The EIN and its purpose
First off, what is an EIN, anyway? An EIN is a number used by the federal government in the United States of America. EIN is an acronym for ‘Employer Identification Number.’ Different agencies within the federal government use it to keep track of businesses’ financial transactions.
EINs are assigned by the Internal Revenue Service (IRS) to a business upon the business’ request. Small businesses with only one employee need an EIN for tax purposes. This includes firms that only hire part-time employees or sub-contractors. The EIN is included with all correspondence to the IRS, including all employee payroll.
Do companies have to give out their EIN whenever requested? When do companies need to use their EIN?
During purchases, many suppliers request the EIN for their own tax fulfillment needs. Many banks refuse to open commercial accounts without an EIN. The same holds for loans. Completing purchases might not be possible without divulging the EIN. This happens because, without the purchasing company’s EIN, the vending company cannot provide proof of the sale when needed.
Some company types must divulge their EIN whenever requested. One type of business is a care provider. This allows interested individuals to check different aspects of the business. However, there is no clearinghouse agency, including the IRS, that provides any type of list or searchable site of EINs.
While public in a sense, EINs need to be protected from misuse. Keeping the EIN secret from anyone who does not need to know it helps prevent fraud.
Can an unauthorized person misuse a company’s EIN?
Unfortunately, unauthorized use of EINs does exist. There are four main ways this can happen to a business.
An employee finds the number and makes personal purchases using it. This often happens because of an associated discount available only to businesses. Keep the EIN private and only accessible to those employees who need the information.
Online use of websites to reach vendors and other B2B entities can open up the door to misuse by those same vendors. Doing business with only well-established, reputable companies and services can help prevent this.
Communicating with vendors on unsecured sites can let hackers snatch your EIN during transmission of purchase orders. Always use sites with URLs that start with ‘https’ and not ‘http’ to avoid this from happening.
Hard copies of your EIN can also end up in the wrong person’s hands. Use a paper shredder for documents containing your EIN and other sensitive information. Porch pirates can even steal the initial letter from the IRS from an unsecured mailbox.
How do I protect my business from the damage caused by the misuse of my company’s EIN?
There are ways to help prevent damage from fraudulent use. A yearly credit check can prevent fraud from going undetected. Keeping your EIN secret unless divulging it becomes absolutely necessary. Do not print it on business cards, invoices, or other documents. Keeping an eye out for the EIN’s hard copy certificate from the IRS makes it less likely someone gets it before you.
While there is no fee to obtain an EIN, and many business activities become limited in its absence, having an EIN frees up sole proprietors from using their social security numbers and preventing personal identity theft.