How to Secure a New EIN After the Business Owner's Death
With the death of a business owner who was operating their business as a sole proprietorship, the executor of the estate typically must secure a new employer identification number (EIN) to wrap up the business. If the business was a general partnership, the remaining partner is responsible for handling this task since the original partnership ends with their partner's death. The easiest way to secure a new EIN after a business owner's death is to apply for one electronically on the IRS website.
Applying for an EIN
Visit the IRS website.On IRS.gov, you can find numerous resources regarding how to apply for an EIN by simply typing "EIN" in the keyword search box on the home page. Before you begin the application process, confirm a new EIN is necessary and find out what information will be required to complete the application.
- Generally, as executor of the estate, you must get a new EIN for a business that was run by the deceased person as a sole proprietorship.
- However, if the deceased person did not previously have an EIN for the business, it may not be necessary for you to get one now.
- Sole proprietorships are not considered distinct from the person for tax purposes, so it's possible that a sole proprietor simply used their own Social Security number for business dealings.
- For example, if the deceased person worked as a freelance graphic designer from their own home, they may have used their own Social Security number for contracts with clients rather than keeping the business separate.
- As a general rule, if there was an EIN for the business while the person was alive, you need a new one to properly deal with the business and its assets after the person's death.
Complete the online application.The online EIN application is set up interview-style, where you are asked questions and supply the answers before moving on to the next item. This application format typically is easier and more straightforward than filling out the paper form.
- The online application is available Monday through Friday from 7:00 a.m. to 10:00 p.m. Eastern time.
- If you want, you do have the option of applying for an EIN by completing Form SS-4 and faxing or mailing it to the IRS. However, this method is slightly more difficult and you'll have to wait for the new EIN.
- You must provide information about the business – which you should be able to gather from the deceased person's records – as well as personal information about yourself as the responsible person for the new EIN.
Print your confirmation notice.Once you've submitted your application, you will immediately be issued the new EIN for the business. While you have the option to download and save an electronic copy of the notice, you also should print a paper copy for the estate's records.
- Keep the EIN in a safe place as you will need to use it to update business records and information when you dissolve the business or distribute it according to the requirements of the will.
- While it may take a few days for the new EIN to show up in the IRS's taxpayer records, you should still be able to use it in the meantime for other tasks such as opening a bank account.
Dissolving the Business
Review the will.If the deceased person's business is mentioned in the will, you must follow the instructions there regarding what is to be done with the business. However, a sole proprietorship typically dies with the business owner.
- It is part of your fiduciary duties as the executor or personal representative of the estate to do everything in your power to ensure that assets are distributed according to the deceased person's intentions.
- If the deceased person has indicated that they want the business as a whole to pass onto a beneficiary such as their child, contact that beneficiary as soon as possible and find out what they want to do with the business before you start dissolving it and liquidating assets.
- You may have to go to the probate court to get permission to continue to operate the business if the will passes the business to a beneficiary in its entirety.
Inventory business assets.While as executor you must provide an inventory for the estate as a whole, you should make a separate inventory for the business and keep those assets apart from the personal assets of the deceased person.
- You can use the same form to inventory business assets as you used to inventory the deceased person's personal assets.
- You don't need to inventory every item individually, but you do need to categorize items and provide a general estimate of the value of all items included in that category.
- If the business has perishable items, these need to be sold off or disposed of as quickly as possible rather than left to rot. This is a particular concern if the deceased person owned a restaurant or similar business.
Dissolve the business with state and local government agencies.Particularly if the deceased person owned a brick-and-mortar store, or met with clients, they typically would have had to register their business with the state and local government.
- Check the website of the state's secretary of state website for information on dissolving a sole proprietorship, and to find out who you need to notify.
- Although the requirements for dissolving a sole proprietorship are considerably less formal than those for dissolving a corporation or LLC, at a minimum you typically must notify the business licensing and taxing authority so the business is no longer charged taxes or registration fees.
Cancel any permits and licenses.If the business was required to maintain any permits or licenses to operate, you must contact the agencies that issue and regulate those licenses or permits and let them know the business is being dissolved.
- Failing to cancel a permit or license could result in the estate being charged significant taxes or penalties if fees aren't paid or reports aren't filed when due.
- Particularly if you've decided to liquidate the business, you don't want the business to continue to be subject to various regulations or requirements that are conditions of maintaining a valid license.
- You may have to show your court certificate to the agencies that issued the permits or licenses to prove that you have authority to cancel them. You also may need to show a death certificate.
Abandon any fictitious business names.Even with a sole proprietorship, the deceased person may have registered a fictitious business name, or "DBA" (which stands for "doing business as") with the state.
- The county clerk should have a form you can complete to file an "abandonment" notice in the local newspaper.
- The state's secretary of state typically maintains the registered name database. You typically can contact that office and ask them to remove the deceased person's DBA from the database.
- You may have to fill out a form or provide documentation certifying you as executor of the deceased person's estate.
Handling Debts and Taxes
Use the new EIN to set up a bank account for the business.As executor, you will need to set up a separate bank account for the estate to manage business assets and make payments to business creditors.
- Although you may have already set up a bank account for the estate as a whole, a separate account for the business keeps the assets separate.
- Keeping assets separate is particularly advised if the deceased person generally maintained a separation between business and personal finances and had a separate bank account for the business.
Notify business creditors.Any creditors that loaned the deceased person money specifically for the business must be notified using the same procedures by which you notified that person's personal creditors.
- You'll have to review the deceased person's business accounts to identify creditors. For those you find, notify them directly using the probate court form that you used to notify the personal creditors.
- Typically you must send these notices using certified mail with returned receipt requested. Once you get the green card back, keep it in the estate's files for the business.
- The probate court gives creditors a limited period of time to file a claim if they want to collect money from the estate.
- When a creditor files a claim, you'll have the opportunity to review it and determine whether you will accept it or dispute the validity of the debt and require more information.
Terminate leases and contracts.If the business has an open commercial lease for store or office space, you must notify the landlord and terminate that lease according to its provisions. Any open contracts, such as those with suppliers or vendors, also must be terminated.
- Find the appropriate parties by going through the deceased person's business files, and contact them as soon as possible to notify them of the situation.
- Landlords or others may require a copy of the death certificate before they terminate the contract, so have those ready.
- Leases and contracts almost always include a clause that provides for immediate, no-fault termination upon the death of one of the parties.
- If the deceased person had any credit cards or other revolving lines of credit specific to the business, you'll want to close those as well.
- You probably want to notify any business insurers of the person's death as soon as possible, but don't terminate the insurance contracts until the business is liquidated and no longer operating. Otherwise the estate could face liability issues.
Sell business assets as necessary.If there isn't enough money to satisfy the business debts, you must sell the assets of the business to cover those amounts. Typically you would do this by holding a business liquidation sale.
- In a liquidation sale, inventory as well as fixtures and office furniture are sold. You can contract with a liquidator who specializes in running these sales.
- To sell some assets, you may need to first get the court's permission, depending on how the business was treated in the will.
- Particularly if the will passes the business as a whole to a beneficiary, it's part of your fiduciary duty to maintain that business as an asset for that beneficiary and keep it whole to the extent possible.
- In that situation, court permission may be required to liquidate the business.
- When the business is liquidated, the proceeds will be deposited in the estate business account to pay off the business creditors.
Make payments to creditors.Once the business is liquidated, you must pay all business creditors with accepted claims out of funds from the estate's business bank account. If there isn't enough money to cover the business debts, you'll have to work with the court to decide how they'll be paid.
- Each state has a hierarchy of creditors, and typically you'll just go down that list.
- However, keep in mind that sole proprietors are personally liable for the debts of their businesses.
- Since the business was a sole proprietorship, the court may order you to pay business creditors from the regular estate assets if there isn't enough money to cover the debts with business assets alone.
- If the business assets are enough to cover the business debts, any money remaining would either go to the beneficiary who was designated in the will to receive the business, or would be transferred into the general estate account.
- At that point, the business is dissolved, and you can close the business bank account.
File final income tax returns for the deceased person.Since income for a sole proprietorship is reported on a regular individual income tax return, you'll typically need to complete the tax returns for the business when you complete the deceased person's final tax return.
- Keep in mind that this tax return covers income earned by the deceased person while they were still alive, not anything having to do with the dissolution of the business after their death.
- The tax return itself will be filed under the deceased person's Social Security number, not the new EIN you secured after their death.
- When you indicate the business's EIN on the tax returns, use the old EIN used by the deceased person, not the new one, since the income and expenses you're reporting were produced during that person's life.
- Small business taxes can be complicated. Hire a tax professional to assist you with this task so you can ensure that you've adequately fulfilled your fiduciary duty as executor by taking all deductions the person would have taken while alive.
- If the deceased person had an accountant or other tax professional who regularly completed and filed their business taxes, you may want to use that same person as they'll have familiarity with the business.
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