EIN applications mistakes that can derail your plans

Almost nobody gets the application itself wrong. It is short and it validates as you go. The mistakes are all around it: in the order things were done, in who was named, in what the number was then believed to mean, and in what happened to the confirmation afterwards.

Nine of them, with what each one actually costs.

What to take away

• The two expensive mistakes are applying before the entity exists and naming the wrong responsible party. Both create records that disagree with reality.
• Treating the number as proof of something is the most common misunderstanding, and it leads people to skip the things that actually protect them.
• Paying a fee for it is a misunderstanding somebody sold you. The IRS issues it at no charge and nobody else issues one.
• Almost every mistake here is cheaper to prevent than to correct, and correction usually means talking to the IRS rather than filing again.

1. Applying before the entity exists

The number attaches to a taxpayer described in a particular way. Apply before the state has confirmed the formation and you may attach it to yourself personally, or to a name the state then refuses because it was unavailable. Untangling that afterwards is more work than waiting a few days, and the correct order is part of the sequence set out in forming an entity.

2. Naming the wrong responsible party

The application asks who controls the entity. Naming an accountant, a lawyer, a filing service or a nominee because it seemed easier produces a record that does not match reality, and it is the record the IRS will use when it needs to reach someone. The agency describes what the role means on its page about responsible parties and nominees, and it is worth reading before rather than after.

3. Letting the responsible party go stale

Somebody leaves, is bought out, or hands over control, and the record still names them. This is an omission rather than an error, which is why it survives for years. The wider set of records that drift like this is the subject of keeping things current.

4. Believing the number confers something

It identifies a taxpayer. It does not create an entity, does not provide liability protection, does not register a name, does not license anything, and does not change how you are taxed. People treat it as the moment the business became real and then skip the steps that actually do that work, which is why the full list of what it is not is worth reading in the identifier explained.

5. Paying for it

Some intermediaries present their service fee as a filing or government fee. There is no charge for the number, which the IRS states on its own employer identification number page. Paying somebody to run the errand is a choice; paying because you believed the number costs money is not.

6. Using a lookalike site

Search results for this cluster with sites designed to be mistaken for the agency. They are well made, because they are competing for people who have already decided to act. The defense is boring and reliable: check the address bar, and start from the agency's own site rather than from a result.

7. Getting the entity name subtly wrong

A comma, an abbreviation, "Company" instead of "Co", a missing article. The confirmation then names something slightly different from what the state registered, and the mismatch surfaces at a bank, on a return, or in a filing years later. Copy the name from the state's own record rather than typing it.

8. Applying twice

Something looks wrong, so a second application goes in. Now there are two identifiers for one taxpayer and the history splits across them. The remedy for a suspected error is to ask, not to reapply, and the agency's own contact routes are the way to do it.

9. Losing the confirmation

It exists in an email account somebody no longer uses. Nobody notices until a bank, a payroll provider or an accountant asks for it. Save it somewhere durable, and add it to a single list of every identifier the business holds, alongside the state registration and any license numbers.

Which of these actually hurt

Ranked by what they cost to fix rather than how often they happen: applying before the entity exists, naming the wrong responsible party, applying twice, and getting the name wrong. Those four create records that disagree with each other, and disagreeing records are what turn a five minute question into a month of correspondence.

The rest are cheap to fix and easy to avoid, and the misunderstanding in number four is the one worth taking seriously anyway, because it leads people to feel finished when they are not. What being finished actually requires depends on the form you chose, and that choice is the subject of comparing structures. Where the state's role begins and ends is set out in dealing with the filing office.

Common questions

I think I made one of these. What now?

Identify which record is wrong and ask the body that holds it. For the federal identifier that is the IRS, and for the entity name and status it is the state office. Do not fix a record by creating a second one.

Does an unused identifier expire?

Federal identifiers are not reissued to somebody else. Whether an old one is still the right one to file under, particularly if the entity it described no longer exists in that form, is a question for your accountant before you use it again.

Is there a mistake specific to sole proprietors?

Getting one and then assuming it changed something. It does not create an entity or a separation, and the reasoning is set out in operating without an entity.

How do I know if I need a new number after a change?

The IRS publishes the situations that call for one, and the changes are not treated alike. Look up your specific change rather than reasoning from the general shape of it.

What is the single best habit?

Keep one list of every identifier the business holds, with the issuing body and the date, in a place more than one person can reach.