Revisiting W-9s, 1-Person LLCs and EINs

I wanted to revisit the subject of 1-person LLCs and employer identification numbers. 

Here are the basics, when a 1-person LLC is taxed as a sole proprietorship: 

  • The IRS says to put the proprietor’s name and SSN* on the W-9
  • The IRS says to use the proprietor’s SSN* on the Schedule C
  • The IRS says to use the LLC owner’s SSN* on the K-1 if the 1-person LLC is a partner in a partnership
  • (*-see the note at the end of the post.)

People always argue with me on this, and I always reply by simply pointing out that these things are in the instructions to these forms. This is not “Jason thinks” this or “Jason has a theory about this.” It’s what the instructions to the forms say!

The W-9

For the W-9, see the following in the instructions:

  • The instructions to Line 1(b) and 1(e) (page 1, left-hand side)
  • Part I, Taxpayer Identification Number section (4, right-hand side)
  • The chart on page 5, lower-left side

Schedule C

  • The LLC’s EIN should only be entered on the Schedule C if the EIN was issued for, quote: “a qualified retirement plan, to file employment, excise, alcohol, tobacco, or firearms returns, or as a payer of gambling winnings. If you do not have such an EIN, leave line D blank.”

Form 1065 Instructions

  • Regarding issuing a K-1 to a partner who is a 1-person LLC taxed as a disregarded entity (with my emphasis in bold): “If the partner in the partnership is an entity, such as single-member limited liability company (LLC), that is a disregarded entity (DE) for federal income tax purposes, enter the TIN of the beneficial owner of the DE partner in item E rather than the TIN of the DE partner. The beneficial owner is the taxpayer who owns the DE partner.”

What Does it All Mean?

Every time I present on this topic, people argue with me. I also get emails now and then from people (tax pros and random people) who argue with me.

One tax pro said “I have spoken to the IRS about this and they say they don’t care.” This was a webinar I was presenting, and my response was “okay.” 

I am sure the IRS has many other things to do and so doesn’t pursue these EIN issues very often. On a W-9 for example, the penalty is $50 for filling out an incorrect W-9; probably not enough for them to worry about.

On a Schedule C, as long as the income is reported properly, in the proper place, I can’t imagine the IRS making a fuss. 

There is an issue of, what if the 1099 is issued in the EIN of the LLC but the Schedule C shows the SSN? Good question; I don’t know the answer. As long as the income itself is properly reported, I think it’s okay.

So the point is, I guess I wouldn’t stress out about this.

The only place I would be a little more concerned is on K-1s. I worry that the IRS could take the draconian stance — and don’t think they wouldn’t — that if the K-1 is issued in the wrong taxpayer ID #, then the partnership return wasn’t filed properly and so congratulations, here’s your $205 per partner per month penalty. (Note: I have no proof that the IRS would do this; this is simply editorial pondering on my part.)

*-Side note asterisk from above: On the W-9, Schedule C or K-1: Normally you’ll use the owner’s SSN, but if an individual has an EIN in their name personally, they can put that EIN.