Serving all 50 states with local offices in California, Florida, Illinois, Nebraska, New Mexico, Tennessee, Texas, and Virginia.
 Call Us (888) 992-4952
  My Account        0 items -$0.00

Which LLC Needs a FEIN?

  1. Home
  2. Knowledge Base
  3. Business Organization
  4. Taxes
  5. Which LLC Needs a FEIN?

Before I begin, please understand that the IRS has many rules that govern FEIN’s, when they are required and the issues behind applying for FEIN’s. If you want to get an answer straight from the IRS, start here.

What I tell people — subject to specific rules of the IRS and your specific circumstances — is that a FEIN is required for ANY COMPANY (LLC or otherwise) that will have a bank account or have W2-based employees subject to withholding.

In the context of a “parent-child LLC” setup used to maintain anonymity in a state that otherwise doesn’t permit anonymity (read more about this here), the child would be considered the “transacting entity,” and therefore the LLC you’re conducting business with. This LLC almost certainly needs a FEIN, if it’s collecting revenue from customers, using a bank account to transact business, and/or paying W2-based employees and performing withholding as required by law.

The more difficult question is, does the “parent anonymous LLC”, acting as a the holding company, need a FEIN? The answer is, it depends. Does it need a bank account? Then, yes. Will it have its own employees? Then, yes. Sometimes the answers to these questions depends on how you pay yourself from the transacting, child entity. If you are a W2 employee of the child entity, such that there are NO PROFITS AND NO DISTRIBUTIONS, then perhaps the parent anonymous LLC will not need a bank account, because it’s not handling any cash.

What we don’t want to see, is you paying yourself directly the distributions from the transacting, child entity. This is because YOU DO NOT PERSONALLY OWN the transacting, child entity. The parent anonymous LLC owns the transacting, child entity, and therefore any distributions must be paid directly to the parent anonymous LLC. This means, under this scenario, that the parent anonymous LLC would need its own bank account, and therefore a FEIN, to receive such distributions.

Please consult with a CPA or appropriate tax advisor, to help you understand, setup and properly report the tax structure for such an enterprise. My comments above are meant to be general in nature, and can certainly vary depending on your unique circumstances. We are only a law firm, and do not give out specific tax advice.

Special Note About California Residents

The State of California, specifically the Franchise Tax Board (read more here), has a number of rules that could require the “parent company” in our recommendation above, to register in the State of California (thereby destroying its anonymity).

The trick is, the parent company should NOT BE AN OWNER of the child, transacting entity. Instead, the parent company should be a MANAGER of the child, transacting entity. This means the parent (in the case for California only), will not be in a position to be handling money — at all — for the setup. Therefore, no FEIN.

Was this article helpful?

Related Articles

Leave a Reply

Your email address will not be published.

top