Since the 2001 tax act reshuffled all the IRS offices around (many businesses filed their 2001 tax returns with a different IRS office than they did the year before), there has been a lot of confusion about tax ID numbers, and people are making mistakes left and right. Here are some of the most common questions I've been asked in the past few months, and my best (but perhaps not perfect) answers.
How do I get tax ID numbers?
Every new business needs its own tax ID number; if you are running two or more businesses, each "division" should have its own number. To get a federal tax ID number, you must fill out IRS Form SS-4 (available from the IRS Web site at www.irs.gov--click on "Forms and Publications"), and either mail or fax it to the IRS office indicated in the Instructions to Form SS-4. There is no fee.
Once the IRS issues you a number, you will have to get a tax ID number from each state in which you have a business address. This will involve filling out a state form (which will look suspiciously like the SS-4) and paying a small filing fee. A complete list of state tax authorities and their Web sites, from which you can obtain the appropriate form, can be found at www.taxsites.com (click on "State and Local Tax"). You can ask your lawyer, bookkeeper or accountant to do this for you, but they may charge you for their time.
How long does the process take, and is there a quicker way to get an ID number? I'm anxious to open a checking account right away, and my bank won't let me open one without an ID number.
Most IRS offices will issue the number by mail within two to three weeks after they receive your Form SS-4. If you can't wait that long, you can call the IRS and get a tax ID number assigned to you over the telephone. The toll-free number is (866) 816-2065; the average wait to reach a human being is one to two minutes. It helps to have a completed Form SS-4 in front of you, because the agent will ask you many of the same questions.
What do I do if the IRS issues more than one ID number for my business?
Let's say you file Form SS-4 with the IRS, and then get impatient and call the IRS' toll-free telephone number. Because you are dealing with two different IRS offices, there is a good chance the IRS will issue two different ID numbers for your business. If this happens, you must get the IRS to expunge the duplicate number from its records; otherwise they will think you are operating two different businesses with the same name and will be looking for two different tax returns each year.
To correct this problem, first call the IRS' toll-free number (866-816-2065). Explain the problem to the agent, and ask for the "entity fax number" for your regional IRS office. The agent will give you this number over the telephone. You must then fax to this "entity fax number" a brief note explaining the discrepancy and telling the IRS which of the two numbers you plan to use for your business. The fax should be addressed to "BMF: Business Master File." Make sure the number you want the IRS to keep on file is the number you have used to open your checking account.
I would also mail "hard copies" of the fax to 1) the IRS office designated to issue your tax ID number and 2) the IRS office to which you are required to file your tax returns. Be sure to send these by certified or registered mail (so that you get return receipts) to the attention of "BMF: Business Master File." It's not a perfect solution (the faxes may still get lost), but it's the best you can do.
Memo to the IRS and state tax authorities: In this day and age, it is rather cumbersome for people to have to fax, call and mail you to obtain a tax ID number. This is one of those things the Internet was made for, and you've all got pretty decent Web sites by now. Why not enable people to obtain tax ID numbers directly from your Web site? Taxpayers should be able to click a button on your home page, fill out your application form online (since people will be giving you their Social Security numbers, this should be a secure page), and get a number assigned to them in "real time" or via e-mail, without delay or hassle. This would also free up a lot of your agents' time and save tons of tax dollars. Hey, it's just a suggestion.
Cliff Ennico is host of the PBS TV series MoneyHunt and a leading expert on managing growing companies. His advice for small businesses regularly appears on the "Protecting Your Business" channel on the Small Business Television Network at www.sbtv.com. E-mail him at email@example.com.