IRS: LLC Sole Proprietorships May No Longer Be Able To Use EINs

The IRS recently published a draft of a proposed new version of the Form W-9. This draft contains a change to how sole proprietors report their taxpayer identification numbers (TINs) to you.

Background

The proposed changed on the W-9 would apply to individuals and sole proprietors. (NOTE: the term sole proprietor generally applies to contract labor – a sole proprietor is an individual. The term “individual” is more appropriate for other types of payments that are not contract labor.)

Under current rules, an individual can give you either their Social Security number or their employer identification number (if the EIN is in the individual's name personally).

The proposed change would require individuals to supply their SSN on the form. They would not be able to enter their EIN.

LLCs

Limited liability companies (LLCs) create a great deal of confusion in the W-9 and 1099 world. An LLC with one owner is a sole proprietorship and you disregard the LLC. You need information about the owner of the LLC on the W-9. Many times, businesses get W-9s that might include the LLC’s EIN.

While the instructions have always said that the LLC’s EIN should not be shown on the W-9, this proposed change would force a change by prohibiting EINs from being used at all if the LLC is taxed as a sole proprietorship. Instead, the owner of the LLC would need to provide their TIN, and if that owner is an individual, the TIN would need to be their SSN.

Watch This Space

This is a proposed draft of the W-9. The IRS posts these drafts when they are working on form revisions. You can find the draft here: https://www.irs.gov/pub/irs-dft/fw9--dft.pdf

Do not use this draft until the IRS posts it for real to https://www.irs.gov/pub/irs-pdf/fw9.pdf

We do not know what their timeline is, and sometimes draft forms are never actually published. Count on IOFM to keep you updated.