Using an Old EIN for a New Business: Theoretical vs. Practical Considerations

When setting up a new business, one frequently asked question is whether it is possible to use the Employer Identification Number (EIN) of the previous business, also known as an EIN. This article explores the theoretical and practical aspects of using an old EIN for a new business, based on common scenarios and the guidance of the Internal Revenue Service (IRS).

Theoretical Considerations

Theoretically, every new business entity should have its own unique EIN, independent of any previous business entities. This is because each business entity is a separate legal entity with distinct state-level identification numbers. Therefore, from a purely legal standpoint, the new business should obtain a brand new EIN to ensure compliance with IRS regulations and legal standards.

Practical Considerations

However, in real-world scenarios, using the old EIN for a new business can be a simpler and more practical solution. According to the IRS, the new business entity could potentially use the existing EIN if the new entity's name and state match those of the previous entity. This is based on the fact that the EIN is associated with the business name and state, rather than the entity itself.

The reasoning behind using the old EIN in practice is two-fold. Firstly, obtaining a new EIN for a new business involves going through a lengthy and sometimes complex process. Secondly, the IRS may prioritize efficiency and simplicity, and may be more inclined to allow the use of the existing EIN if the necessary steps for its dissolution and winding up have been completed.

Practical Steps

To practically use an old EIN for a new business, follow these steps:

Ensure the preceding business entity has been properly dissolved and its affairs fully wound up. Prior to forming the new business entity, verify that it can be linked to the old EIN by the same name and state. Once confirmed, use the old EIN for the new business entity when applying for any necessary permits, licenses, or registrations. Keep detailed records of the dissolution process and any documentation required by the IRS to support the transition.

Success Rate

While theoretically it is recommended to obtain a new EIN for a new business, the practical success of using the old EIN varies. The IRS is currently overwhelmed due to the ongoing pandemic, and may not be as responsive to requests for a new EIN. Therefore, the pragmatic approach would be to use the existing EIN, provided the necessary steps for its proper dissolution and winding up have been completed.

Case Study

A relevant case scenario occurred when a client's limited liability company (LLC) was inappropriately dissolved by a third party. The client required an immediate new LLC and EIN to continue its established business. Initiating a lawsuit against the Secretary of State would have been impractical in terms of both cost and time.

To resolve the issue swiftly, a new LLC with the same name was formed and was allowed to use the existing EIN. This approach not only resolved the immediate need for a new EIN but also kept the business operations uninterrupted.

Conclusion

In conclusion, while the theoretical stance suggests obtaining a new EIN for each new business entity, the practical approach often involves using the old EIN, given the complex process and current IRS workload. It is crucial to ensure the old EIN can be properly transferred by confirming the appropriate steps for the dissolution and winding up of the old entity.

For specific legal advice on your situation, please consult a licensed attorney in the appropriate jurisdiction.