When to apply for new EIN

[turtle19]

I am a sole proprietor for a small (very small!) service business. No inventory, etc. We have filed Chap 7, no asset. None of the debts are business related.

In order to keeps things clean and neat, I have stopped working and am closing down the current business, even though the trustee said it wasn't necessary in my case. I'm creating an entirely new business, new business name and expanding my services. One of the reasons for this (and the reason we're having to file to begin with) is because I was employed full-time by another company. My business was part-time, after hours... almost more of a hobby than true profitable business. I was testing the waters, if you will, to see if there was a market for my services and if I could make a go of it. The nature of the work as a contractor meant I was using an EIN for the business, even though I had no employees (nor do I intend to have any for a while yet). My full-time employment was cut in half several months ago and I'm receiving a tiny bit of unemployment it help compensate. At any rate... I want to expand my business and offer related services which will require a business name change anyway, and additional licenses.

Because of that, I've found it will be easier to just shut down the one and create a new one. It will officially shut down as soon as I collect the remaining accounts receivable that are outstanding (< $200).

Now, I will not actually be working or conducting any actual business until after the discharge. But, I'd like to start setting up the paperwork and working on my licenses so they're ready to go when I start up. Two of the licenses I will be obtaining require fingerprinting and criminal background checks that can take time. This also includes setting up new bank accounts, dba, business license, bond, etc.. the whole thing.

The thing that I'm wondering is this. It is wise to start doing this before the discharge? I have to request a new EIN... and that EIN needs to be used for a lot of the follow-up paperwork. I will not be utilizing any credit for this new business.

If I wait until the discharge to start, it will definitely delay my ability to run this business for a good month or two. And given my already reduced income it's a bit of a crunch I'm not sure I can handle. Also, I won't be signing and contracts or anything that creates a debt burden or liability before the discharge. For example, I may shop for insurance but I won't actually activate any policies until after the discharge date and just prior to the business start state.

So yeah... sorry that's so long. Any ideas for direction? Should I wait or would be be okay to start now provided I keep it to preliminary paperwork needs to start up?

[LadyInTheRed]

I don't see any reason why your BK should have anything to do with when you get a new EIN. Get one when you need it. I don't know how long it's been since you got your last EIN. Do you know that you can apply for one on the IRS website?

[turtle19]

Thanks. The one I have I've had for many years. That doesn't matter, though, because it's a part of our bankruptcy now and I can no longer use it going forward.

I can't get it online again because the first one was obtained online. All I need to do is call or fax a new request. That's the easy part. I'm just unsure of the timing.

[justbroke]

I requested a new EIN for as a sole proprietor and the IRS would not issue me a new one. I'm assuming that they will only issue a new EIN if the business had some sort of corporate structure. Please let us know if the IRS issues you a new EIN as a sole proprietor. I'd like to know for sure!

It's weird because their Website even says that you need a new one if you are subject to a bankrutpcy proceeding. I'm going to need to talk to them again. (Yes, I called in because I too attempted to obtain a new one online and was directed to call.)

[LadyInTheRed]

I requested a new EIN for as a sole proprietor and the IRS would not issue me a new one. I'm assuming that they will only issue a new EIN if the business had some sort of corporate structure. Please let us know if the IRS issues you a new EIN as a sole proprietor. I'd like to know for sure!

It's weird because their Website even says that you need a new one if you are subject to a bankrutpcy proceeding. I'm going to need to talk to them again. (Yes, I called in because I too attempted to obtain a new one online and was directed to call.)

The SS-4 instructions say they issue EINs to sole proprietors. They probably want you to call because they see you already have an EIN for a sole proprietorship and want to make sure you are getting one for a different business or have another valid reason for a new EIN. I once had the online system make me call to get an EIN when getting one for a trust because the same SSN was connected to a trust with a similar name that already had an EIN. They just wanted to be sure they don't issue two EINs for the same trust.

[justbroke]

I did call about 4 weeks ago to obtain a new EIN. They would not issue me a new SSN. I will need to call again and reference their Website.

[turtle19]

So the whole business thing is just giving me a headache, plus the trustee has become non communicative (per my other recent post) regarding a different business that I had and closed. But that's another story. When we first filed, the same trustee's office *did* tell me it wasn't necessary to shutter my business. I did anyway just to keep everything clean and neat.

So I did call the IRS about applying for a new EIN. They said yes, go ahead and fax in an application and note that you're part of a bankruptcy proceeding. He even read it to me directly from their publication -- confirmed I would need a new one. Done.

Yesterday in the mail from the IRS (I really hate seeing envelopes from the IRS show up!) I get a letter saying that they couldn't issue me a new EIN because I already have one.

Yeah... I know. Hence the notation on my application where I told them I already had one and why I was applying for a new one...just like they told me to do. Where's the little headbanger icon when you need it?

[justbroke]

Yesterday in the mail from the IRS (I really hate seeing envelopes from the IRS show up!) I get a letter saying that they couldn't issue me a new EIN because I already have one.

Other than the mailing in the request part, this is exactly what was told to me. I don't understand their logic when their website (IRS Manual) contradicts what they say.

[turtle19]

Well, an update on this one. I verified with a certain entity that hires me for work on occasion that they need a new EIN from me and they won't give me any work until I do so. They called ME on it because they do annual background checks and the BK filing showed up. The BK isn't an issue at for them, except that they require a new number for tax reporting issues. Their legal rep called me and said that if they report earnings using the old EIN we could both get in to some messes we don't want to deal with. I told them I've been trying and am having a tough time with it. They decided for now, to use my SSN instead. I never use my SSN for business purposes, but I didn't really have another option.

So... I call the IRS and the lady I spoke to was very helpful and said, yes, absolutely, I should be issued a new one because of the bankruptcy. She said to resubmit the request but sent a cover page highlighting that the request is a result of a bankruptcy... and I'll get a new one in 48 hours. She also said that they should not have denied it the first time.

Well, two weeks later, I get another letter from them denying my request. Now here's where it gets confusing. In the letter they state the any issues regarding bankruptcy and the EIN as a sole proprietor need to be directed to the state. Now, that REALLY confuses me. The state has nothing to do with my EIN, nor do they care what number I use. I just got that letter today so I can't really follow-up with anyone until next week, but I'm assuming they are saying I should contact the CA Board of Equalization.... but I can't imagine why.

I mean, right on their website they say a new one is required: http://www.irs.gov/Help-&-Resources/...er-%28EIN%29-2

If you already have an EIN, and the organization (entity) or ownership of your business changes, you may need to apply for a new number. Some of the circumstances under which a new number is required are as follows:

....
A sole proprietorship files for bankruptcy under Chapter 7 (liquidation) or Chapter 11 (reorganization)."

So, I'm going to make a third request next week. It amazes me that I'm struggling to find enough work to pay the bare bone bills right now and the people who do all this nonsense have cushy government jobs and few cares in the world about how incredibly useless they really are.

[justbroke]

You are hitting the same wall that I have. I gave up... for now. My bankruptcy is now 6 years old.

[turtle19]

I'm not giving up quite yet. I called again today and got the same answer -- yes, you need a new EIN. So, this time, I faxed another request, with a letter, and I included copies of two different web page as we as a page from Publication 1635 (Rev. 2-2014) (page 3) stating a new EIN is required. I also included a copy of the bk filing showing my current EIN was in the bankruptcy.

Now... I also talked to a BK lawyer friend of mine and he said he's just guessing, but might be that a new EIN should have been issued and assigned to the bankruptcy estate and used instead of the the current EIN. he said there's some language in the IRS instruction manual about not issuing the individual a new EIN, but issuing it to the estate. But, he said is also is completely confusing and contradictory because he's seen it happen different ways for different cases, and it seemed to depend on how the wind was blowing any given day.

[turtle19]

So, good news bad new on this one. Good: I got the new EIN, as the IRS requires of sole-props filing for bankruptcy.

The apparent bad: It was assigned to the bankruptcy estate. When we filed, I was, apparently supposed to have requested the new EIN prior to filing and used the new EIN for the bankruptcy. A sole-prop will only ever be issued one EIN. The letter also states that I need to file form 1041 next April.

So, now that we've discharged and the case just closed, it looks like I need to have it reopened and corrected? Remember, we filed pro se, Chap 7, no asset and the trustee abandoned everything. I wish I'd have figured this out several months ago...or at least received a straight answer from the IRS.

Anybody know where to go from here? The IRS says an new EIN is required for sole-props, but apparently it is for the estate itself, not the individual moving forward. The individual retain the same EIN.

Any helpful advice or words of who I just talk to or what to do?

[LadyInTheRed]

I think it was an error that they assigned an EIN to the bankruptcy estate based on your application. I would think it is the trustee who would apply for an EIN for the bankruptcy estate if one is needed.

Based on the Internal Revenue Manual, l think you need to use the prior EIN.

21.7.13.4.3.2 (01-13-2009)
Changes to Sole Proprietorships

Assign a new EIN to a sole proprietorship if any of the following are true:

The sole proprietorship changes ownership from one individual to another.

The sole proprietor goes into bankruptcy (except under IRC Chapter 12 or 13). Assign a new EIN to the Bankruptcy Estate. Do not assign another sole proprietor EIN to the taxpayer.

The sole proprietor dies, and either an estate or a spouse (when there is no estate involved) takes over the business.
Note:

If the decedent and spouse have been filing a joint return for household employment taxes only, and the spouse takes over as employer, a new EIN is required for the spouse after the first year of the ownership change.

The sole proprietor takes in partners and operates as a partnership.

The sole proprietor incorporates.

Do not assign a new EIN to a sole proprietorship under the following circumstances:

The sole proprietor has one business and opens a second sole proprietorship. (An individual is permitted to have only one identification number regardless of the number or types of sole proprietorships he/she operates.)

It makes sense because the EIN is issued to you, the sole proprietor, not a business entity. You and the business are not separate taxpayers.

[LadyInTheRed]

The section of the Internal Revenue Manual I quoted above also says that in a Chap 7 "The return filing requirements are generally the same as for individual Chapter 11 cases, as discussed in IRM 5.9.8.13,Internal Revenue Code § 1398 Issues." Based on IRM 5.9.8.13 , I think a debtor would only obtain an EIN for the BK estate if the debtor is in possession of income of the BK Estate and is therefor required to file a return to report that income. Since your case was a no asset case, I assume the BK estate had no income, in your possession or otherwise. If there is no income, the BK estate does not need to file and income tax return and probably does not need an EIN at all.

If I were you, I would contact the IRS and tell them that you did not need an EIN for the bankruptcy estate and ask that they cancel the number that they issued. There is no reason to reopen your BK.

Go back to using the EIN you were using for your prior business. Unless you form a partnership, LLC or corporation, the EIN is attached to you, not a specific business.

[turtle19]

Thanks for that. This is why it is so incredibly confusing. All of the printed material (aside from the internal manual you quote above) it very specifically states that sole props are required to obtain a new EIN if they file for bankruptcy. That's all they say, so it's terribly confusing.

Yes, we were no asset. All of the trade tools and equipment used in my business were exempt or of no value because I operate as a service provider... so I really only have a basic office. It's a full home office in its' own room-- but it's just the usual stuff -- desk, computer, printers and such.

The issue I'm coming up on is that one of the companies I work with ran an updated background check on me after we filed (they do them annually) and my EIN popped up as in Bankruptcy as attached to a BK estate and they can't use it any longer to report income. I don't know if they were correct or not...that's just what they told me. I passed the background check, and they aren't withholding work from me... but they said I either had to provide them my SSN or a new EIN because their accounting people said so. I never use my SSN for business purposes for companies that I contract with unless they hire me directly as an employee. Now, the trustee said It wasn't necessary to stop working or even close my business, but I've been using the BK to reorganize and restructure my business, snice what I was doing before clearly wasn't enough to keep us afloat. So, while I'm remaining a sole-prop for now, I am essentially creating a new company, with a new name, etc. I don't care if I still use the EIN I've always used. I'm okay with that... I'm just terribly confused because at least three different public IRS directives state a new EIN is required for sole-props. It is included with advice and guidance regarding the issuing of NEW EINs and nowhere (except the internal document you reference) does it say that the new EIN is assigned to the estate.

If I don't need one... hey that's fine by me... Here I am trying to go by what they publish. They don't say "may" need one... but that one is required and this one vendor says they can't report income with the old EIN. That seemed odd to me. I mean, we can earn that is reported via our SSNs, right? How is it any different other than simple bookkeeping and the way I pay taxes on each one? I mean, the trustee abandoned everything in our case, including all of the outstanding invoices I had at the time we filed, which were itemized.