A Guide to a Federal Employer Identification Number (commonly known as EIN)?
One of the biggest issues, when dealing with new businesses, start ups and entity structuring, revolve around Federal Employer Identification Numbers (commonly referred to as FEINs, or more simply as EINs). Hopefully, this guide provides a basic, yet broad understanding regarding EINs.
What is an EIN?The FEIN system started and came to prominence in the 1970s and 1980s. There is a lot of debate about the reasons behind the government creating the FEIN system, as well as, the distinction (if any) between a FEIN vs. an EIN vs. a TIN (Taxpayer Identification Number).
The one thing we can say for certain about FEINs, is that they are used, as one of the main ways to identify a business organization, especially, when it comes to tax reporting,
Do I need an EIN?It depends. A FEIN may be required in a number of circumstances. Nine (9) common reasons, where a FEIN is required, are: 1) Starting a new business, 2)Hiring employees, 3) Banking regulations and practices, 4) Business acquisitions and mergers, 5) Setting up certain trusts, 6) Incorporation and partnership formations, 7) Immigration purposes, 8) Administration of certain estates, and 9) Changes in the ownership and/or legal character of an organization.
Should I get an EIN?It depends. Even, if a FEIN is not required, having one, could prove useful in preparing documents in a number of legal areas, including (but not limited) to: contract, intellectual property, real estate, tax/accounting administration, banking, and immigration law.
Can I get an EIN online?It depends. Generally, a FEIN can be obtained online. If a FEIN can not be obtained online, it could be due to a number of reasons, that would usually fall into one or more of the following 3 general categories:
1) Lack of proper authorization (ie. the person who is applying, is prohibited by the other owners from applying for a FEIN, based on the organization's corporate documents).
2) Lack of a legal requirement (ie. the person or entity submitting a FEIN application, is required to send the FEIN application by fax, mail or other non-online means).
3) Some type of a processing problem (ie. technical difficulties, too many online FEIN applications during a certain time period).
Should I get an EIN online?It depends. Generally, getting a FEIN online is easier and more convenient than other methods. However, in some cases, it may NOT be a good idea to obtain a FEIN online, 3 examples include: 1) Unnecessarily increasing the potential tax audit risk of the individual and/or organization obtaining a FEIN, compared to applying with other methods, 2) More exposure to online identify theft, and 3) Some privacy concerns over certain FEIN application contents, becoming more easily accessible to the public.
This author's experience, is that obtaining a FEIN online is the norm, and not the exception. However, attention to details, is key when applying for a FEIN.
What are some bad consequences of making mistakes/errors when applying for an EIN?There a LOT of things that can go wrong, when mistakes/errors are made during a FEIN application. Some of those mistakes/errors are easy to fix, some take a lot of unnecessary work, and some are almost impossible to fully correct.
A list (by no means comprehensive) of the bad things that can happen due to an improperly submitted FEIN application, include: time delays, FEINs unsuitable for banking or lending purposes, improper tax identification, cause of litigation/disputes, violations of certain federal laws, improper tax entity classification, and unnecessarily increasing the risk of a possible tax audit.