Many of my clients come to see me to prepare a Membership Interest Purchase Agreement and ancillary documents when buying an LLC with its principal asset being a motor yacht or sailing vessel. While I previously discussed the applicability of an exemption from California Use Tax in regard to the purchase of an LLC, this article discusses proper post-purchase notification of the IRS of changes in responsible party, location, and name of the newly-purchased LLC.
Do I Need a New EIN When I Purchase an LLC?
Generally, if an LLC changes ownership the EIN stays the same because the corporate form and structure have not changed, only the ownership interest.
You may, however, need to obtain a new EIN if the LLC was organized before 2009 and has employees or incurred excise taxes. For employment and excise tax purposes, some older businesses have the primary account under the business owner’s name and SSN. This is common for businesses that were started pre-2009 as the law used to say that the owners, not the LLC, are liable for employment/excise taxes. So the IRS would set the business name to the owners name and require the owner’s SSN be used. The law changed since then and the IRS now records the correct business name and uses the EIN rather than the owner’s SSN.
New LLCs are required to obtain a new EIN if any of the following statements are true.
- A new LLC with more than one owner (Multi-member LLC) is formed under state law.
- A new LLC with one owner (Single Member LLC) is formed under state law and chooses to be taxed as a corporation or an S corporation.
- A new LLC with one owner (Single Member LLC) is formed under state law, and has an excise tax filing requirement for tax periods beginning on or after January 1, 2008 or an employment tax filing requirement for wages paid on or after January 1, 2009.
An LLC is not required to obtain a new EIN if any of the following statements are true.
- You report income tax as a branch or division of a corporation or other entity, and the LLC has no employees or excise tax liability.
- An existing partnership converts to an LLC classified as a partnership.
- The LLC name or location changes.
- An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation.
- A new LLC with one owner (single member LLC) is formed under state law, does not choose to be taxed as a corporation or S corporation, and has no employees or excise tax liability. NOTE: You may request an EIN for banking or state tax purposes, but an EIN is not required for federal tax purposes.
If you need a new EIN, you may obtain an EIN from the IRS using the IRS.gov website. There is no fee.
I purchased an LLC with an EIN. Do I Need to Tell The IRS About the New Ownership of the LLC?
Ownership, no. Responsible party, yes. Any entity with an EIN must report a change in the identity of their company’s responsible party on IRS Form 8822-B. You may change the LLC’s location and address on this form as well. All companies obtaining an EIN must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual, which the IRS will call the “responsible party,” controls, manages, or directs the LLC and the disposition of its funds and assets. The responsible party must be an individual (i.e., a natural person), not an entity. If there is more than one responsible party, the LLC may list whichever party the LLC wants the IRS to recognize as the responsible party. Additionally, LLCs must report any changes to the responsible party to the IRS within 60 days by using Form 8822-B.
I Am Changing the Name of the LLC. How do I tell the IRS?
An LLC is an entity created by state statute. The IRS did not create a new tax classification for the LLC when it was created by the states; instead the IRS uses the tax entity classifications it has always had for business taxpayers: corporation, partnership, or an entity separate from its owner, referred to as a “disregarded entity.” An LLC is always classified by the IRS as one of these types of taxable entities. If an LLC is a “disregarded entity”, it is treated as a sole proprietor for tax purposes.
Multi-Member LLC Name Change
An LLC with 2 or more Members is, by default, taxed like a partnership. You don’t have to mail a special letter to the IRS to change your LLC name. Simply check off “name change” at the top of the Partnership Income Return (Form 1065) when taxes are filed.
Per IRS Revenue Procedure 2002-69, in California, and in seven other community property states, a husband and wife (normally taxed as a partnership for IRS purposes) may elect to be taxed as a Qualified Joint Venture, which is an election made with the IRS for husband and wife LLCs allowing them not to be taxed as a Partnership, and therefore being taxed as a disregarded entity. If the LLC is owned by a husband and wife in a community property state and they have elected to be taxed as a Qualified Joint Venture, please see “Single Member LLC Name Change” below.
Single Member LLC Name Change
An LLC with a single Member is, by default, taxed like a Sole Proprietorship. In order to change the LLC name with the IRS, you must mail the IRS a letter and show proof of the state approving your LLC name change.
Don’t Forget to update the LLC’s Statement of Information with the California Secretary of State showing the change in Directors, Officers, Address and Registered Agent!