NEW EIN- LLC DISREGARDED ENTITY

[ICOUNT]

It seems that I remember reading that new regulations require an LLC that has been reporting p/r taxes etc under an old # received before the LLC was added is required to apply for a new EIN #. I can't find this in my research. Can someone shine some light on this or am I wrong.

Thanks

[kcjenkins]

No, if the LLC is disregarded, you don't need to change the EIN you used as a sole proprietor.

http://www.irs.gov/businesses/small/articl...d=98011,00.html

[jainen]

>>new regulations<<

Under final regs starting Jan. 1, 2009, a disregarded entity is treated as a SEPARATE entity for purposes of employment taxes and related reporting requirements.

Reg. § 301.7701-2c(2).

[kcjenkins]

Oh Joy! Thanks for the heads up, I'm sure that we'll all have at least one client the this stupid new rule will apply to. And, of course, they probably won't know about it and won't come in until after they've filed their first quarter. I wonder what in the world problem caused them to make this change?

[jainen]

>>what in the world problem caused them to make this change? <<

Oh no, KC. This is not a stupid law at all. It is an important new protection for entrepreneurs. Remember that a corporation offers limited liability to the stockholders--they are not personally responsible for the corporation's debts. But until this year the IRS could levy on the owner of a disregarded entity for the payroll tax liability of the company.

Not any more. Now the disregarded entity is always treated like a corporation for payroll taxes. The LLC must file under it's own name and number, and if it falls behind, the IRS can no longer hit up the owner.

[kcjenkins]

Nice theory, but I don't buy it, since the IRS can always go after any 'responsible party' and all officers of corporations are de facto 'responsible parties' unless they can prove that they had no control at all over company funds. So unless this owner is not even on the bank account, he's going to be liable as a 'responsible party', whether it's a Sole Prop or an LLC. Plus, as a disregarded entity, it's not treated for tax purposes as a corp, but as a Sch C business. But if it's treated as a corp for payroll tax purposes, then we're back to the owner being the 'responsible party', right?

[jainen]

>>we're back to the owner being the 'responsible party', right? <<

Well, of course, if the owner chooses that arrangement he or she can be subject to 100% penalty (on the trust fund portion), but that's not the same thing. A lot of disregarded entities are Q-subs or part of a group of related companies. This new reg protects the parent company.

Even for individuals it can be an important matter. Recently a taxpayer named Kandi was held liable for almost a quarter million dollars in payroll taxes from an LLC he had sold years earlier. This was even after the new IRS interpretation had been published (but before the effective date). The principle issue was that he never made a check-the-box election, which would have subjected the company to ALL the rules of corporate taxation but is henceforth unnecessary.

Chief Counsel Advice 200604001 held another individual liable for payroll taxes of two LLC's whose bank had never forwarded their checks to the IRS. Admittedly this isn't a great example because the individual had bribed a bank clerk to issue a receipt without depositing the funds, but it shows what used to be possible. It reminds me of the infamous case in which a payroll service embezzled a company's tax deposits. The company (Pediatric Affiliates) had to pay a second time, and if it had been a disregarded entity that liability could have been enforced against a parent company or owner.

[kcjenkins]

OK, you convinced me. I had not given a thought to the idea of Q-subs etc. That does make sense when I think of those. Thanks, Jainen.

[jainen]

>>you convinced me<<

I did? Wow! Well that's enough for today--now I can give up on that other thread, which is truly going nowhere.

[Tax Prep by Deb]

Jainen, don't give up. Even though what you say may not get through to the ones you are posting to, there are many like myself who have learned a great deal from you expertise, and who truly value your opinion!

Deb!