsidiary of a corporation
- After a corporate merger, the surviving corporation uses the existing EIN
- The corporation declares bankruptcy
- The corporation changes its name or location
- A corporation elects for S corporation tax treatment
- The corporation reorganizes and only changes its identity or location
- The business is changing from a corporation to another structure through a statutory conversion process that does not require the corporation to be dissolved and an entirely new entity formed
Limited Liability Companies (LLCs)
If any of the following statements are true for a client, the LLC will need to apply for a new EIN for federal tax purposes:
- They form a new multi-member LLC
- They form a new single-member LLC and choose to be taxed as a corporation or an S corporation
- They form a new single-member LLC that must file excise tax or file employment taxes for wages paid to employees
If any of the following statements are true for a client, the LLC will not need a new EIN for federal tax purposes:
- The LLC reports income tax as a branch or division of a corporation or other entity, and it has no employees or excise tax liability
- An existing partnership converts to a multi-member LLC that will be classified as a partnership
- The LLC changes its name or location
- The LLC already has an EIN and chooses to be taxed as a corporation or an S corporation
- A new single-member LLC is formed that doesn't have employees or excise tax liability, nor does it choose to be taxed as a corporation or S corporation. Note, however, a client’s bank or the state (for state tax purposes) may require an EIN.
Your clients who run their businesses as partnerships must get a new EIN if any of the following statements are true for them:
- They incorporate the business
- One of the partners takes over the business and operates it as a sole proprietorship
- They close the partnership and begin a new one
Partnerships do not need to get a new EIN under the following circumstances:
- The partnership declares bankruptcy
- The partnership name changes
- The partnership changes its locations or adds other locations
- The partnership is terminated, and a new partnership is formed—as described under Internal Revenue Code section 708(b)(1)(B)
- If within a 12-month period, 50 percent or more of the ownership of the partnership (as measured by interests in capital and profits) changes hands
If you have clients operating their businesses as sole proprietors (those with employees must have an EIN), the IRS requires them to get a new EIN when:
- They are subject to a bankruptcy proceeding
- They incorporate their business
- They bring on partners and operate as a partnership
- They buy or inherit an existing business that they will operate as a sole proprietorship
Instances when sole proprietors do not need a new EIN include:
- They change the name of their business
- They change the business location or add locations
- They operate multiple businesses
When in Doubt – Where to Find Guidance About EINs
The more well-versed you become on the ins and outs of EINs, the better able you will be to help your clients as their businesses grow and evolve. I encourage you to tap into your professional community's expertise and support one another when you face client scenarios you haven't encountered before.
Also, you can find detailed information about EINs through the IRS website. I believe you’ll also find it helpful to check with the Secretary of State offices where your clients’ businesses are registered to determine if statutory changes will require changes to state tax ID numbers.