Do We Need One EIN or Two?
This post is the result of an email exchange that I had with a foreign entrepreneur. He raised a question that I had not previously considered: When should a business have one EIN (Employer Identification Number), and when should it have two? (more…)
How Much Does It Cost to Obtain an EIN?
This post about the cost to obtain an EIN (Employer Identification Number) in the United States is an Advertisement under Rule of Professional Conduct 1-400, Standard 5 (now subject to Chapter 7 of the Rules of Professional Conduct that took effect on November 1, 2018).
Recently I have received many inquiries from foreign owners of new companies in the U.S. They want to know how much it will cost to obtain an EIN from the Internal Revenue Service. This post provides that information. (more…)
How Can I Find a Lost EIN?
An 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.
(more…)
Independent Contractor Misclassification Can Be Expensive
I have written several times about potential undesirable consequences of misclassifying an employee as an independent contractor. It’s time for an update.
In 2012, California Labor Code Section 226.8 took effect. That statute is directed toward willful (i.e., voluntary and knowing) misclassification of employees as independent contractors. Consequences can include the following. (more…)
Am I in Trouble if My Accountant Used His SSN to Get My Corporation’s EIN?
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).
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. (more…)
Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S.
Although Dana Shultz has retired as a lawyer, he still obtains EINs for international clients because such activity does not constitute the practice of law.
When a foreign company wants to start up in the U.S., it usually creates a separate corporation here so U.S. obligations and liabilities will not flow back to the overseas parent. The U.S. corporation needs a federal Employer Identification Number (EIN) – at the very least, to open a bank account, even if the corporation will have no employees in the U.S. In a recent post on its website (Responsible Parties and Nominees), the Internal Revenue Service recently made it more difficult for foreign companies to obtain an EIN.
To obtain an EIN, the corporation typically provides the social security number (SSN) of a “principal officer”. In the past, the IRS was rather vague as to what this term meant, stating that it referred to a “president, vice president, or other principal officer”. So, for example, if the corporation’s overseas president did not have an SSN because s/he never worked in the U.S., the corporation could temporarily appoint as vice president an individual who has an SSN, which the corporation then would use to apply for an EIN.
Entrepreneurs Take Care: Raiding Employee Withholdings May Send You to Jail
Last month, I posted Your Business is Dead ? Are You Liable for its Obligations?, which stated that, generally, once a business is dissolved, the owners will be personally liable for the business’s obligations only to the extent that the owners received distributions at the time of dissolution.
A significant exception to the foregoing rule, however, concerns company personnel who are responsible for making, but fail to make, withholding payments to the Internal Revenue Service.
The “Independent Contractor” Trap Becomes More Dangerous
Earlier this year, I wrote Avoiding the “Independent Contractor” Trap about the dangers that companies face if they misclassify employees as independent contractors. The Wall Street Journal recently reported (Employers and Workers Clash in Court Over ‘Contractor’ Label) that those dangers have increased.
According to the WSJ article, the Internal Revenue Service will audit 6,000 randomly-selected U.S. companies in its first attempt since 1984 to quantify the extent of employee misclassification. The IRS is not taking this step merely to help the individuals involved receive the pay and benefits to which they are entitled – state and federal governments stand to gain billions of dollars every year from withholding taxes, unemployment insurance and workers’ compensation if workers are classified properly.
Even greater than the risk of a government audit is the risk that a disgruntled “independent contractor” will file a wage claim (see Wage Claims – Nasty but [Sometimes] Necessary).
Avoiding the “Independent Contractor” Trap lists factors that can help you determine how to classify workers properly.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Should I form an LLC or a corporation?
Fairly frequently, an individual will ask whether to should form an LLC (limited liability company) or a corporation for a business. Here are the factors that I typically find are most important.
First, we can pretty much dismiss basic income tax considerations. By default, an LLC is not taxed as a separate entity but a corporation is taxed separately. However, there are ways to override the default tax treatments. An LLC may elect to be taxed as a separate entity by filing IRS Form 8832. Subject to certain limitations, a corporation can avoid separate taxation (i.e., can become an “S corporation”) by filing IRS Form 2553. (Please note, however, that once a company is in business, certain types of transactions can have different consequences for LLCs than for corporations. Accordingly, every company should consult with a tax advisor both up-front and on an ongoing basis.)
Avoiding the Independent Contractor Trap
Small companies usually need to conserve cash, so they often turn to independent contractors rather than employees. This makes perfect sense – unless the company falls into what I call the independent contractor trap.
If there is not enough work to justify a regular employee, the company can use an independent contractor when needed. That way the company avoids making unemployment and social security contributions. Also, it does not pay benefits such as health and life insurance, retirement plan contributions and personal time off.
There can be problems, however. If the individual really is doing the work of an employee – is misclassified – the Internal Revenue Service or, in California, the Employment Development Department might reclassify the individual as an employee, erasing the presumed financial benefits.
