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.
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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 cennico@legalcareer.com.