CTA Reporting Regulations
Under the CTA, a limited liability company (“LLC”) is a “reporting company” that, absent the availability of any of twenty-three exemptions, 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.
Many SMLLCs, being for tax purposes “disregarded entities,” do not have their own EIN but rather use, where the sole member is a natural person, the sole member’s Social Security number 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.
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, 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.” 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, 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 nor the Small Entity Compliance Guide, 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.
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 may be divulged, but at least her or his Social Security number will not be part of the information leaked or stolen. 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.” 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.” 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.
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.
