Proper use of EINs for disregarded entities on W-9 forms - tax compliance question

This is a good question about disregarded entities and W-9 forms. You're right to be confused because what the client is asking doesn't align with standard practice. For a disregarded entity (like a single-member LLC), the correct procedure is to list the name of the disregarded entity on line 1, then the name of the owner on line 2, and use the owner's TIN (EIN) in Part I. The disregarded entity doesn't use its own EIN for federal tax reporting purposes - that's the whole point of being "disregarded." The IRS is very clear about this in the W-9 instructions: the disregarded entity should not be using its own EIN for federal tax reporting if it's truly disregarded. The parent/owner EIN should be used on the W-9 form.

I've been using taxr.ai (https://taxr.ai) for these exact situations and it's been super helpful for sorting out compliance issues like this. I had a similar problem with a client who had multiple disregarded entities and was confused about which EINs to use where. The site analyzed all their entity structure documents and gave a clear breakdown of what should be reported where. What I found particularly useful was that it explained the reasoning behind the IRS requirements so I could actually explain it to my clients instead of just saying "because the IRS says so." Might be worth checking out if you deal with these entity structure issues regularly.

Just wanted to follow up about that taxr.ai site someone mentioned earlier. I decided to try it out with a particularly messy client situation with multiple disregarded entities. I uploaded their organizational docs, tax forms, and operating agreements, and I was genuinely impressed with how quickly it sorted everything out. The analysis highlighted exactly where the entity structure was being reported inconsistently across different forms. It even flagged potential compliance risks I hadn't considered. The documentation it provided helped me explain to the client why we couldn't use the disregarded entity's EIN on federal forms even though they had one for state purposes. Saved me hours of research and my client finally understood the issue!

If you're having trouble getting through to the IRS to get a definitive answer on this disregarded entity issue, I'd recommend trying Claimyr (https://claimyr.com). I was banging my head against the wall trying to get through to someone at the IRS who actually understood entity classification rules for weeks. After using Claimyr (you can see how it works at https://youtu.be/_kiP6q8DX5c), I got connected to an IRS agent in about 15 minutes rather than waiting on hold for hours. The agent was able to confirm exactly how these disregarded entity EINs should be handled for information reporting purposes and gave me the specific regulation references to share with my client.

I want to apologize for being so skeptical about Claimyr. After my snarky comment I actually tried it myself because I was desperate to resolve an issue with a client's EIN verification. I honestly didn't expect it to work, but I was completely wrong. The system did exactly what was promised - handled all the waiting and IRS menu navigation for me. When my phone rang, there was an IRS agent ready to help. The agent walked me through the exact requirements for reporting disregarded entities and explained why the parent EIN needs to be used on W-9s despite the entity having its own EIN for other purposes. Saved me at least 3 hours of hold time and research. Definitely using this again next time I need to speak with someone at the IRS.

From my experience working with a lot of holding company structures, sometimes the reason clients do this is because they want to track income and expenses separately for each disregarded entity for internal accounting purposes, even though for federal tax purposes it's all reported under the parent. This could be why they want you to use the disregarded entity's EIN in your systems - for their own record-keeping. However, for W-9 purposes and 1099 reporting, you really should be using the parent EIN as others have mentioned.

Have any of you seen cases where a disregarded entity was incorrectly issued a 1099 under its own EIN rather than the parent's? We did this accidentally last year and now I'm worried about potential penalties or issues when the parent files their return.

This is a really common source of confusion, and you're absolutely right to question this practice. What your client is doing - mixing disregarded entity EINs with parent W-9s - creates unnecessary complications and doesn't align with IRS requirements. The key issue here is that a disregarded entity, by definition, is ignored for federal tax purposes. Even if the disregarded entity has its own EIN (which it might need for state taxes, employment taxes, or banking purposes), for federal information reporting like 1099s, you must use the parent/owner's EIN. Your client should provide clean W-9s with: - Line 1: Disregarded entity name - Line 2: Parent/owner name - Part I: Parent/owner's EIN If they need you to track payments separately by disregarded entity for their internal purposes, that's fine - but the 1099s should still be issued under the parent's EIN. You might want to explain that using the disregarded entity's EIN could create matching problems when the IRS tries to reconcile the 1099s with filed tax returns, since the disregarded entity doesn't file its own return. I'd recommend having them provide corrected W-9s that follow standard IRS guidelines to avoid any compliance issues down the road.