Journal of Passthrough Entities (July-August 2014)

Adam J. Tutaj


Choice-of-entity literature is replete with commentary on the differences between entity forms and the substantive tax effects of moving between these forms. However, the seemingly ministerial consideration of Employer Identification Number (EIN) retention can also be a major issue. Having to change an EIN is certain to bring at least some level of administrative headache and cost, just by virtue of the payroll tax mechanics alone. Nevertheless, for some businesses, this can be a much bigger concern with real economic significance. Nowhere is this more keenly felt than on the “provider” side of the professional medical and allied health fields, where the regulation and mechanics of billing and collecting for services has caused the EIN to take on a significance almost on par with the form of entity itself.

When billing Medicare or Medicaid, a medical practice must include its tax identification number—usually an EIN—as well as a separate 10-digit unique identification number for medical billing purposes (the “National Provider Identifier”). Similarly, most private insurers require a practice to include its EIN as part of the medical claims process. Any change in a practice’s EIN may cause significant delay in the processing of claims reimbursement, or confusion as to payments that results in costly and time-consuming audits and reviews. Moreover, many private insurers rightly or wrongly—regard a change in EIN as tantamount to a change of the practice itself; so much so, that they may even use this event as an opportunity to require the practice to enter into a new provider contract for reimbursement (which may not be as favorable going forward). Accordingly, a practice with a number of decent provider agreements in place is going to be loath to upset its arrangements by having to change its EIN.

Additionally, apart from the usual liability and tax concerns that largely govern initial and subsequent choice of entity decisions, medical practices are often subject to a variety of regulatory considerations at the state level—particularly the so-called “corporate practice of medicine” rules—that may limit the entity forms available to them and, sometimes, may compel a change of entity form if they were not organized correctly at the outset. For example, in some states physician practices are constrained to use “professional corporations” or forms of professional partnerships in which each of the shareholders or partners remain personally liable for their own malpractice. Relatively newer entity forms, such as LLCs, may not be permitted.

This column will review the formal guidance—and some of the administrative folkways—associated with changing and maintaining EINs in a couple of the most common types of choice-of-entity transitions. In this regard, it is assumed that the decision to change entity forms has already been made—or compelled—based on ordinary business and tax considerations. Thus, the focus is simply on the mechanics by which the transition can be made so as to preserve an existing EIN that is a significant concern.

Form Guidance from the IRS

IRS Publication 1635—entitled “Understanding Your EIN”—purports to summarize the transactional circumstances under which a variety of entity forms need to obtain a new EIN. Publication 1635 provides the following general rules:


A corporation will need a new EIN if any of the following are true:

  • It is a subsidiary of a corporation and currently uses the parent’s corporate EIN
  • It becomes a subsidiary of a corporation
  • It becomes a partnership or a sole proprietorship
  • It creates a new corporation after a statutory merger
  • It receives a new corporate charter

A corporation will not need a new EIN if any of the following are true:

  • It is a division of a corporation
  • After a corporate merger, the surviving corporation uses its existing EIN
  • It declares bankruptcy
  • Its business name changes
  • It changes its location or adds locations (stores, plants, enterprises or branches)
  • It elects to be taxed as an S corporation by filing Form 2553
  • After a corporate reorganization, it only changes identity, form or place of organization
  • It is sold and the assets, liabilities and charters are obtained by the buyer

A corporation will need a new EIN if any of the following are true:

  • It incorporates
  • One partner takes over and operates as a sole proprietorship
  • The partnership is terminated (no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership) and a new partnership is begun

A corporation will not need a new EIN if any of the following are true:

  • It declares bankruptcy
  • Its name changes
  • The location of the partnership changes or new locations are added
  • The partnership terminates under Code Sec. 708(b)(1)(B). A partnership shall be considered terminated if within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits to another partner. If the purchaser and remaining partners immediately contribute the properties to a new partnership, they can retain the old partnership EIN.

A few of the scenarios described in this form guidance as requiring a new EIN are subject to a number of (unstated) qualifications, exceptions and folkways in this post-“check-the-box” era of cross-species mergers and conversions. Indeed, the breadth of expression in these “general rules” could be quite misleading if they are relied upon uncritically. We will explore now a couple of fairly common transition scenarios where an entity can structure its transition in a manner that will allow it to retain its existing EIN—namely, those instances where (i) a corporation becomes a partnership or disregarded entity; or (ii) a partnership incorporates or becomes a disregarded entity.

Moving from a Corporation to a Partnership or Disregarded Entity

The “check-the-box” regulations, and their interplay with the IRS’s other guidance in the areas of tax-free reorganizations and formless conversions, appear to offer a means by which a corporation can become a partnership, or a disregarded entity, and still retain its original EIN—seemingly contrary to the general rule as broadly stated in Publication 1635.

To begin, Reg. §301.6109-1(h)(1) provides that “[a]ny entity that has an employer identification number (EIN) will retain that EIN if its federal tax classification changes under §301.7701-3” (emphasis added). With this clear statement as a starting point, the next question is whether a corporation can be an entity eligible to make an election under the “check-the-box” regulations.

Only a business entity that is not classified as a “corporation” under Reg. §301.7701-2(b)(1), (3), (4), (5), (6), (7) or (8) (an “eligible entity” ) can elect its federal tax classification under the “check-the-box” regulations.3 This would exclude any entity formed as a corporation under state law.4 Importantly, however, this list of ineligible entities does not include entities that are classified as a “corporation” solely by virtue of Reg. §301.7701-2(b)(2) — i.e. an association (as determined under Reg. §301.7701-3). This means that an LLC that has elected to be taxed as an association should remain an eligible entity (assuming that the applicable state law under which the LLC is organized does not otherwise describe the entity in such a way as to trip the application of a different exclusion).5 This possibility of a “check-the-box” election creates some structural alternatives that—while clearly adding additional transaction cost—may be worth it for the clear retention of the EIN that Reg. §301.6109-1(h)(1) affords. This is where the IRS’s guidance on tax-free reorganizations comes into play.

In Rev. Rul. 73-526, the IRS ruled that a corporation’s previously assigned EIN should be used by the surviving corporation in a statutory merger or reincorporation qualifying as an “F” reorganization.6 In reaching this conclusion, the IRS noted the broad language of Code Sec.
6011(b) and Code Sec. 6109(a), by which Congress granted the IRS discretionary authority to require the use of whatever identifying number is deemed necessary or helpful for the proper identification of a taxpayer, employer, employee or other person.

This same result was extended, in LTR 200528021,7 to a situation in which an S corporation proposed to convert to an LLC. The new LLC then proposed to make an election, under Reg. §301.7701-3, to be treated as an association taxable as a corporation for federal tax purposes effective as of the date of conversion. Against this background, the IRS ruled that the conversion qualified as an “F” reorganization and, per Rev. Rul. 73-526, the resulting LLC would retain the EIN of the converted corporation.

Thus, a corporation seeking to change to a partnership form (in the case of a corporation with multiple shareholders) or a disregarded entity (in the case of a corporation with a single shareholder), should be able to preserve its existing EIN in the following manner:

A. Form a new LLC and elect (via Form 8832) to be taxed as an association effective as of the date of formation.
B. Merge the corporation into the new LLC in a manner that would qualify as an “F” reorganization—with the new LLC as the surviving entity. Per Rev. Rul. 73-526, the surviving LLC should be permitted to retain the EIN of the original corporation merged or converted.
C. Following the “F” Reorganization, the surviving new “association” LLC should be eligible to file another election (via Form 8832) to classify itself as either a partnership or disregarded entity (depending on how many shareholders it has). Because the association LLC already has an EIN—namely the original EIN of the predecessor corporation—the resulting partnership should be permitted to retain this same EIN.8

This follow-on “check-the-box” election by the new “association” LLC is only immediately available because the LLC is a newly formed entity that only made a “check-the-box” election effective on the date of its formation—thus, the 60-month limitation of Reg. §301.7701-3(c)(1)(iv) would not yet apply.9 Accordingly, the new LLC —post “F” reorganization—would still be able to elect partnership status via another Form 8832 filing and, in the process, retain the EIN of its corporate predecessor. (However, at that point, the resulting partnership itself would then be ineligible to make any further “check-the-box” elections for 60 months.)10

It is a little less clear whether the same result would obtain in a setting where a corporation simply converts into an LLC electing association status, in the manner described in LTR 200528021— i.e., a qualified “F” reorganization resulting from the conversion of a corporation into an LLC electing association treatment as of the date of conversion. The one exception to the 60-month limitation rule purports to apply to a “newly formed eligible entity” and only where the election is “effective on the date of formation.” Under many states’ entity conversion statutes, the resulting converted entity is deemed to be the “same” entity without interruption as the converting entity.11 Accordingly, there is at least a question as to whether an LLC resulting from the conversion of an existing corporation would be regarded as a “newly formed” entity for purposes of applying the exception to the 60-month rule—with the result that new LLC may not be eligible to make a follow-on election into partnership status for another 60 months. However, the administrative folkways in this area appear to be much more flexible, and may render these
considerations academic.

Section of the Internal Revenue Manual (dated 01-01-14) sets forth the procedures for establishing, maintaining and updating domestic LLCs on its Business Master File. These procedures indicate that, if a corporation files papers with its state of organization to convert to an LLC, the IRS will generally permit the resulting LLC to use the same EIN assigned to them as the corporation—regardless of whether (i) the resulting LLC will be classified as a partnership, a C corporation, an S corporation or a disregarded entity, or (ii) whether the conversion to an LLC entails an “F” reorganization. Rather, the focus simply appears to be whether that the IRS receives (i) proof of the corporate conversion, and (ii) a timely filed Form 8832 for the LLC (or Form 2553 in the event of an LLC electing S corporation status, which shall be deemed to be a Form 8332 filing).12

Moving from a Partnership to a Corporation or Disregarded Entity

Here again, the mechanics of the “check-the-box” regulations appear to create an exception to the broadly stated general rule of Publication 1635 that the incorporation of a partnership, or operation of a partnership as a “sole proprietorship,” requires the resulting business to get a new EIN.

The IRS has ruled that the conversion of an existing “non-LLC” partnership (i.e., a general partnership, limited partnership or LLP) into an LLC also classified as a partnership does not require the resulting LLC to get a new EIN.13 Once the partnership takes the LLC form, a couple further options become available.

If the resulting LLC has more than one member and desires to become a corporation, it can make an election under Reg. §301.7701-3 (via Form 8832) to be classified as an association taxed as a corporation, and retain its original EIN under the rule set forth in Reg. §301.6109-1(h)(1) . Once the LLC is a corporation for tax purposes, a subsequent conversion to a corporation under state law would essentially be a name change as far as the IRS is concerned—not a change in tax status—and similarly would not require a change in EIN.14

Alternately, the resulting partnership/LLC could opt to reduce its membership to just a single member, in which case the LLC (absent an election to be treated as an association) automatically becomes a disregarded entity—which, while not strictly a “sole proprietorship,” has the same functional effect. So long as the LLC is using the EIN it retained from its original partnership form for employment tax purposes, it may continue to use that same EIN for employment tax purposes, but must use the TIN of its owner for all other federal tax purposes.15


The new procedures for the re-assignment of EINs under the Internal Revenue Manual § suggest that there may be a fair bit of flexibility in practice that is not readily apparent from the published authority. However, where a business contemplating a change in entity form finds itself in circumstances where the preservation of its EIN is a critical consideration, it is still comforting to know that there are structural alternatives with authority behind them. In all events, it is important to have a solid record with the IRS that the EIN has, in fact, been transferred. In this regard, the use of the Form 8832 may be preferable to any “deemed” elections available through the expedient of formless conversion, for the simple reason that the business will ordinarily get some confirmation back showing this to be so.


1 See Publication 1635 at p. 5. See also “Do You Need a New EIN?” (last updated May 19, 2014).
2 See Publication 1635 at p. 6. See also “Do You Need a New EIN?” (last updated May 19, 2014).
3 Reg. §301.7701-3(a).
4 Reg. §301.7701-2(b)(1).
5 Reg. §301.7701-2(b)(1) or (3).
6 Rev. Rul. 73-526 , 1973-2 CB 404 (Jan. 1, 1973).
7 LTR 200528021 (Apr. 9, 2005).
8 See Reg. §301.6109-1(h)(1) (“Any entity that has an employer identification number (EIN) will retain that EIN if its federal tax classification changes under §301.7701-3 .”) (Emphasis added.) See also Decision Chart at I.R.M. § at Example (f) (“If a corporation reorganizes as an association treated as a corporation, and wishes to use the same EIN assigned to them as a corporation and be taxed as a partnership, then they must timely file a Form 8832 electing to be treated as a partnership.”)
9 See Reg. §301.7701-3(c)(1)(iv) (“An election by a newly formed eligible entity that is effective on the date of formation is not considered a change for purposes of this paragraph (c)(i)(iv).”) (Emphasis added.)
10 See id.
11 See, e.g., Revised Uniform Limited Liability Company Act (2006) at §1046(a).
12 See Decision Chart at I.R.M. § at Examples (e)(1)-(4).
13 See Rev. Rul. 95-37, 1995-1 CB 130 (Apr. 24, 1995).
14 Here again, the IRS’s folkways may be even more flexible. See, e.g., Decision Chart at I.R.M. § at Example (k) (authorizing assignment of LLC or partnership EIN to resulting corporation in a conversion upon receipt of documentation of the conversion under state law—without regard to Form 8832).
15 See Rev. Rul. 2001-61, 2001-2 CB 573 (Dec. 16, 2001). Where a non-LLC partnership reduces to one partner, it must obtain a new EIN—therefore, the interpolation of a new LLC is necessary in order for it to maintain the prior EIN (if only for employment tax purposes). See Decision Chart at I.R.M. § at Example (h).

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