Elizabeth A. Cummings, CPA

Do I need to obtain a Federal Identification Number for my IRA?

Yes; in certain situations, not only is it prudent, but it may be required. For example, you may need one when:

  1. Purchasing any type of real estate or personal property through an LLC or directly
  2. Purchase of an interest in a partnership, LLC or other entity required to file a tax return
  3. Purchasing Promissory Notes
  4. Acting as a bank and lending money
  5. Required to issue or receive 1099s, 1098s or K-1s

Why do I need to obtain a Federal Identification Number for my IRA?

Issuing or receiving 1099s – If your IRA investment requires the issuance or receipt of 1099s, then it is important for your IRA to have its own EIN. For example, if your IRA buys notes and you agree to cancel the debt of that note, your IRA would have to issue a 1099-C to the borrower whose debt has been relieved.

K-1s – If your IRA has invested in a partnership or LLC, all partners or LLC members are required to have an EIN (including your IRA). Each year, the partnership or LLC must file the required returns and also issue K-1s to the partners or LLC members to be reported on their personal income tax returns. An SDIRA investor is not likely to be required to report taxable income, since IRAs are tax exempt, but the issuing of a K-1 is necessary. In order to issue a K-1, an EIN is required.

Form 990T – In certain circumstances, your IRA may have to pay income taxes if it is subject to the unrelated business income or unrelated debt financing income tax rules. In this situation, your IRA will have to file a separate tax return – Form 990T. In order to file Form 990-T, you must have an EIN.

State and Local Reporting – Depending on where your IRA makes investments, there are likely to be different state and local rules for tax filings. In many states and jurisdictions, an IRA is required to make additional income or property tax filings in its capacity as an owner of real estate. In addition, the jurisdiction may require certain license filings that require an EIN.

These are just a few examples to assist you in determining your need for an EIN.