Incorrect W-9s for SMLLCs

Technical topics regarding tax preparation.
#1
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This is pretty frustrating.

For my clients that have 1099 filing exposure -- almost all ICs who operate a SMLLC that is disregarded for federal income tax purposes prepare the W-9 incorrectly and provide the EIN of the LLC in Part I of the Form W-9.

The instructions explicitly instruct the preparer to not do this.

Do you push back here? It happens a lot...

Is there any risk that the client will get a notice if you issue with the EIN of the LLC?
 

#2
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No, the EIN is connected to their SSN. I just got a matching notice (albeit from 2018) related to a 1099-K issued to the SMLLC's EIN, but it properly came through expecting to match the Sch C.
~Captcook
 

#3
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Interesting, so we just ignore the instructions and use the EIN of the SMLLC? No issues?
 

#4
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ManVsTax wrote:Interesting, so we just ignore the instructions and use the EIN of the SMLLC? No issues?


You don't ignore the instructions - you do it correctly when you're completing the W-9. That's not the same as being the recipient of the W-9 though.
 

#5
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atxsaltax wrote:That's not the same as being the recipient of the W-9 though.


I don't know what you mean here -- care to expand?
 

#6
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I always thought the EIN for a SMLLC provided the opportunity to shield a SSN from being provided to vendors. With the sensitivity many have to ID theft, I don't have any issue with my clients issuing a W-9 showing the EIN instead of their SSN.
~Captcook
 

#7
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You can put either the EIN or the SS# on the 1099, per the instructions (page 13). Therefore, it should not matter which they put on the W-9.
https://www.irs.gov/pub/irs-pdf/i1099gi.pdf
 

#8
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Do you push back here? It happens a lot...


Happens a ton and it’s wrong. We push back hard. If we never get a corrected version, however, we just use the EIN on the 1099 and tell the client what we did. If a matching notice ever comes, just tell the client to deal with it.

The best advice here, that we bang into our clients’ heads is to never pay anyone until a valid W9 is on file. You can bet the contractor will be quick to correct his faulty W9 when he is due a payment.
 

#9
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It's not wrong, though.
From the instructions at sjr's link above:
Limited liability company (LLC). For a single-member LLC (including a foreign LLC with a U.S. owner) that is disregarded as an entity separate from its owner under Regulations section 301.7701-3, enter the owner's name only on the first name line and the LLC's name on the second name line. For the TIN, enter the owner's SSN (or EIN, if applicable).


There are many SMLLC's that haven't applied for an EIN. If they have then, per the statement above, it's applicable.
~Captcook
 

#10
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If you read those instructions carefully, you'll see that they're referring to the owner's EIN (i.e. a sole proprietor EIN), not the SMLLC's EIN.

That is consistent with the W-9 instructions for Part I of the W-9.
 

#11
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CaptCook wrote:I always thought the EIN for a SMLLC provided the opportunity to shield a SSN from being provided to vendors. With the sensitivity many have to ID theft, I don't have any issue with my clients issuing a W-9 showing the EIN instead of their SSN.


I think that's the common perception of non-practitioners. Which is why we have this problem with almost 100% of DIYed SMLLC W-9s.

However, as tax practitioners, we know that for federal income tax purposes, a DRE uses the tax ID of its regarded parent entity.

For 1099s, the instructions seem pretty clear to me. If they want to provide an EIN for the SMLLC, they should obtain a sole proprietor EIN.
 

#12
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ManVsTax wrote:
atxsaltax wrote:That's not the same as being the recipient of the W-9 though.


I don't know what you mean here -- care to expand?


When you/your client is filling out a W-9, you should still put the correct number on the form (SSN for a DRE under an individual).

When you/your client receives a W-9 from a buyer, you can't change the number on it, and all you have to do is perform any due diligence required. If you aren't required to conduct due diligence, or if the due diligence falls short of the requirement of getting a new TIN, then you just use the number they provided.
 

#13
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I don't think anyone is talking about the recipient of the W-9 changing anything.

If one is given a W-9 for a SMLLC owned by an individual, and an EIN is provided in Part I, due diligence appears to include asking the provider of the W-9 if the EIN is that of the LLC, or a sole proprietor EIN issued to an individual, and, if it's the former, pushing back on the provider to read the instructions and reissue the W-9 correctly.
 

#14
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Oh, I see what you are saying. Yes, they should put their individual EIN on the W-9 (or their social), not the LLC's. However, when I am preparing the 1099's, I have no way of knowing whose EIN it is, so I file it with whatever EIN is on the W-9. If they get an IRS notice, we go from there.
 

#15
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It's not wrong, though.

Huh? It’s totally wrong. If we’re talking about an SMLLC that is 100% owned by an individual, then when it says:

For the TIN, enter the owner's SSN (or EIN, if applicable).

…we would enter the SSN for the OWNER of the single-member LLC. We would not enter the EIN for the owner because an individual doesn’t have an EIN. And we would not enter the EIN for the LLC itself because the LLC is not the owner. The Form W9 completely comports with all of this.

You can put either the EIN or the SS# on the 1099, per the instructions (page 13).

No you cannot. That it not what the instructions on Page 13 say.
 

#16
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because an individual doesn’t have an EIN

An individual can get an EIN. I had a child care provider who sent out yearend statements to the parents using that EIN so that she would not disclose her SSN.
Retired, no salvage value.
 

#17
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"We would not enter the EIN for the owner because an individual doesn’t have an EIN. "

Yes, some individuals do have an EIN. I have a client that has one. She owns commercial real estate and did not want to issue 1099's in her social security number, so she applied for, and received, and EIN.

From page 13 of the instructions: "For a single-member LLC (including a foreign LLC with a U.S. owner) that is disregarded as an entity separate from its owner under Regulations section 301.7701-3, enter the owner's name only on the first name line and the LLC's name on the second name line. For the TIN, enter the owner's SSN (or EIN, if applicable)."

To me, that says you can enter the social or the EIN.
 

#18
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To me, that says you can enter the social or the EIN.

To me, and I’m right, you’re completely reading it wrong. I said an individual is the owner. If you have a single-member LLC wholly-owned by an entity, say a corporation or a partnership, then you put the EIN of the “owner,” which would be the corporation or partnership. That is the situation the instruction is referring to when it talks about use of an EIN. If you have a single-member LLC owned by an individual, you use the individual’s SSN.

The only person, aside from myself, that understands you use the owner’s SSN (or EIN, in the case of a regarded entity as the owner), is ManVsTax.
An individual can get an EIN. I had a child care provider who sent out yearend statements to the parents using that EIN so that she would not disclose her SSN.

We all agree that a sole-proprietor can get an EIN. The plain old individual cannot…and that’s what we’re talking about here: The guy that forms a 1-member LLC. His SSN, as owner of the 1-member LLC, goes on the W9, not the EIN for the LLC. All the guidance as to the reporting is consistent with that idea.

With that said, I would give some pushback to this comment:

For 1099s, the instructions seem pretty clear to me. If they want to provide an EIN for the SMLLC, they should obtain a sole proprietor EIN.


And here’s why. The instructions say this:

For the TIN, enter the owner's SSN (or EIN, if applicable).


Well, if you have a single-member LLC that is owned by an individual, and that individual so happens to have an EIN for his sole-proprietorship, that EIN is for the sole-proprietorship business. It is not for the individual as sole-proprietor. Page 13 of the instructions says as much in the sole-proprietorship section.

Where does that leave us? Let’s say a guy has a sole-proprietorship, MVT Tax Services. That guy obtains an EIN for this sole-proprietorship. Then, that same guy creates MVT Tax Services, LLC, which is a 1-member LLC. An EIN is obtained for said LLC. So, the guy now has 2 EIN’s.

One question is whether or not the sole-proprietorship gets booted out of existence once the LLC is formed. I suspect the answer to that is yes, for the most part. That’s the whole point of having liability protection. Assuming the LLC was around for the whole year, or is at least who we contracted with, then the W9 should arrive for the LLC, with the individual owner’s SSN on it. If that W9 is for a 1-member LLC, but has a sole-proprietorship EIN on it, my take is that it’s an invalid W9. That is, we have to consistently follow the reporting rules (W9 and 1099) for 1-member LLC’s.

Now, if the guy hands us a W9 with no mention of the LLC, but it is prepared for a sole-proprietorship, with an EIN for that sole-proprietorship…then we can probably accept it and issue the 1099 in the EIN of the sole proprietorship. One possible issue, though, is who we wrote the checks to.

Yes, some individuals do have an EIN. I have a client that has one. She owns commercial real estate and did not want to issue 1099's in her social security number, so she applied for, and received, and EIN.


Individuals that are not making payments in the course of a trade or business do not get EIN’s (other than household employers). It’s that simple. We all know that a sole-proprietorship can get an EIN – so you guys should stop harping on that point. If she got an EIN for her Schedule E rental real estate trade or business and she’s actually using that on W9’s she sents to tenants, so that said tenants can 1099 her, the IRS will likely have an issue with that. The reporting obligation there is on the part of commercial tenants and they are required to 1099 rents paid to the individual property owner that collects the rents. I would seriously doubt her real estate is held in a DBA name. And that’s because it’s illegal.
 

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Thanks Jeff. A lot clearer.
 

#20
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"For the TIN, enter the owner's SSN (or EIN, if applicable). If the LLC is taxed as a corporation, partnership, etc., enter the entity's EIN."

Above is what the instructions say. Sure, if the LLC is taxed as a corporation or partnership you would enter the entity's EIN. But if the LLC is an individual, it says enter the EIN if applicable. It is not talking about corporations or partnerships in that line. They are mentioned in the next sentence. So we will just have to disagree on what the instructions say.

I do agree most times we would use the social security number; however, in limited instances I think you could possibly use an EIN.
 

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