When forming a business, it is often to a business owner’s advantage to establish the business as a separate and distinct entity. Additionally, when carrying on activities in the name of the business, there may be certain requirements for the business to be recognized as a separate entity. This is where the federal employer identification number (FEIN) number comes in. This is a number that in many cases acts much like a Social Security number for a particular business.
Which Business Needs an FEIN?
The FEIN is mainly used when a business needs to be uniquely identified in order to conduct business, and for tax purposes. When a business needs to be registered, obtain licenses, or to open a business bank account, an FEIN is usually required. However, the Internal Revenue Service (IRS) only issues FEINs to certain businesses. The IRS asks six questions that can help a business owner decide if their business requires a FEIN, these questions are:
- Does the business have any employees?
- Does the business file certain tax returns?
- Does the business withhold certain taxes on income paid to non-resident illegal immigrants?
- Does the business operate as a corporation or partnership?
- Does the business have a Keogh plan? Generally, a Keogh plan is a retirement plan for self-employed people.
- Is the business involved with certain organizations, such as trusts, estates, farmers cooperatives, and others?
If the answer to any of these questions is yes, then the business requires an FEIN to conduct business and file the appropriate taxes. Even if you answer no to these questions, you may still need an FEIN to open a business account or a credit card in the business name.
Applying For an FEIN
Applying for the FEIN is relatively easy and free if you apply for it directly from the IRS, either online, by telephone, by fax, or by mail. The applicant will have to provide the business owner’s social security number or other tax number for registration. Applying online is the fastest and preferred method, with a FEIN being issued immediately if the business is eligible. Applications by fax take up to four days. Applicants are limited to one FEIN per day.
Once an FEIN is assigned to a business, it is not recycled or assigned to another business. Even after a business becomes defunct and ceases to conduct business, the number is still attached to the business and can be used to identify it. However, the business owner can send the IRS a letter asking the IRS to close the business account, identifying a reason for seeking closure. Note that before the IRS can close the account, the business owner has to pay any outstanding business taxes, and file any required tax returns for the business.
Contact A North Miami Business Law Attorney
If you are a small business owner seeking to incorporate or set up your business under another legal structure, consult an experienced business law attorney to ensure that you have a solid plan in place. Contact a North Miami business law attorney at the Charlip Law Group L.C. for a consultation today.