Is a single-member limited liability company (“SMLLC”) that is taxed as a “disregarded entity” and has to date not had its own employer identification number (“EIN”) required to apply for an EIN in anticipation of filing beneficial ownership information reports as required by the Corporate Transparency Act (“CTA”)?[1] And even if not required, should it?
Short answers: no and yes.
CTA Reporting Regulations
Under the CTA, a limited liability company (“LLC”) is a “reporting company”[2] that, absent the availability of any of twenty-three exemptions,[3] must file a beneficial ownership information report identifying itself and its “beneficial owners” and, if formed on or after January 1, 2024, its “company applicant(s).” Those reports will be filed with the Financial Crimes Enforcement Network (“FinCEN”) office of the Department of the Treasury via the Beneficial Ownership Secure System (“BOSS”) interface and database. In identifying itself on its BOSS report, a reporting company must provide its EIN.[4]
Many SMLLCs, being for tax purposes “disregarded entities,”[5] do not have their own EIN but rather use, where the sole member is a natural person, the sole member’s Social Security number[6] or, where the sole member is a business entity, the sole member’s EIN.
The Internal Revenue Service (“IRS”) has made all of this, as considered from the perspective of CTA compliance, unintelligible, writing:
For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner’s social security number (SSN) or employer identification number (EIN) for all information returns and reporting related to income tax. For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN.
For certain Employment Tax and Excise Tax requirements discussed below, the EIN of the LLC must be used. An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed below. Most new single-member LLCs classified as disregarded entities will need to obtain an EIN. An LLC applies for an EIN by filing Form SS-4, Application for Employer Identification Number. See Form SS-4 for information on applying for an EIN.
A single-member LLC that is a disregarded entity that does not have employees and does not have an excise tax liability does not need an EIN. It should use the name and TIN of the single member owner for federal tax purposes. However, if a single-member LLC, whose taxable income and loss will be reported by the single member owner needs an EIN to open a bank account or if state tax law requires the single-member LLC to have a federal EIN, then the LLC can apply for and obtain an EIN.[7]
This IRS guidance both predates the January 1, 2024, effective date of the CTA reporting regulations and is focused upon compliance under the Internal Revenue Code. Meanwhile, the release accompanying the CTA reporting regulations,[8] in discussing the requirement that a reporting company provide its EIN, did not address the issue of disregarded entity LLCs and wrote as well that “the vast majority of reporting companies will have a TIN or will easily be able to obtain one.”[9] Not helpful is the IRS’s suggestion that a Form SS-4 should be filed only when the SMLLC wants a tax classification other than as a disregarded entity,[10] especially when there are numerous situations already recognized by the IRS where an SMLLC will desire disregarded entity classification even as an EIN is either desired or necessary.
Neither the Beneficial Ownership Information Reporting FAQs[11] nor the Small Entity Compliance Guide,[12] each issued by FinCEN, shed any additional guidance on the issue, and certainly there is nothing in the CTA or the reporting regulations that mandates that an SMLLC that is a reporting company apply for its own EIN.
So, is the EIN of the sole member of a disregarded entity LLC, whether a Social Security number of the sole natural person member or the EIN of the sole business entity member, appropriate for the SMLLC’s CTA beneficial ownership information report? And even if the answer is yes, is it better practice for an SMLLC owned by a natural person to apply for its own EIN for inclusion in its CTA filings?
Short answers: yes and yes.
Benefits of an SMLLC Having Its Own EIN
For an SMLLC that is taxed as a disregarded entity and does not already have its own EIN, it may file its CTA beneficial ownership information report using the sole member’s EIN, which in the case of a natural person sole member will be the person’s Social Security number. But it is entirely permissible for that LLC to request from the IRS its own EIN and file the CTA report using that number.[13]
This approach may be seen as better in that it will not require submitting on behalf of the reporting company the beneficial owner’s Social Security number. True, if the BOSS database is hacked, the beneficial owner’s personal identifying information[14] may be divulged, but at least her or his Social Security number will not be part of the information leaked or stolen.[15] That said, this implicit expectation to use a federal EIN will oft have unacknowledged costs such as updating of tax filings, updating of information at the bank or other financial institution at which funds are transacted, differentials in treatment of employment tax remissions, and a parallel obligation to then apply for a state taxpayer identification number.
In addition, it may be that multiple SMLLCs filing BOSS reports with FinCEN, all using the same EIN, will encounter problems or, at minimum, additional unwanted scrutiny. In promulgating the reporting regulations, FinCEN wrote that “FinCEN believes that a single identification number for reporting companies is necessary to ensure that the beneficial ownership registry is administrable and useful for law enforcement, to limit opportunities for evasion or avoidance, and to ensure that users of the database are able to reliably distinguish between reporting companies.”[16] Furthermore, in characterizing its determination of the deadline for filing an initial beneficial ownership information report, FinCEN said that the final rule “provide[s] more time to reporting companies to acquire TINs and other identifying information, which is critical to the ability of FinCEN to distinguish reporting companies from one another, which in turn is necessary to create a highly useful database.”[17] So, it may well be that there is going to be a problem with using a sole member’s EIN to make BOSS filings for multiple SMLLCs—an issue that may arise regardless of whether the sole member is an individual or an entity. Until the end of June the BOSS system would at least some of the time not accept an initial filing with the same EIN as a prior filing (updates and corrections were not so affected). This was not a feature of BOSS intended to prevent multiple initial BOIRs from being filed under the same EIN, but rather a programming bug that has now been remedied.[18]
Conclusion
So, must an SMLLC get its own EIN before filing its initial beneficial ownership information report with FinCEN? Probably not. But, in order to avoid potential problems and as a concession to the brevity of life, should an SMLLC get its own EIN before filing its initial beneficial ownership information report with FinCEN? Almost certainly yes.
The CTA was adopted as part of the Anti–Money Laundering Act of 2020, which was part of the 2021 National Defense Authorization Act for Fiscal Year 2021 (“NDAA”). The full name of the NDAA is the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021. Pub. L. No. 116-283 (H.R. 6395), 134 Stat. 338 (116th Cong., 2d Sess.). Congress’s override of the president’s veto was taken in Record Vote No. 292 (Jan. 1, 2021). The anti–money laundering provisions are found in sections 6001–6511 of the NDAA. The CTA consists of sections 6401–6403 of the NDAA. Section 6402 of the NDAA sets forth Congress’s findings and objectives in passing the Corporate Transparency Act, and section 6403 contains its substantive provisions, primarily adding § 5336 to title 31 of the U.S. Code. ↑
CTA, 31 U.S.C.A. § 5336(a)(11)(A); 31 C.F.R. § 1010.380(c)(1)(i)(B). While there are slightly separate treatments under the CTA for LLCs formed in the U.S. and those formed in other countries, this discussion is focused upon U.S.-organized LLCs. ↑
CTA, 31 U.S.C.A. §§ 5336(a)(11)(B)(i)–(xxiii); 31 C.F.R. §§ 1010.380(c)(2)(i)–(xxiii). ↑
31 C.F.R. § 1010.380(b)(1)(i)(F) (requiring “[t]he Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN)) of the reporting company”). ↑
It bears noting that the definitions of who is a member for state law and tax purposes are different, so it is possible that an LLC can be a single-member LLC from a state law perspective and a multiple-member LLC for tax purposes, and vice versa. See generally Thomas E. Rutledge, When a Single-Member LLC Isn’t and When a Multiple-Member LLC Is, J. Passthrough Entities, July/Aug. 2015, at 49. Here, we are referring to an SMLLC from the tax perspective. ↑
An individual Social Security number is a type of an EIN. See Taxpayer Identification Numbers (TIN), IRS.gov (reviewed/updated June 14, 2024). ↑
Single Member Limited Liability Companies, IRS.gov (reviewed/updated Aug. 2, 2023). ↑
Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022). ↑
Id. at 59,517. ↑
Instructions for Form SS-4 (12/2023), IRS.gov (reviewed/updated Jan. 17, 2024) (“Don’t file Form 8832 if the LLC accepts the default classifications above.”). ↑
Beneficial Ownership Information: Frequently Asked Questions, FinCen.gov (Apr. 18, 2024). ↑
Fin. Crimes Enf’t Network, U.S. Dep’t of the Treasury, Small Entity Compliance Guide: Beneficial Ownership Information Reporting Requirements (Dec. 2023). ↑
In completing section 10 of the Form SS-4, presumably the box for “Other” should be checked and the reason given as “CTA compliance.” ↑
31 C.F.R. § 1010.380(b)(1)(ii). ↑
Admittedly, this horse may be out of the barn. See, e.g., Eva Rothenberg, AT&T Says Personal Data from 73 Million Current and Former Account Holders Leaked onto Dark Web, CNN (Mar. 30, 2024) (noting that the data leak includes customer Social Security numbers). ↑
Beneficial Ownership Information Reporting Requirements, supra note 8, at 59,517. ↑
Id. at 59,511. ↑
See CT Corporation, Key update on beneficial ownership reporting (email newsletter) (June 27, 2024). ↑
