When you established your business, one important step you probably took was to set up your Tax ID Number (EIN). If you plan on selling your business, you may wonder whether or not you can simply transfer that EIN to the new owner. The simple answer is no; most of the time, a new EIN will need to be assigned when there is a change of ownership.
Circumstances requiring a new EIN
Although most businesses can continue working with the same EIN for many years, there are a few situations where this is not the case. The IRS has outlined a few requirements for an existing business to apply for a new EIN, including:
When you start planning to transfer ownership of a business, you must take into account that the new owner will need to apply for an EIN.
Circumstances where you do not need to apply for a new EIN
There are some changes in your business that do not require a new EIN, including a change of location, addition of locations, a business name change or a corporate merger in which the surviving Corporation takes on the existing EIN. Additionally, if a Corporation decides to be taxed as an S-Corporation, it does not need to apply for a new EIN. Corporation and Partnerships undergoing bankruptcy proceedings also do not need to apply for a new Tax ID.
What happens when the owner dies
As previously discussed, when a business changes hands, the new owner will most likely need to apply for a new EIN. Things become a bit more complicated when involving an owner’s death, especially for certain entity types. Whether or not you must get an EIN as a new owner taking over a business after the original owner’s death depends on many factors.
Ownership changes for Corporations do not always require a new EIN. If the previous owner dies, the Corporation remains in perpetuity, as long as there is a succession plan. As such, you might not need to apply for an EIN. However, when you inherit a business as a Sole Proprietor, you will have to apply for a new EIN. LLCs and Partnerships tend to dissolve upon the death of the owner, and as such, will also need to restructure the business and apply for a new Tax ID. Ultimately, whether or not a new business owner needs to apply for a new EIN depends on the business structure and entity type.
Applying for a new EIN
If you need a new EIN after an ownership change, you will want to do so as soon as possible. Most businesses can apply online and obtain the number within a few hours*. In more complicated instances, you might need to apply through the mail, in which case you should account for up to several weeks to process.
*Most EINs are processed same or next business day, unless bundled with state formations, processing times will vary.
Once you have the Tax ID Number, you can move forward with the paperwork that forms the new business under the new owner. You might be able to do some of the paperwork while you wait for the number. You will also need to alert your bank, lenders and other financial institutions of the Tax ID change and review current contracts to see if you need to amend the EIN. In some cases, you might have to refile your permits and license under the new EIN.
The good news is that getting an EIN is simple. GovDocFiling removes the angst and aggravation of filing government documents, helping you avoid common mistakes to get things done right the first time. You can start the process to apply online for a Tax ID Number here.