We have some sole proprietorship accounts set up under the business name and EIN. If these were interest bearing accounts and we would report interest to the IRS, we would be reporting the trade name of the business along with the EIN. The owners name is not reported. Would this be a problem? I was thinking we should be reporting the interest under the owner's name and SSN or the owner's name and EIN - nothing with the business trade name. Can anyone provide guidance?

Sole proprietors should be established as:

Proprietor (IRS prefers we use SSN)
DBA Trade Name

There are a number of threads on BOL discussing this subject. You should be able to find by searching the threads.

I have read the other thread relating to sole proprietorship accounts in the BSA/CIP forum. I know the IRS prefers that we use the owner's SSN. My question is this: If we do use the EIN (which we are also allowed to do), do we match it to the owners name or the trade name of the business when reporting to the IRS. Currently we have some that are matched to the later and I don't think this is correct. I was just looking for someone to either confirm or reject my thinking.

The owner's name. The EIN is assigned to the owner and not the trade name. I am only suppose to get one EIN over my lifetime, even if I operate as a dozen DBA's over that period of time.

Thanks for confirming!

I hate to rehash this, but I'm doubting myself now after talking to others.

If a sole proprietor has an EIN, we currently set up the account like this in our core system:

Line 1 - Smith's Garage
Line 2 - John Smith

The EIN is used for reporting purposes and is matched to the trade name, Smith's Garage. I'm being told that we have not received IRS correspondence that we have name/TIN mismatches by doing it this way (which is odd because everything I'm reading tells me it should reject).

I've been hearing that the account should be set up the following way to be correct:

Line 1 - John Smith
Line 2 - DBA Smith's Garage

Use John's SSN preferably, but could use his EIN. If using the EIN, it would need to be matched to John's name not Smith's Garage. Our core system doesn't allow an individual to have both an EIN and SSN. The only way to do this is set up two different CIF records.

Help!

We set ours up using the SSN not the EIN:

John Smith
DBA Smith's Garage

The IRS control name for Smith would be SMIT, so it would match John Smith's EIN and his SSN. Not the case for all DBAs. If you look at the Application for an EIN on the IRS.gov website, you will see that Mr. Smith applied using his personal name, so it was given to the sole proprietor, not to a trade name.

He needs an EIN only for payroll tax purposes. He has never formed a legal business entity. He and his business are one and the same. He will report his income on his personal tax form.

IRS directives are clear that they prefer we use Mr. Smith's SSN. You can find these in multiple IRS forms (SS4, W9 instructions, etc.).

Waldensouth's example is, IMO, the better example to use.

Thanks waldensouth. Our management has expressed concern that the customers may want their EIN used, not their SSN, and will be upset. They've also said that setting the account up under the SSN may cause problems for them at tax time. I don't know that either of these concerns are valid.

As BrendaC stated (probably while you were typing) - those would not be valid concerns- the EIN is not for filing income taxes - all SP income is supposed to be reported under their SSN.

Well the IRS must also match the EIN to the trade name (not only to the owner's name), because we never received any notice of name/TIN mismatch for any 1099's we sent out on these sole proprietorship accounts set up under the trade name. Is it possible that it's not correct to do this (trade name/EIN) but it won't be rejected by the IRS either?

Just curious, how long does it take to get a name/TIN mismatch (B Notice?) from the IRS after submitting a 1099 file? Also, what format is the notice to the bank - electronic or paper?

If you don't have record of receiving any B-Notices as a bank, I would say something is wrong and it might be a good idea to check with the IRS as it would be highly unusual.

Also, from the IRS Q&A on Backup Withholding:

Can a sole proprietor have an SSN or does he or she need an EIN?

A sole proprietor may have an SSN or an EIN. However, he or she must always furnish his or her individual name, regardless of whether he or she uses an SSN or an EIN. A sole proprietor may provide a business name, but he or she should list his or her individual name first on the accounts with you.

http://www.irs.gov/efile/article/0,,id=98145,00.html

Also:

Q… What is a CP2100 or CP2100A Notice?
AA… It is a notice that tells a payer that he or she may be responsible for backup withholding. It is
accompanied by a listing of missing, incorrect, and/or not currently issued payee TINs. Large
volume filers will receive a CD or DVD data file CP2100, mid-size filers receive a paper CP2100, and
small filers receive a paper CP2100A.
Large Filer …………. 250 or more error documents;
Mid Size Filer ……… Less than 250 error documents and greater than 50 error documents;
Small Filer …............ Less than 50 error documents.

PART 3. WHERE TO CAL FOR HELP
If you have any questions about backup withholding, information reporting, Forms 1099, or the CP2100 or
CP2100A Notice(s) and listing(s), you may call:
The Information Reporting Program Centralized Customer Service Site
Telephone (866) 455-7438 (TOLL FREE) / (304) 263-8700 (not toll free)
Hours 8:30 am to 4:30 pm Monday through Friday, ET
E-Mail mccirp@irs.gov.

My recollection is that B-Notices in connection with the prior reporting year are generally sent out in October.

At one time B-Notices were an epidemic and most banks received them. However, the name/TIN matching rules are less of a mystery now and CIP helped put some starch in the banks' dedication to TIN compliance.

Banks that consistently receive B-Notices generally have poor internal controls over their new accounts process.

I have heard rumor that the IRS has a dollar threshold for sending B-Notices. So it is possible that your sole props aren't earning enough in interest to make it on to your CP2100.



While this was true at the larger bank (approx. 4B) I worked at previously, at my current smaller bank (130mm), we received our CP2100 for 2007 in April 2009. sure if that is size related, or if they just have different banks on different schedules, but I do know that not all of them arrive in October.

-nell

Thanks for sharing that bit of information. That might explain why we haven't been getting the notifications. These sole proprietors definitely aren't earning much interest on our NOW accounts.

Again, it is just a rumor that I had found on-line, but I did note that the two or three we got last year for 1099-INTs were all for interest earned of somewhere around $300 or $400 and up. But again, we're a small institution so using us as a example would definitely not be considered an scientific sampling.

I've heard IRS personnel flatly, vehemently deny that from the podium...

I've also seen the B-Notices sent to an institution that filed a substantial number of 1099s on different accounts with the same name/TIN combination; i.e. they did not aggregate. Every account where the 1099 was above $300 generated a B-Notice. None of the accounts on which the 1099 was less than $300 generated a B-Notice.

Go figure.