The FEIN acts as a taxpayer ID number for your company. Find out whether your LLC needs to get a Federal Employer Identification Number (FEIN) and how to do it.
The Internal Revenue Service (IRS) assesses and collects taxes from both individuals and businesses. When people pay their taxes, the IRS identifies them by their Social Security numbers. Corporations don’t have those, but there is a unique identifying number the IRS uses to do the same job: the Federal Employer Identification Number (FEIN).
Businesses use the FEIN to file their taxes and interact with the IRS on virtually all filings. Not all businesses need an FEIN, however, and knowing whether your company needs this number or not can help you plan for your company’s necessary tax filings and possibly find reductions in the amount you owe.
What Is a FEIN?
The FEIN is a number the IRS uses to identify your business. Unlike the Social Security number Define: Social Security number A nine-digit number that the IRS uses to identify individuals. , the FEIN is generated by the IRS itself.
Part of the process of starting a business is registering with the IRS and requesting one of these numbers. Each FEIN is unique, but all of them have the same format; that of a nine-digit number with the first two digits separated by a dash: XX-XXXXXXX.
Some numbers are followed by a letter, such as “P,” or a three-digit number following another dash: -XXX. These add-ons, however, are uncommon and they mostly go into employee group numbers, rather than into the main number that’s used for identifying the business itself.
Using the FEIN
The IRS advises employers to use their FEIN for every communication with the agency. This includes all tax filing forms, corrections, revisions and inquiry letters. In addition to the forms, your company’s FEIN can be used by a telephone customer service rep to look up records in the IRS system in case you ever have to call the IRS.
In addition to the IRS, several outside agencies rely on the FEIN to interact with businesses. The Small Business Administration (SBA), for example, usually asks for an FEIN before accepting an application for a small business loan or line of credit. Regulators and other law enforcement authorities also often use FEINs in their record keeping or as part of an investigation.
What Entities Need to Have an FEIN?
The IRS has a long list of conditions under which it expects a legal entity to apply for an FEIN. Complicating the picture, there are times when an existing company needs to apply for a new FEIN to replace the previous one it was issued. The rules vary according to the type of organization requesting the number.
A sole proprietorship is owned and operated by a single company officer. This type of business needs to request an FEIN as part of its initial filings, as well as request a new number when it declares bankruptcy, alters its form to become a partnership or public corporation, or when an existing business is inherited or purchased and run as a sole proprietorship.
Sole proprietorships do not need to apply for a new FEIN when they simply change their names, addresses or other features of the company. The owner of a business like this does not need to request a new number for already existing companies when opening new ones, provided they are separate entities.
Partnerships can be thought of as sole proprietorships with two or more owners, who may divide the work between them in any number of ways. These companies need an FEIN when they incorporate, when one partner takes over sole ownership for the other or when the old partnership is dissolved and a new one begins.
It’s not necessary to request a new FEIN for your partnership after a name change or bankruptcy, change in address or the addition of new locations. Under some very limited circumstances, the IRS permits partnerships to carry on with the same FEIN after a 50% change in the ownership of the company. Consult with a knowledgable lawyer for definitive answers to whether your partnership needs to re-apply after such a change.
Corporations can be publicly traded or privately held, but they generally allow sizeable numbers of people to trade shares in the business. A corporation must ask for an FEIN when it receives its charter, it changes form and becomes a partnership or sole proprietorship or a new corporation is formed by a merger. New subsidiaries of existing corporations must also request FEINs.
A corporation generally does not need to request a FEIN if it’s just a division of the parent corporation. As with other business types, corporations can also use their current numbers after bankruptcy or changes in address.
Estates and Trusts
Estates and trusts are business entities that often operate on behalf of another person or group, sometimes posthumously. Both must request an FEIN when founded or when they change from one form into the other. Neither requires a new number when the trustee or estate manager changes its address, name or other personal details.
Limited Liability Corporation (LLC)
Status as a limited liability corporation is granted at the state level by your state’s Secretary of State, and the IRS is not strictly involved in the process. Rather, the IRS treats all LLCs as one of three types of entity: corporation, partnership or disregarded entity.
Under the first two designations, any LLC is subject to the same rules as corporations or partnerships for the purpose of requesting an FEIN.
As a disregarded entity, the LLC is treated as a sole proprietorship if it is owned by a single operator, and as a division if it is owned by a larger entity, such as a parent corporation.