Obtaining a Tax Identification Number from the IRS

Every business formed in the United States is required by law to have an Employer Identification Number (also called a Tax ID number).

If you are creating a disregarded LLC, you can choose to either operate using your Social Security number as a Tax ID, or you can file for a Tax ID number. Unless you are not intending to use the LLC for any income purposes (i.e., putting your personal home into an LLC for asset protection), we highly recommend that you apply for a separate Tax ID number. This will help you to avoid having to use your SSN, and lower your risk for identity theft.

A Tax ID number serves the same purpose for businesses as our social security numbers do personally. It provides the government with a way to identify your LLC for tax purposes and will be required before you can open up bank accounts in the name of your business structure or obtain a business license, insurance, open vendor accounts, etc.

It is important to apply for your LLC’s Tax ID Number as soon as your business structure has been formed. Fortunately, the IRS has made the first step – getting your LLC’s Tax ID number – very easy, as long as you or someone in your business structure has a social security number (If you don’t have a social security number, see below for the instructions on how to proceed).

The application form, called a Form SS-4, can be pre-printed on your computer and mailed or faxed in to the IRS (the most time-consuming method), or you can apply over the telephone and receive your number faster.

You can also apply online and receive a Tax ID number instantly. The link to this portion of the IRS’s web site is: http://www.irs.gov/businesses/small/article/0,,id=102767,00.html. Even though the procedure is now done interview-style, you’re still answering the same questions that you would if you were completing the SS-4.

If you file for your Tax ID number online, make sure you write down the provisional Tax ID number that will be displayed on your computer screen once your application has been accepted, and then print that page as well. If you don’t, and your printer jams, or you lose the number, it can take up to one week before the IRS staff can access that number in their database.

You’ll also be asked whether you want to receive your confirmation filing by direct PDF link, or by mail. If you select the PDF link, you will not ever receive a copy of the letter in the mail. So, before your close your browser, print off the letter. If you have software to save a PDF, do it now. If you don’t, print off the letter and scan it, to make a digital copy. This is a one-time shot – the IRS does not keep this letter on file nor can it send you a copy if you lose your EIN letter.

In the online application a married couple will have the option of selecting either single-member disregarded or partnership. Unrelated partners and singles have no choice – they will be automatically given the default choices of partnership or single-member disregarded.

There is no way to make the C or S Corporation election using the online system. You still need to make a secondary filing, of either a Form 8832 for a C Corporation, or a Form 2553 for an S Corporation.

Apart from selecting the right taxation option, the other critical selection is the nature of business that your LLC conducts. The IRS assigns various codes, called NAICS codes, based on industry types. That means when you file a tax return, the IRS is looking for certain things, based on the code you selected. If you select the wrong code, you can accidentally increase your chances of being selected for an audit because your return doesn’t have the expected entries.