Estate and Trust Tax ID Numbers: FAQ on the EIN from the IRS
It probably won’t come as a surprise to anybody that income has to be reported on a Federal Income Tax Return. We’re all accustomed to providing our social security number to our employer, bank or brokerage institution so that income, dividends and capital gains can be reported to the individual and to the IRS.
But what happens when the income is not earned by a person, but instead is earned by an entity, such as a trust or estate? Generally speaking, trusts and estates are required to obtain and report income under a separately assigned tax identification number known as an “Employer Identification Number” (EIN).
What is an EIN?
An EIN is a 9-digit number assigned by the IRS to certain entities for tax reporting purposes. For estate administration purposes, we’re usually talking about estates and non-grantor trusts. But EIN’s are also used by corporations, partnerships and other business entities. Like a Social Security Number (SSN), an EIN is a unique nine-digit number, but instead of the 123-45-6789 format used for SSN’s, an EIN will always have a 12-3456789 format. When it comes to trusts and estates, the EIN is something as a misnomer since most trusts and estates are not actually employers in the typical sense of the word.
Is every trust required to have an EIN?
No. A trust that can be deemed a “grantor trust” does not need a separate EIN. A grantor trust uses the social security number of the grantor. In simplest terms, a trust is a grantor trust when all of the income is required to be paid to the grantor or grantors (the person that creates the trust). There are other ways to create a grantor trust, but that is the typical situation. For example, in most cases when a person creates a revocable living trust for estate planning purposes, the trust will be a grantor trust during the grantor’s life. After the grantor’s death, however, the trust will no longer be a grantor trust and an EIN must then be obtained.
Does a probate estate need an EIN?
Yes. Every probate estate must obtain an EIN. (note that probate is not always required post-death)
How can an EIN be obtained?
In the good old days (like 5 years ago), an EIN was obtained through a paper form called an SS-4 filed by mail or fax. How quaint. Of course, you can still apply by mail or fax, but in most cases an EIN can be obtained in a matter of minutes through the EIN Assistant on the IRS website. The EIN Assistant will walk you through several pages of fields which you must complete with the appropriate information. If properly submitted and accepted, the number is generated immediately and the notice can be downloaded as a PDF. This immediacy is a great thing, but beware that the application is a legal document and the information that you submit can have tax consequences. Before you apply for a number, be sure that you actually need the number, that you understand the proper entity that is applying and that you have accurate information about the trust or estate. I recommend that an EIN be obtained in close consultation with the estate attorney and/or CPA. In many post-death administration cases, I will walk through the EIN Assistant to obtain the EIN while my client (the trustee or executor) is in my office.
Is an Employer Identification Number (EIN) the same as a Taxpayer Identification Number (TIN)?
Yes and no. This is where I create an acronym headache. An EIN is a subset of the TIN. TIN is the broad term for any identification number used by the IRS. This includes EIN’s, but also includes other types of numbers like Social Security Number (SSN) and Individual Taxpayer Identification Number (ITIN). Therefore, all EIN’s are TIN’s, but not all TIN’s are EIN’s.
How do I report income earned under the EIN?
Income earned under the EIN assigned to a trust or estate is reported on a Fiduciary Income Tax Return — Form 1041. In many cases though the trust or estates acts as a pass-through entity under which the income is passed out to the beneficiaries. I plan to write in more detail on trust and estate income taxes in future posts.
How can I learn more about EIN’s?
If you just can’t learn enough about EIN’s, the IRS website actually provides quite a bit of information, such as:
- Employer ID Numbers (EINs)
- Online EIN: Frequently Asked Questions
- Form SS-4, Application for Employer Identification Number (EIN)
- IRS Publication 1635: Understanding your EIN
- Tax Topic 755
Image courtesy of Flickr by Calita Kabir
The Law Offices of Jeffrey R. Gottlieb, LLC, represents executors and trustees for estate and trust administration in Cook County, Lake County, Kane County, DuPage County and McHenry County. Contact us by e-mail or call us at (847) 991-2250 to discuss your matter.