IRS Addresses EIN Issues For Partnership-Turned-Disregarded-Entity

In an internal legal memorandum (ILM 201351018), the IRS said that a former partnership that became a disregarded entity (DRE) when one partner became an employee must use the former partnership's employer identification number (EIN) if it files employment tax returns under the former partnership's name.

Under the facts of the ILM, a partnership consisted of two partners, A and B. The partners executed a buyout plan where partner B would be bought out and would become the employee of partner A. At that point, the partnership ceased to exist and became a DRE. Partner A filed employment tax returns under the former partnership's name and EIN.

The IRS said that under Rev. Rul. 2001-61, when a partnership becomes a DRE and chooses to calculate, report and pay its employment tax obligations under its own name and EIN, the disregarded entity must retain the same EIN for employment tax purposes as it used for the partnership. The IRS also noted that Treas. Reg. Sec.