Archive for Tax

How Can I Find a Lost EIN?

Internal Revenue Service logo, symbolizing a lost EINAn Employer Identification Number, issued by the Internal Revenue Service, is the most important identifying number for US businesses, especially for tax purposes. This post addresses how you can find a lost EIN.

Find the Lost EIN Yourself

The IRS Lost or Misplaced Your EIN? page starts by recommending searches for existing records that should include the lost EIN:

  • The IRS confirmation notice that was provided when the EIN was issued.
  • Bank accounts that were opened, or governmental licenses that were issued, based on the EIN.
  • Tax return that were filed.
Read more

You *Don’t* Need an ITIN to Bring Your Company to the US

Logo of the Internal Revenue Service, which issues the ITINI recently have received several inquiries about whether a foreign company or its owners need an ITIN (Individual Taxpayer Identification Number) when they bring their business to the US. The answer is, “No.” The rest of this post explains why that is the case.

When a company wants to do business in the US, it needs an EIN (Employer Identification Number).

For a foreign or foreign-owned company, obtaining an EIN can be intimidating. This is especially true if the principal officer lacks a US social security number. (The EIN cannot be obtained quickly and easily online.)

Read more

Avoid Paying California $800 per Year … for 15 Days

Logo of Franchise Tax Board, which charges the California $800 annual tax

The California $800 per year minimum franchise tax applies to both corporations and limited liability companies. Many people do not realize, however, that the tax can be avoided – at least, for a short time.

As explained in Franchise Tax Board Publications 1060 (for corporations) and 3556 (for LLCs), there is a “15-day rule” or “15-day exception” stating that the minimum franchise tax need not be paid for an initial tax year if:

  • The corporation or LLC was formed (Articles filed with the Secretary of State) during the last 15 days of the entity’s tax year, and
  • The entity conducted no business during that period.

So, if an entity has a tax year ending December 31 (as most do), then it can be formed on December 17 or later, and it will not have to pay the California $800 minimum franchise tax until the following year.

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

IncNow Joins Hall of Shame

Almost two years ago, I wrote about how Delaware corporations with no-par-value stock can find themselves obligated to pay extraordinarily high franchise taxes (In Delaware, No-Par-Value Can Cost a Bundle). Yesterday, a reader of this blog pointed out that IncNow, an online incorporation service, virtually lures naive customers into this tax trap.

Here is what the reader reported to me:

  • IncNow’s default assumption is that no-par stock will be issued.
  • IncNow does not invite the user to specify a par value (in contrast to LegalZoom, for example, which does).
  • IncNow’s representative said that the reader “could assign a par value to shares, under special requests at the bottom of the checkout form” [emphasis added].

In my opinion, considering par-value designation a “special request” is ridiculous on its face. But doing so with tens or hundreds of thousands of dollars at stake is grossly irresponsible. As a result, IncNow has been added to this blog’s Hall of Shame.

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Re-incorporation Won’t Save Amazon Affiliate from Termination

LawPIVOT logo

This post is based on a question that I answered on LawPivot: Q. I have a web business that has been adversely affected by the termination of Amazon’s affiliate program in California, where I currently run the business, resulting from the state’s new sales tax law. Does each state have its own requirements as to what constitutes “doing business” in that state, and is there any way I could maintain CA as my primary place of residence, were I to incorporate in a different state?

Read more

When “Doing Business” isn’t “Doing Business”

Scrawled question mark

Significant responsibilities or liabilities can depend on whether one is “doing business” in a state. As this post explains (principally referring to California law for examples), “doing business” can mean three different things in three different contexts.

Read more

Something You Might Want to Do BEFORE You Kill Your Company

ET Brutus logo

Although failure of a company is no fun, this morning I received an e-mail on this topic that made me smile. Sent with the subject line “Sell Those Dogs!”, the e-mail discusses how ET Brutus* buys the securities of dead or dying companies so owners can recognize losses for tax purposes.

The following excerpts from the ET Brutus website summarize the company’s value proposition:

ET Brutus helps private equity investors easily and legally recognize investment losses in the tax year of their choice. Specifically, it purchases stock of dead or dying companies for $1 plus a small service fee of $25 per position so the investor can recognize the tax loss.

By selling your interests to ET Brutus, you have a provable legal event that allows the tax loss to be recognized. Some companies may take a year or more to officially close. With ET Brutus, you can recognize the loss in the tax year of your choice.

I’m not a tax expert, so I don’t offer tax advice. If you’re considering such a transaction, check first with your tax advisor.

* If you do not catch the pun in this company’s name, check out Wikipedia’s discussion of “Et tu, Brute?”, then look closely at the logo, above.

Related post: How to Kill Your Company when that?s the Only Choice

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

In Delaware, No-Par-Value Can Cost a Bundle

Delaware Division of Corporations logo

In “How Many Shares Should My Corporation Authorize and Issue?“, I warned that “If you are forming a Delaware corporation with a large number of shares, be sure to specify a low par value, such as $0.0001 per share, to avoid having to pay excessive annual fees to the state.” This post (based on a Quora answer that I provided) gives more details about this issue.

There are two methods for calculating Delaware’s annual franchise tax.

For no-par shares, the method that produces the lower tax (Authorized Shares Method) still produces a tax of many thousands of dollars for a corporation having millions of authorized shares - up to $180,000.

For a startup with millions of low-par-value shares and no assets, the Assumed Par Value Capital Method yields the minimum tax of $350 (increased in 2010 – used to be $75).

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Am I in Trouble if My Accountant Used His SSN to Get My Corporation’s EIN?

Internal Revenue Service logo

Late last year (see Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S.), I wrote about the procedure by which a U.S. entity may obtain an Employer Identification Number (EIN) when its foreign owner lacks a social security number (SSN). I recently answered an Avvo question about what to do when the specified procedure is not followed.

The questioner’s accountant had used his (the accountant’s) SSN to obtain an EIN online for his client’s corporation because the client’s foreign owner had no SSN. The client suspected – correctly – that this was not the right thing to do (the Internal Revenue Service “does not authorize” this action).

Read more

Every Partnership Needs an EIN

I recently met two individuals who formed a business partnership. They were pretty informal about the process: They had no written partnership agreement. More surprisingly, they had not obtained an employer identification number (EIN) from the Internal Revenue Service.

Failure to obtain an EIN was a legal mistake. The IRS’s Do You Need an EIN? page states that when a business is operated as a partnership, it must obtain an EIN.

Even worse, the failure was a serious business and personal mistake. When customers asked for the partnership’s EIN, one of the partners provided her social security number. As a result, at year-end the IRS will think all partnership income was earned by that partner! If her return is audited, she will have quite a bit of explaining to do.

Bottom line: If you form a partnership, get an EIN.

Related post: Beware the Unintended Partnership

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.