EIN for Sole Proprietorship

[Burke]

Can we get an EIN for a sole proprietorship with no employees (not an LLC) because the vendor is insisting on it and says it is going to withhold taxes if it is not provided?

[ChEAr$]

Can we get an EIN for a sole proprietorship with no employees (not an LLC) because the vendor is insisting on it and says it is going to withhold taxes if it is not provided?

Yes. See form SS4. There is a box to check the reason therefor. e.g. banking, other.....

However.... how could a vendor "withhold" income tax? I mean, who's paying whom and for what?

What if customer never pays the vendor?

strange.

[Jiggers]

Can we get an EIN for a sole proprietorship with no employees (not an LLC) because the vendor is insisting on it and says it is going to withhold taxes if it is not provided?

Isn't the sole propiertor supposed to use his SS # when requested by someone paying him, by way of W-9? And not an EIN?

[JG EA]

Isn't the sole propiertor supposed to use his SS # when requested by someone paying him, by way of W-9? And not an EIN?

Perhaps, but sole-proprietors with EIN's often use that number because they do not want to give out their SS#. It seems to work fine to do so.

[JohnH]

I think it's a good idea for sole proprietors to get an EIN for that very reason - keeping the Social Security Number secure. With more and more W-9's being sent out, one can't be too careful. So even if there's no payroll, most sole proprietors should still get the EIN.

[Burke]

However.... how could a vendor "withhold" income tax? I mean, who's paying whom and for what? What if customer never pays the vendor?
strange.

Sorry. Bad choice of words. Client is outside salesperson, independent contractor, who sells products for a number of "vendors." He sells to customers, takes and submits orders & $$$ to the vendor (supplier/company) and delivers shipped product. He calls them vendors. They pay him straight commission. The only tax I can think of they can withhold is backup withholding due to no W-9, incorrect W-9 or notice from the IRS.

[Gary2]

I recently had to deal with this personally (a commercial rental). I decided to complete the W-9 with my SSN for two reasons:

1. It's what the IRS W-9 instructions clearly call for.
2. I figured that the tenant is an established enterprise, with a large payroll, and thus is already dealing with the SSNs for many people. We don't refuse to supply SSNs on W-4s, often to smaller businesses with weak controls, because legally we have to. Is there really that much difference?

[Jiggers]

From IRS instructions for W-9:

"If you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN. However, the IRS prefers that you use your SSN."

And the IRS instructions for 1099's:

"Sole proprietors. You must show the individual’s name on the first name line; on the second name line, you may enter the “doing business as (DBA)” name. You may not enter only the DBA name. For the TIN, enter either the individual’s SSN or the EIN. The IRS prefers that you enter the SSN."

[JohnH]

Personally, I see a huge distinction between "prefers" and "requires".

The IRS prefers a lot of things, but their preferences are not always in the best interest of the taxpayer. Maybe I should express this more diplomatically, but I often see too much eagerness in our profession to roll over and play the game the way the IRS "prefers". I prefer to stick with what they "require" when it may matter to my client.

There is simply too much identity theft not to take every possible precaution to protect that Social Security number. Even with proper precautions it can still get stolen, so what possible reason could there be to increase the odds? And that's what one is doing every time they give out their SS#, no matter how good or how lax the receipient's controls might be. It's simply a chance I'm not willing to take, and I'm not going to encourage a client to be any less careful than I am.

So until the IRS changes their instructions to REQUIRE the sole proprietor to use their SS#, I'm sticking with the advice to get the FEI and use it.

[Gary2]

I must admit I'd forgotten that the rules for disregarded LLCs were separate from the rules for ordinary sole proprietorships. The instructions in the case of a disregarded LLC say explicitly not to use an EIN belonging to the LLC (though I suppose that in theory, the owner of an SMLLC could have a personal EIN separate from the LLC).

I am reminded of an opinion I heard from a respected host of a financial radio talk show - over 25 years ago. His reaction was that it was so easy to get someone's SSN, that there was no point in trying to keep it secret. (Hint: See the recent discussion on credit reports.) It's probably more difficult now, but I suspect that the really bad people don't have much trouble getting them.

Instead, I look at guarding other info. For example, I don't give out my birth date, and will usually avoid web sites that ask for it. My answers to "pick your own security question" are not necessarily factual. I use a random password generator, and I get email and/or text messages whenever any of my credit cards are used.

Which is not to say that I give out my SSN recklessly, just that I felt it appropriate in this case. Had the tenant been a small business, I might have chosen otherwise. Just be prepared with a response in case the IRS comes looking for the 941 associated with that EIN, the next time they tweak their computers.

[S T]

New 1099K

Given the new 1099K reporting - most credit card processing such as AMEX, Visa-Mastercard etc are requesting the EIN# - ran into this early in 2011 while AMEX was updating their data.

Example: Sole Proprietor signed on with AMEX - several years ago to process customers credit card charges - AMEX data base indicated SSN# of sole proprietor, even though we have an EIN# due to employee payroll reporting- It took us months to straighten out the account with AMEX for the new 1099K reporting in 2012. AMEX was ready to terminate the Credit Card Processing for this business.

My feeling is if IRS wants all of this reporting it should be under "one" EIN# regardless of the entity designation of sole proprietor, partnership, s corp, etc.

None of us need our social security # out there for a small business entity.

Sandy

[ChEAr$]

Speaking of the 1099K form, I would think that merchant will get a copy of it and armed with that information we can then safely break out both types of sales for gross receipts reporting on schedule c, 1120s, etc.

Right?

[taxea]

Can we get an EIN for a sole proprietorship with no employees (not an LLC) because the vendor is insisting on it and says it is going to withhold taxes if it is not provided?

I would give the vendor a copy of the law which requires an EIN or SSN! If your client is a Sch C and doesn't have a need for an EIN the vendor needs to be educated.

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