Multiple Sole Proprietorships, limited to one EIN

[D Axline]

After years of requesting help from the IRS, I'm beginning to feel like I am the only Sole Proprietor in the country that owns more than one company with employees.
Two problems are generated by the inability to have seperate EIN's for each company.

Handling 941 processing:
For more than 30 years, as a sole proprietor of 2 unrelated businesses, I have been required to “combine” the payroll data for the companies into one filing because I am only allowed to have one Federal ID number. The problems generated are as follows:
1.The data for payroll taxes must be generated manually, leading to errors.
2.The data submitted is not directly from the accounting systems of the companies causing confusion when verification is required.
3.The data is incorrectly stated for the businesses because it must be processed under one Federal ID… combining the data of 2 companies.
4.I am unable to file electronically from either company because the data will only be accepted once per Federal ID number, per month.
5.Until recently, payment was difficult, we had to use our bank as a depository, so that checks could be issued from each company, since they each have their own bank accounts, accounting systems, payroll data, employees, etc. We are now able to specify two separate bank accounts to allow payment from each company, however, we cannot submit the data that generates the payment, from each.

The new rules eliminating the use of depositories and moving toward electronic payment, although they are excellent and we would love to use them, do not allow for the submitting of data from our two companies because we are only allowed to have one Federal ID.

With the use of computerized systems and the ability to modify programs as times change, it is inconceivable that provisions cannot be made to accommodate multiple Federal ID’s for sole proprietorships. Or, at the very least, allow for multiple data sources to be submitted and combined by the IRS program, to eliminate the manual process and inability to use the payroll tax information and forms generated by our accounting systems.

National Disaster Grants:
• I own 2 totally unrelated businesses as a sole proprietor.
• Each took extensive personal investment to build.
• Each owned its own buildings... has its own employees... pays its own property taxes, sales taxes, employment taxes, and all operating expenses.
• BOTH businesses were devastated by the flood in Cedar Rapids, Iowa in 2008.
• BOTH properties were under 10 feet of water and cannot be recovered.
• 75-80% of the inventory in both could not be saved
• All equipment, displays, fixtures, and supplies were lost.
• BOTH are considered separate entities by the state.
• The FEMA group required information on both and combined it because I only have one Federal ID.
• EACH individually had losses, and funds provided by an SBA Loan, that would qualify EACH for the maximum Jump Start Funds
• I was told that I could only get funds for one because I was a sole proprietor and had only one Federal ID.

I have asked for clarification and help from the Taxpayer Advocate Service, The Department of LLR, My State, My Senator..... Does anyone have a suggestion or am I alone with this problem?

[Spider]

Oh, Boy! I have no answer but I thought it might help a tiny bit to know that soneone is listening, even though that someone can do nothing to help!

[jamesray50]

Sorry, I can't help either. Had you considered forming an LLC or S-corp? I'm just wondering, when you file your 941's do you use your sole proprietor name and combine all the data for both companies, or do you file 2 of them each quarter with your sole proprietor name and then your dba name for each company? I can definitely see if you are processing payroll for two different companies in two different data files and then preparing one 941 with combined data manually where that would cause errors. How many employees do you have? Have you considered outsourcing your payroll to help eliminate some of the headaches and errors. There are lots of payroll service companies that will do this for you.

As for your grant questions and other tax questions, I have no advise or suggestions. Maybe someone else will.

[Evan]

After years of requesting help from the IRS, I'm beginning to feel like I am the only Sole Proprietor in the country that owns more than one company with employees.

I have asked for clarification and help from the Taxpayer Advocate Service, The Department of LLR, My State, My Senator..... Does anyone have a suggestion or am I alone with this problem?

EIN's belong to entities, and regardless you are ONE person (running TWO businesses). Even if you started Joe Blow LLC, you are only entitled to one EIN, and if you do fifty different lines of operation, you only have that one EIN. It is your job to consolidate the entities for federal and state reporting. This is why big companies create new entities so they can handle operations separately. If they did business under the main "umbrella", they'd all need to use the same EIN. You're not alone, and it isn't a problem related to just sole proprietorships.

You may think you have two separate entities, but the reality is it is still just you at the end of the day -- and it's you. The state may think you're two entities because you're "John Q. Public d/b/a ABC" and "John Q. Public d/b/a DEF" but the reality is you're still John Q. Public, so there is NO distinction between the businesses, and they should be reported together.

If you're looking for separation, you should consider forming two corporations. An LLC is disregarded for federal tax purposes (unless you chose to be taxed as a corporation), and you will be in the same situation. LLC's are state entities, not something recognized by the federal government. Depending on the situation, you may wish to elect to be taxed as an S-Corp. Consult with a tax professional on what situation is best for you.

[D Axline]

I appreciate your response Evan. However,... In your first paragraph you simply restated my situation. In your second you reiterated the first.

The bottom line of the situation involving the 941 is... why should I not be able to submit the DATA from each of my businesses seperately.. and accurately... even though I have only 1 EIN.

As for a corporate solution... there are limitations, requirements and expenses placed on a corporation, that are not placed on a soleproprietorship. Many of these limitations and requirements are either expensive or cause hardships to a small business. IE. There are corporate requirements for "lending" money that would make it difficult to use funds, generated by each business, to support cash flow requirements of the other. If the two businesses are seasonal and complementary, this can present hardships.

The situation I face is caused by owning "very small" retail businesses. However, being required to have only 1 EIN would not be a hardship if I could submit data for 941 purposes from each company.

As for the availability of a Federal Grant, in the event of a Natural Disaster, there is no logical reason for making the two businesses mutually exclusive. The sole purpose of the support offered by a Federal Grant following a natural disaster is to help the business recover as quickly as possible and protect the jobs, taxes and potential growth it represents.

Both of these situations put undue hardships on those building "very small businesses" (less than 25 employees). One Federal EIN per "individual" is a very narrow minded approach to an identification and reporting system for the businesses in our country. If there is a reason to know that the same individual owns multiple businesses, why not allow a dash number, in the EIN, for each business entity?

Thank you for responding Evan. I do appreciate it.

[D Axline]

Thank you for your interest jamesray50.

I have 12 employees, consequently, the manual approach to filing a 941 is more troublesome than burdonsome. However, when you do this 4 times per year and occassionally the numbers are combined incorrectly, the efforts to cure the problem can become costly. Both of our companies use PeachTree Premium Accounting and payroll is very easy. The 941 forms are generated for each quickly and easily. Our only problem is that we can't submit them seperately. Naturally, we are trying to keep costs controlled by doing as much of the accounting work internally. We do work with a large accounting firm for our taxes and business evaluation, and apply the money we save monthly, by doing internal accounting, to their services.

You may find some insight in my response to Evan.

[D Axline]

Keep watching Spider. Suprisingly, some of the greatest solutions to problems come from those least familiar with the situation. One day you will recall a post that may help someone and your response will be greatly appreciated.

Thank you for reading the information I posted.

[Evan]

The bottom line of the situation involving the 941 is... why should I not be able to submit the DATA from each of my businesses seperately.. and accurately... even though I have only 1 EIN.

Because you are not a separate legal entity in the eyes of federal or state law. The state division of taxation may give you two business licenses, but the fact is if I sue your Business A, I can also sue you for all the assets of Business B. It's the same reason why one person doesn't have two social security numbers.


As for a corporate solution... there are limitations, requirements and expenses placed on a corporation, that are not placed on a soleproprietorship. Many of these limitations and requirements are either expensive or cause hardships to a small business. IE. There are corporate requirements for "lending" money that would make it difficult to use funds, generated by each business, to support cash flow requirements of the other. If the two businesses are seasonal and complementary, this can present hardships.
Interest expense for one corporation is interest income to the other. It's very easy to offset the expenses. These formalities seem to be quite insignificant to the personal liability you are exhibiting in these two businesses.


Both of these situations put undue hardships on those building "very small businesses" (less than 25 employees). One Federal EIN per "individual" is a very narrow minded approach to an identification and reporting system for the businesses in our country. If there is a reason to know that the same individual owns multiple businesses, why not allow a dash number, in the EIN, for each business entity?

It's very logical that each person is only entitled to one EIN for the same reason as one SSN, it's unique to the individual, and not a business or the number of businesses. Say you close these two businesses and start a new one in 5 years, you're supposed to use the same EIN. It belongs to you individually.

What you're better off doing if payroll reporting is the biggest issue is consider is to outsource to a payroll service provider. They should be able to handle this. While you may want to save a few dollars, payroll services are not that expensive and can be just a few dollars more per year than you'd pay for the "payroll package" and updates, plus you don't have to worry about the calculations.

[jamesray50]

Because you are not a separate legal entity in the eyes of federal or state law. The state division of taxation may give you two business licenses, but the fact is if I sue your Business A, I can also sue you for all the assets of Business B. It's the same reason why one person doesn't have two social security numbers.

This is exactly why you should form some type of corporation, to protect the assets of the business and your personal assets in the event you are ever sued.

[D Axline]

Thank you again Evan for your input.

I understand the legal ramifications of the current EIN program. What I don't understand is why we cannot submit the data for our businesses seperately. Our Payroll Software includes automatic updates for all tax tables and is part of a comprehensive accounting program that is inexpensive to keep updated. The total cost of automatic tax updates, e-file reporting, and being part of our accounting for both businesses is less than $300 per year. The time to enter the payroll hours and print (or deposit) checks is less than 10 minutes per week.

What insight can you provide about seeking a change that would allow us to enter our data directly, using the e-file system? Our program is capable of processing this data directly, through the efile system, for each of our companies. We simply can't use it.

I am mainly concerned with the mechanics of processing the data, in relation to the 941 processing, not the legal requirements of the EIN.

Your explanations support the current EIN requirements, however the two situations we have encountered, may indicate a need for revision in the requirements and the processing of 941 data... (or the elimination of the "Sole Proprietorship" entity).
1. We are now required to file 941s electronically.
2. We have the ability to do so, however the government's processing system can't accept the data.

The greatest argument for converting our companies to S-Corps, lies in the situation we encountered with the Federal Grants for Natural Disasters. Even those involved in the decisions concerning our ability to get assistance for both businesses, individually, agreed that the current EIN system did not anticipate problems like we had.

I am not certain about the "limited liability" offered by the corporation with businesses as small as ours. I do understand that it does offer "some" protection. I also owned a Corporation and know that the processing requirements, record keeping and some costs, were not prohibitive, but added additional time and paperwork to our operation. As I'm certain you are aware, in a "small business", time is extremely expensive.

[Evan]

The problem you are having with consolidation. While you run two different business names, you -- John Q. Public, are still the employer. For payroll purposes, YOU must consolidate.

What you may be better doing is creating a "third" company in PeachTree for payroll, run them all in that file. Create two checking accounts for each business. Run payrolls together, and print to the respective checks for each business. Your account will be negative, but you can adjust this by offsetting it with an entry to equity--business A, equity--business B. You'll also have the net figures to enter into your individual company files. Is it a perfect way? No, but it meets the reporting objectives. It's a consideration, and it may not be totally convenient. But you seem quite determined, regardless of alternatives to make it work that you're "right" that there should be allowed to be multiple EIN's per individual. Good luck, it will be like arguing that an individual should be entitled to more than one SSN. It will fall on deaf ears.

While you do keep on reiterating the small nature of each of these businesses, to have 12 employees doesn't give the impression of a very tiny enterprise. I do think an S-Corp could be a beneficial entity. Perhaps just incorporating ONE entity and keeping the other a sole proprietorship? Just an option. The specifics would need to be discussed with a tax professional who knows your situation and could assist you in determining the right entity based on your needs.

[Evan]

I also owned a Corporation and know that the processing requirements, record keeping and some costs, were not prohibitive, but added additional time and paperwork to our operation. As I'm certain you are aware, in a "small business", time is extremely expensive.

Are you saying that you're not doing this with your current businesses? Because you should. OK, there are some additional formalities, but many states allow for shareholders to act outside a meeting if they all agree by resolution. So create a resolution and get shareholders to agree to it. If you're the only shareholder, that makes it quite easy. Put it in a nice folder, and you're good to go for a year.

[D Axline]

Thank you Evan...

I hate to sound like a bull dog on the subject. I do appreciate your comments and suggestions. This is BY FAR the best discussion I have had on the situation.

I'm certain you are correct about "deaf ears" and any changes in Federal Regulations. Your suggestion to research the S-Corp is appreciated. I will work on this with our accountants in the following weeks.

If nothing else those following these notes, that have soleproprietorships, will have a little insight into some of the hardships they will face if they start more than one company. I think the greatest shock to us came with the handling of the Government assistance programs, following the Cedar Rapids Floods in 2008. Your explanation clarifies the position the government takes.

Thank you again Evan.

[Evan]

Best of luck with your business ventures. The 2008 floods were very devastating to your area, and I'm sure the government's response to your inquiries presented an even bigger headache.

In any event, let us know what ends up happening! And welcome aboard to SBF.

[O-Z]

Sir,

Have you tried having your payroll handled by only one of the companies and then have the other reimburse for payments? That way only one company is burdened with reporting aspect of your business.