Question about Assets etc.

[rkhan71]

Have a client who is closing one company - EIN and all, and opening same idea of operation with essentially the same assets, etc. It is a sole prop operation. Since I am not an accounting major, can someone please help with what should be done in closing out one and starting up with the other for b'keeping and tax reasons. Just want smooth transition of concept and numbers.

Thanks as always.

rkhan

[Bees Knees]

If this is a sole proprietor, there is no taxable gain or loss in transferring assets from one sole proprietor business to the next because a single member sole proprietor is essentially a disregarded entity. That means for federal tax purposes, the business is not treated as being separate from its single owner. Thus, the owner of the business is also the owner of all of its assets. Since the assets do not change hands when one business is closed and a new business is started, the assets continue to be treated as if there was no change in business. Simply continue to depreciate the depreciable assets in the new business the same way they were being depreciated in the old business. Any inventory assets from the old business continue to be inventory with the same cost basis in the new business. In essence, all you are doing is changing the heading at the top of the asset schedule and leaving all of the numbers the same.

[Gary2]

I'll state it more strongly. A pure sole proprietorship, unlike an SMLLC, isn't an entity at all. If there is no entity, then it's not clear what he's closing. Is he just changing the business name? Or moving to a new location? Neither one creates a new business for tax purposes, nor does either trigger a new EIN. Now if he's closing an LLC and/or creating a new LLC, the EIN situation may be different.

What exactly is his motivation, if he's staying in business? There are legitimate business reasons for changing a name or moving. But I'd worry about changing the EIN if there are employees - changing the EIN unnecessarily could be a flag of trying to evade employment taxes (whether or not that's actually the motivation).

[rkhan71]

Thanks very much - :} but further

He is changing the business name because of vendor issues. There are no employment tax or vendor issues (evasion). He just needs to start over with fresh situation because of a mistake on his part. No evasion of any sort. But the last thought I do have is if there is an LLC sole prop with its EIN (closing), does he still keep that EIN or get a new one for the fresh start? I am presuming new LLC sole prop in this case. I know that once an EIN is created for a sole prop, it stays with the person and all business dealings (2+ businesses), but wondering about the LLC situation though. New EIN = new LLC?

I am asking generic questions and can figure out the rest. I need another person(s) to help bridge some thoughts so I went to the forum.

Thanks again.

rkhan

[Bees Knees]

From TTB, page 5-9:

Sole proprietor. A sole proprietor is not required to have an EIN.
• Exception: An EIN is required if the sole proprietorship has a
qualified retirement plan, is a payer of gambling winnings, or
is required to file employment or excise tax returns.

Single-member LLC. By default, single-member LLCs owned
by individuals are treated as disregarded entities and follow the
same EIN rules as other sole proprietors, except for employment
tax returns.
• State law may require a single-member LLC to obtain an EIN.
This EIN may be listed on line D, Schedule C.
• This same EIN can be used instead of the member’s Social
Security number for banking and other reporting purposes,
but not for employment tax returns.

Single-member LLC with employees. A single-member LLC is
not a disregarded entity for employment tax purposes. (T.D. 9356)
• The LLC must obtain a separate EIN for use when filing employment
tax returns.
• Do not use the employment-purpose EIN for information returns
or list it on line D, Schedule C. Leave line D blank if the
employment-purpose EIN is the only EIN the single-member
LLC has.

So in other words, assuming the only purpose of the EIN is because of employees, if the sole prop is a single member LLC, then a new EIN would be required if a new LLC is formed. If there are no employees (or retirement plan or gambling winnings), then there is no need for a new EIN.

[rkhan71]

Thannks Bees Knees

Thanks so much for your help; it helps to clear out the cobwebs of thought. I will act according to the information given. :}

rkhan