Sole proprietor, can I add my business name to my EIN?

[supersmallbiz]

When his customers request his information for IRS reporting purposes, it will use a Form W-9 or similar form that the customer has created which asks for all the same information. Regardless of the format used, the rules here are the same: as the OP is operating as a sole proprietorship the OP must provide his name as the name of the taxpayer (not the business name) and either his SSN or, if he has one, the EIN. He may also provide the business (trade) name, too, if he wants; that's optional. What he cannot do is omit his name and put just the business name as the name of the taxpayer on it. Doing that will cause the IRS to reject the Form 1099 because the information will not match the information in the IRS entity database.

So if what he wants to do (and it's not exactly clear what he wants) is to use the name of the business as the taxpayer name and omit his name on the W-9 he will not be able to do that. Doing that would indeed, to use your phrase, "break their system."

He's a sole proprietor and thus he is the taxpayer; his individual name goes on line 1 of the Form W-9. He may put his business trade name (his DBA) on line 2 if he wants. And he may use either his SSN or his EIN for the taxpayer identification number (TIN) on line 3. So strictly speaking, he would not have to have the business name added to the IRS entity system for the EIN. But it may be useful to do that. The important information the customer needs is his name, address, and the TIN (either SSN or EIN).

The instructions on the Form W-9 spell out exactly what is required.

Thanks to everyone that responded but particularly to you for such a complete answer. I was hoping that by adding my business name to my EIN that either my individual name or business name would match on a 1099. Unfortunately not everyone asks for a W9 before issuing a 1099. In the past, I've been issued a 1099 under my business name without being asked to fill out a W9. Hence there was no EIN either. I was hoping that if I added my business name to the EIN that the IRS could then match the business name to my EIN. I don't know what happens when the IRS gets a 1099 with a business name and no EIN number on it. I do put my business name on my schedule C. Will the IRS use that information to match it?

 

[mjpayne]

Thanks to everyone that responded but particularly to you for such a complete answer. I was hoping that by adding my business name to my EIN that either my individual name or business name would match on a 1099. Unfortunately not everyone asks for a W9 before issuing a 1099. In the past, I've been issued a 1099 under my business name without being asked to fill out a W9. Hence there was no EIN either. I was hoping that if I added my business name to the EIN that the IRS could then match the business name to my EIN. I don't know what happens when the IRS gets a 1099 with a business name and no EIN number on it. I do put my business name on my schedule C. Will the IRS use that information to match it?

You mean they filed a 1099-MISC with the IRS with no recipient TIN (SSN or EIN) at all? Pretty sure that's not allowed, but it's the issuer's fault if the IRS can't match it up, not your fault as long as you provide all correct information when asked. There's no law that says your business can't have the same name as another business just like there's no law against 20 people being named "John Smith" on their 1040 or elsewhere. That's why EINs and SSNs are used: they must be unique.

As far as you're concerned, the IRS basically just matches the EINs and SSNs on all their 1099-MISCs with your tax return's SSN(s) and EIN(s) and makes sure your Sch. C reports at least that much gross income. If they can't match a 1099-MISC, so what? You already reported more income than they expected so they'll be OK with it. Nobody knows how many $599 jobs you performed.

 

[Taxing Matters]

As far as the automatic matching system is concerned, it really doesn't matter what the W-9 requests or says since the W-9 doesn't get filed with the IRS, the 1099-MISC does.

It does matter, contrary to your assertion. The information on the W-9 is what the requester will use to complete the Form 1099-MISC, and as you note that form does matter. If the requester doesn't get the 1099 right there is the potential that the requester gets fined for failing to file the 1099 as required. While the requester can rely on the information given so long as the requester has no reason to believe it is wrong, it is still a headache for the requester to have to respond to the IRS over 1099 errors. So the requester very much has an interest in wanting that information correct, i.e. the Form W-9 information does matter. If it didn't matter, the IRS wouldn't have bothered making a form for it.

The 1099-MISC has only one box for the recipient's name and one box for the TIN anyway and it's anybody's guess what the issuer will put there.

Well, the Form 1099 instructions make it crystal clear what the issuer is supposed to put on the form.

Either way, a correctly prepared 1040 will have the payment recipient's name and SSN on the first page of the 1040 and the recipient's business name and EIN on the first page of the Schedule C so the IRS should in theory have all of that info anyway regardless of the combination the 1099-MISC preparer decides to use.

The 1040 return has that information, yes. The problem for the IRS is also ensuring that the 1099 accurately matches that 1040 return. If the entity date — Name and TIN — don't match that is a problem. You seem to be assuming that as long as the EIN is right it's all good, but that's now how the IRS processes returns. It looks for both the name and TIN to match.

 

[Taxing Matters]

As far as you're concerned, the IRS basically just matches the EINs and SSNs on all their 1099-MISCs with your tax return's SSN(s) and EIN(s) and makes sure your Sch. C reports at least that much gross income. If they can't match a 1099-MISC, so what? You already reported more income than they expected so they'll be OK with it. Nobody knows how many $599 jobs you performed.

The requirement is that ALL income must be reported on the return, whether a Form 1099-MISC is issued for it or not. Should you get audited and the IRS determines that you did not report all the income you are likely to get hit with, at a minimum, a penalty for negligence, which is 20% of the underreported tax, along with the tax and interest, too, of course. And if the IRS believes that the underreporting was intentional, it can be much worse. The IRS could apply a 75% fraud penalty and/or pursue criminal prosecution. So the IRS is not "OK" with just reporting at least as much as the 1099s show. Doing that will prevent getting an automatic letter from the service center, but it certainly isn't good enough to meet the legal obligation of reporting all your income.

 

[supersmallbiz]

As far as the automatic matching system is concerned, it really doesn't matter what the W-9 requests or says since the W-9 doesn't get filed with the IRS, the 1099-MISC does. The 1099-MISC has only one box for the recipient's name and one box for the TIN anyway and it's anybody's guess what the issuer will put there. Either way, a correctly prepared 1040 will have the payment recipient's name and SSN on the first page of the 1040 and the recipient's business name and EIN on the first page of the Schedule C so the IRS should in theory have all of that info anyway regardless of the combination the 1099-MISC preparer decides to use.

I did report the income and included the 1099 in the tax preparation software. Back in the days of paper returns, we had to send in copies of the 1099. So I guess back then the person processing the returns could do the matching then. Today with efile, do the 1099s we enter get sent in with our returns?

 

[mjpayne]

It does matter, contrary to your assertion. The information on the W-9 is what the requester will use to complete the Form 1099-MISC, and as you note that form does matter. If the requester doesn't get the 1099 right there is the potential that the requester gets fined for failing to file the 1099 as required. While the requester can rely on the information given so long as the requester has no reason to believe it is wrong, it is still a headache for the requester to have to respond to the IRS over 1099 errors. So the requester very much has an interest in wanting that information correct, i.e. the Form W-9 information does matter. If it didn't matter, the IRS wouldn't have bothered making a form for it.



Well, the Form 1099 instructions make it crystal clear what the issuer is supposed to put on the form.

your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN)

Like I said, it's anybody's guess if they put down the SSN or EIN if he gives them both. They might take his EIN off his new info he sends them or look in their old documents and use that #. Same goes for the name.

The 1040 return has that information, yes. The problem for the IRS is also ensuring that the 1099 accurately matches that 1040 return. If the entity date — Name and TIN — don't match that is a problem. You seem to be assuming that as long as the EIN is right it's all good, but that's now how the IRS processes returns. It looks for both the name and TIN to match.

Unless you're a programmer who works for the IRS or someone involved with the matter, there's no way for you to know exactly how the IRS handles such matters. If OP is really interested, he needs to request a transcript and match up what's in there to his collection of 1099s.

However, given that some 1099s are handwritten and given that business names can easily have their names misspelled (LLC vs L.L.C.), I'm betting in practice the IRS enters the EIN/SSN first and sees if the name is at least close to what's on the SS-4, 1040, or Sch C and goes from there if there's a mismatch initiially.

The requirement is that ALL income must be reported on the return, whether a Form 1099-MISC is issued for it or not.

I'm strictly talking about their computer matching system, which checks if he reported at least as much as the sum of 1099-MISCs issued to his EIN/SSN.

Should you get audited and the IRS determines that you did not report all the income you are likely to get hit with, at a minimum, a penalty for negligence, which is 20% of the underreported tax, along with the tax and interest, too, of course. And if the IRS believes that the underreporting was intentional, it can be much worse. The IRS could apply a 75% fraud penalty and/or pursue criminal prosecution.

"At minimum," if he gets caught, he'll get a computer-generated notice saying he failed to report $1,000 or however much in Sch C income (if his 1099-MISC sum is > his Sch C gross income) and have to pay a little interest as well as additional tax due. Sometimes they'll attach a small penalty, but those can be abated. Anything beyond that is fleetingly unlikely/almost impossible unless he's hiding millions in income.

So the IRS is not "OK" with just reporting at least as much as the 1099s show. Doing that will prevent getting an automatic letter from the service center, but it certainly isn't good enough to meet the legal obligation of reporting all your income.

Again, we're talking strictly about the computer system.

 

[mjpayne]

I did report the income and included the 1099 in the tax preparation software. Back in the days of paper returns, we had to send in copies of the 1099. So I guess back then the person processing the returns could do the matching then. Today with efile, do the 1099s we enter get sent in with our returns?

The numbers entered into the system get sent, yes, either that or the sum of your Sch C gross income. The actual paper copy of the 1099 you got? No. Basically, the IRS gets your 1040's name, business name, EIN, and SSN and matches it up to the employer's filed 1099-MISC EIN/SSN and name/business name. You shouldn't trigger any alarms unless you report less gross income than the 1099-MISC sum tied to you for that year.

 

[Taxing Matters]

Unless you're a programmer who works for the IRS or someone involved with the matter, there's no way for you to know exactly how the IRS handles such matters.

I used to be an officer for the IRS and later an IRS attorney, and yes, I do know how the IRS handles such things. I've also dealt with clients who have had these issues.

However, given that some 1099s are handwritten and given that business names can easily have their names misspelled (LLC vs L.L.C.), I'm betting in practice the IRS enters the EIN/SSN first and sees if the name is at least close to what's on the SS-4, 1040, or Sch C and goes from there if there's a mismatch initially.

I cannot disclose how exactly the IRS does it, but it is not quite what you describe. The computer looks for a name and TIN match, though you are correct that minor differences like LLC vs L.L.C. certainly will not cause mismatches. But having the DBA name rather than the individual's name on the 1099 certainly could cause a mismatch as those two names are typically not remotely similar.

I'm strictly talking about their computer matching system, which checks if he reported at least as much as the sum of 1099-MISCs issued to his EIN/SSN."At minimum," if he gets caught, he'll get a computer-generated notice saying he failed to report $1,000 or however much in Sch C income (if his 1099-MISC sum is > his Sch C gross income) and have to pay a little interest as well as additional tax due. Sometimes they'll attach a small penalty, but those can be abated. Anything beyond that is fleetingly unlikely/almost impossible unless he's hiding millions in income.
Again, we're talking strictly about the computer system.

If income underreporting is caught on a computer match and the amount is not very large the IRS might not impose a penalty. But it doesn't take millions of dollars to generate a significant penalty. If the IRS determines either (1) the underpayment was due to negligence or (2) if the amount of the underreported tax exceeds the greater of (a) 10% of the total tax required to be shown on the return or (b) $5,000, then a penalty of 20% of the underreported tax applies. IRC § 6662. The computer itself cannot determine negligence so you won't see (1) on a computer match, though you will see it in an audit.

But you will see the computer apply the penalty in (2) since that is a simple math formula. So suppose that Joe Blow reports on his tax return $50,000 in tax but leaves off income, and that with the correct amount of income the tax would have been $60,000. The amount of the underreported tax of $10,000 is more than 10% of the tax required to be reported ($60,000 x .10 = $6,000) and the unddereported tax also exceeds $5,000 so the accuracy related penalty of IRC § 6662 applies. That penalty is 20% of the underreported tax, thus $10,000 x .20 = $2,000 penalty. Whether you consider that amount "small" depends on your perspective. But for a lot of people $2,000 is certainly not trivial.

 

[Taxing Matters]

The numbers entered into the system get sent, yes, either that or the sum of your Sch C gross income. The actual paper copy of the 1099 you got? No. Basically, the IRS gets your 1040's name, business name, EIN, and SSN and matches it up to the employer's filed 1099-MISC EIN/SSN and name/business name. You shouldn't trigger any alarms unless you report less gross income than the 1099-MISC sum tied to you for that year.

Again, the suggestion that it is ok to only report the income that is reported on 1099s is not correct. All the income, whether reported on a 1099 or not, must be reported and should the IRS find that the taxpayer did not do that, the taxpayer is subject to penalties for that. Sure, the computer 1099 matching program wouldn't catch it, but other programs of the IRS might catch it and flag the return for audit.

 

[mjpayne]

I used to be an officer for the IRS and later an IRS attorney, and yes, I do know how the IRS handles such things. I've also dealt with clients who have had these issues.

So you personally worked with their computer system when it sent an error report showing a 1099-MISC image that was filed with the IRS but could not be matched automatically to a tax return due to an incorrect name?

I cannot disclose how exactly the IRS does it, but it is not quite what you describe. The computer looks for a name and TIN match, though you are correct that minor differences like LLC vs L.L.C. certainly will not cause mismatches. But having the DBA name rather than the individual's name on the 1099 certainly could cause a mismatch as those two names are typically not remotely similar.

So if they have a 1099 EIN match with an EIN on a Sch C they won't bother to connect the two because the name doesn't match?

If income underreporting is caught on a computer match and the amount is not very large the IRS might not impose a penalty. But it doesn't take millions of dollars to generate a significant penalty. If the IRS determines either (1) the underpayment was due to negligence or (2) if the amount of the underreported tax exceeds the greater of (a) 10% of the total tax required to be shown on the return or (b) $5,000, then a penalty of 20% of the underreported tax applies. IRC § 6662. The computer itself cannot determine negligence so you won't see (1) on a computer match, though you will see it in an audit.

But you will see the computer apply the penalty in (2) since that is a simple math formula. So suppose that Joe Blow reports on his tax return $50,000 in tax but leaves off income, and that with the correct amount of income the tax would have been $60,000. The amount of the underreported tax of $10,000 is more than 10% of the tax required to be reported ($60,000 x .10 = $6,000) and the unddereported tax also exceeds $5,000 so the accuracy related penalty of IRC § 6662 applies. That penalty is 20% of the underreported tax, thus $10,000 x .20 = $2,000 penalty. Whether you consider that amount "small" depends on your perspective. But for a lot of people $2,000 is certainly not trivial.

The OP made it sound like the vast majority of his income is from non-1099-MISC filing clients. I saw no suggestion from him that he wasn't reporting all of his income. Those two make it seem like he's going to be reporting way more than the total of the 1099s if anything which is why I was telling him not to worry.

Again, the suggestion that it is ok to only report the income that is reported on 1099s is not correct. All the income, whether reported on a 1099 or not, must be reported and should the IRS find that the taxpayer did not do that, the taxpayer is subject to penalties for that. Sure, the computer 1099 matching program wouldn't catch it, but other programs of the IRS might catch it and flag the return for audit.

Once again you're reading too much into my post. I'm strictly talking about what will or will not get OP a notice from the IRS as far as the 1099s are concerned. It sounded like OP was worried something would happen because he reported $5,000 but the IRS only has $4,000 because a 1099 for $1,000 didn't have his name on it.

 

[Taxing Matters]

I don't know what happens when the IRS gets a 1099 with a business name and no EIN number on it. I do put my business name on my schedule C. Will the IRS use that information to match it?

If the IRS gets a 1099 with just the name and no TIN the computer will reject it and someone at the Service Center will attempt to manually match it. If the name is unique enough and found on the IRS entity system the employee may be able to make a good match. Either way, the filer of the 1099 is likely to get penalized since the TIN is required on the 1099.

 

[Taxing Matters]

So you personally worked with their computer system when it sent an error report showing a 1099-MISC image that was filed with the IRS but could not be matched automatically to a tax return due to an incorrect name?So if they have a 1099 EIN match with an EIN on a Sch C they won't bother to connect the two because the name doesn't match?

While at IRS I personally had cases in which name/TIN mismatches occurred and to resolve them I used the same system that the service center uses to resolve their entity mismatch issues. So I do know what they have to do to make the matches. If the IRS has an EIN and name on a 1099 that do not match the service center personnnel will attempt to figure out the correct payee. But the IRS does not assume when there is a mismatch that the TIN reported is necessarily correct. After all, people make errors on the TIN too. What the IRS looks for is a name and TIN match with the entity database that it has. This database is different from the return transcripts. Thus the business name on the Schedule C return transcript is not helpful for matching purposes. If the business name is on the entity system, on the other hand, that is useful. And that is why I said earlier that it might be useful for the OP to have the business name associated with the EIN. If it is on the entity system and the EIN is correct, the IRS will pull up the entity info associated with the EIN, see the business name on the entity data and while it is not the name of the taxpayer, the IRS rep will be able to see that the taxpayer has a business with that name and make a match. If the name is not on the entity database then the IRS may not be able to make a successful match.

Bear in mind that even today the IRS computers are not as sophisticated and capable as large corporation business systems (e.g. what large banks, Google, Apple, etc can do). The Congress has never appropriated the money needed for the IRS to get a truly world class computer system. While in the long run the federal treasury would benefit from that kind of investment, the standard political wisdom in Washington is that no member of Congress ever wins elections by voting more money for the IRS. It makes for misguided policy, but it is what it is.

Once again you're reading too much into my post. I'm strictly talking about what will or will not get OP a notice from the IRS as far as the 1099s are concerned. It sounded like OP was worried something would happen because he reported $5,000 but the IRS only has $4,000 because a 1099 for $1,000 didn't have his name on it.

If that was the concern then I agree with you the OP doesn't have to worry about that.

 

[mjpayne]

While at IRS I personally had cases in which name/TIN mismatches occurred and to resolve them I used the same system that the service center uses to resolve their entity mismatch issues. So I do know what they have to do to make the matches. If the IRS has an EIN and name on a 1099 that do not match the service center personnnel will attempt to figure out the correct payee. But the IRS does not assume when there is a mismatch that the TIN reported is necessarily correct. After all, people make errors on the TIN too. What the IRS looks for is a name and TIN match with the entity database that it has. This database is different from the return transcripts. Thus the business name on the Schedule C return transcript is not helpful for matching purposes. If the business name is on the entity system, on the other hand, that is useful. And that is why I said earlier that it might be useful for the OP to have the business name associated with the EIN. If it is on the entity system and the EIN is correct, the IRS will pull up the entity info associated with the EIN, see the business name on the entity data and while it is not the name of the taxpayer, the IRS rep will be able to see that the taxpayer has a business with that name and make a match. If the name is not on the entity database then the IRS may not be able to make a successful match.

Bear in mind that even today the IRS computers are not as sophisticated and capable as large corporation business systems (e.g. what large banks, Google, Apple, etc can do). The Congress has never appropriated the money needed for the IRS to get a truly world class computer system. While in the long run the federal treasury would benefit from that kind of investment, the standard political wisdom in Washington is that no member of Congress ever wins elections by voting more money for the IRS. It makes for misguided policy, but it is what it is.



If that was the concern then I agree with you the OP doesn't have to worry about that.

Ah, OK. I was under the impression the IRS would still try to match the business name/EIN combo on the 1099 with the business name/EIN combo on the 1040's Sch C even if the match with the SS4 failed. Seemed pretty straightforward to me, but of course I can be wrong as I'm not an IRS programmer.

 

[Taxing Matters]

Ah, OK. I was under the impression the IRS would still try to match the business name/EIN combo on the 1099 with the business name/EIN combo on the 1040's Sch C even if the match with the SS4 failed. Seemed pretty straightforward to me, but of course I can be wrong as I'm not an IRS programmer.

It's an old system and the IRS costs out the transcription of each line on every return it processes. It does not transcribe everything; only those that the IRS deems is worth the cost that it takes to do it. Moreover, the information the IRS has is not contained in one gigantic database but rather spread out in various separate databases. There are a variety of reasons for that, but it means that the system is bit clunkier in some respectes than most people would think. The IRS isn't the only agency to suffer from outdated computers; some other agencies have that problem, too. Others get more money than they need. For example, the Agriculture Department years ago was favored by the Congress and had more computer capability than it needed. As a result the USDA had the system that was used for payroll processing for a number of federal agencies, including IRS. My pay statements and W-2s when I was at IRS actually were processed by the USDA, not Treasury or IRS.

 

[mjpayne]

It's an old system and the IRS costs out the transcription of each line on every return it processes. It does not transcribe everything; only those that the IRS deems is worth the cost that it takes to do it. Moreover, the information the IRS has is not contained in one gigantic database but rather spread out in various separate databases. There are a variety of reasons for that, but it means that the system is bit clunkier in some respectes than most people would think. The IRS isn't the only agency to suffer from outdated computers; some other agencies have that problem, too. Others get more money than they need. For example, the Agriculture Department years ago was favored by the Congress and had more computer capability than it needed. As a result the USDA had the system that was used for payroll processing for a number of federal agencies, including IRS. My pay statements and W-2s when I was at IRS actually were processed by the USDA, not Treasury or IRS.

I guess you're saying they may or may not match up his 1099-MISC that way depending on their workload and the particular state of their computer systems today. I understand. Nevertheless, my advice to OP is not to worry so much. As long as he reports all his income and does a reasonably good job of providing all his correct information to his employers when asked to do so, he should be fine. Just keep an eye on your 1099-MISC and compare them to your records to make sure you didn't miss anything, like if someone who paid you $700.00 accidentally reported it as $70000. Then you need to get the 1099 amended before you file your return.