Operating a business in the United States involves going through various administrative processes, and obtaining the appropriate identification numbers is a key step for business owners.
In this article, we'll look at practical information about obtaining three key identification numbers—EIN, ITIN, and DUNS—and explore how they can be useful for US business owners, as well as possible penalties for not matching or missing them.
Individual Taxpayer Identification Number (ITIN) is a nine-digit tax processing number issued by the Internal Revenue Service (IRS) in the United States. It is designated for individuals who are not eligible to obtain a Social Security Number (SSN) but are required to file tax returns in the U.S. Obtaining an ITIN is necessary when individuals receive income from U.S. sources subject to taxation, such as wages, rent, or other types of income within U.S. territory.
Situations where an individual might be required to obtain an ITIN include:
- Receiving income from U.S. sources
- Investing in U.S. real estate
- Inheriting assets based on a gift agreement from U.S. tax residents
- Applying for a visa or immigration status
The absence of an ITIN can lead to tax reporting issues and sanctions for incorrect determination of an individual’s tax status.
Employer Identification Number (EIN), also known as the Federal Tax Identification Number, is a crucial component of operating a business in the United States. Issued by the IRS, the EIN consists of nine digits and serves as a unique identifier for companies and organizations, playing a vital role in various financial transactions.
The EIN is necessary in the following cases:
- Companies, including corporations, partnerships, sole proprietorships, non-profit organizations, and trusts, must obtain an EIN after starting their operations.
- EIN is an integral part of filing tax reports at the federal and state levels.
- When expanding a business and planning to hire employees, EIN is required for payroll purposes.
- Financial institutions require EIN for opening corporate bank accounts and conducting financial transactions.
- When applying for credit, EIN is often requested.
- Obtaining necessary licenses and permits may require an EIN.
Termination of an EIN:
- Company Liquidation: In the event of business closure, it is crucial to promptly inform the IRS to properly close the associated EIN. This is necessary to avoid misunderstandings and simplify future tax and legal procedures for closing the company.
- Changes in Organizational Structure: Significant changes in the company’s organizational structure, such as transitioning from a disregarded entity to another form of ownership or changes in the responsible person (owner), may require obtaining a new EIN. This is important for maintaining accuracy in the company’s identification for tax and regulatory authorities and complying with legal norms.
Data Universal Numbering System (DUNS) is a unique nine-digit identifier provided by Dun & Bradstreet (D&B) to businesses. Widely used for government agencies, creditors, and suppliers, the DUNS number has key aspects:
- Each assigned DUNS code is unique, crucial for distinguishing businesses with similar or identical names, especially on an international level where DUNS numbers become standard business identifiers.
- D&B provides services for collecting and storing information about companies, covering financial indicators, creditworthiness, and other key aspects.
- Many government agencies and corporations incorporate the use of DUNS numbers in their procurement processes and for monitoring business relationships. The number is required when registering for government contracts and is an essential element of a company’s legal interaction with state structures.
- DUNS numbers are occasionally used in credit reports and can impact a company’s overall creditworthiness assessment, becoming relevant in evaluating a company’s financial health and its ability to fulfill financial obligations.
- While D&B is based in the United States, companies worldwide obtain DUNS numbers for international business operations.
In conclusion, obtaining the identification numbers in USA EIN, ITIN, and DUNS is a crucial step for business owners in the United States. These numbers not only ensure compliance with tax laws but also open doors to financing, government contracts, and growth opportunities.
We advise all owners of American companies to apply for these identification numbers as early as possible to avoid penalties, issues with banks, or government institutions in the future. Additionally, EIN, ITIN, and DUNS can be valuable for attracting investors, partners, and exploring new business development opportunities.