When setting up a vendor in our system who is a sole proprietor ...

Follow

Q. (cont.)  ... and DBA with a EIN number, can we set them up as the business name? And where does the IRS state that's how to do so?

A. Per the General Instructions for Certain Information Returns (2017), page 10 (https://www.irs.gov/pub/irs-pdf/i1099gi.pdf):

"Sole proprietors. You must show the individual's name on the first name line; on the second name line, you may enter the “doing business as (DBA)” name. You may not enter only the DBA name. For the TIN, enter either the individual's SSN or the EIN of the business (sole proprietorship). The IRS prefers that you enter the SSN."

Since you'll need to report the payments at year-end to the individual's name and TIN, you should set up the vendor in your system so that this information is reported and not just the DBA name. Note also that the IRS prefers you report using the SSN and not the EIN.

You'll want to make sure the W-9 is also filled out correctly to begin with. The individual's name must be entered on Line 1, while the DBA may be entered on Line 2 (https://www.irs.gov/pub/irs-pdf/fw9.pdf, page 2).

Q. However, there are times in which a person is required to use a FEIN number and in that case--as a sole proprietor who must use a FEIN vs. an SSN per their tax advisor--then would that make a difference as to who the PO and check would be made payable to?  Because it would seem that if they are required to use a FEIN number, then they’d need to have payment in the business’s name?

A. The name on line 1 of the W-9 is (or should be) the entity’s legal name, and it’s this name that the IRS will match against the tax ID. So you want to be certain that the 1099 reflects the name on line 1.

However, it’s perfectly fine to make checks out to the name listed on line 2 (or even another "DBA" name); but you have to report on the 1099 using the legal name--that is, the legal entity to which the EIN belongs. This should all be spelled out in the vendor master record.

While the only “rule” is to report using the legal name and tax ID, if that remit name is not currently on the W-9, it would be a good idea to have some documentation that the name on the invoices does belong to the legal entity. We recommend you ask for another W-9 or other documentation such as a letter, with a list of names it uses—as you suggest—confirming the connection between the DBA and the legal name and tax ID for the company you are paying.

 

Have more questions? Submit a request

Comments