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James Daloisio
James Daloisio, Tax Attorney
Category: Tax
Satisfied Customers: 101
Experience:  24 years of continuing education and experience.
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I applied for an EiN on line with IRS for one of my clients

Customer Question

I applied for an EiN on line with IRS for one of my clients with client conferenced on phone with me and got a reject code 101 to call the IRS. I called the IRS and the IRS person had me do the application on line, monitoring each step. We could find nothing wrong. She checked name in case it was a duplicate name of another firm.. After call, In reviewing client docs, it appears client got date of articlles or organization wrong (prior year). Is this likely the cause of reject?? IRS person could find no reason for reject, and suggested I fax in an SS4. I can do this of course, but this leaves me twiddling my thumbs for several days and may result in another reject. It also possible reject was due to doing the online application on line in prior 24 hours. Curious if anyone has any experience or insight here so I can fix this more rapidly.
Submitted: 1 month ago.
Category: Tax
Expert:  James Daloisio replied 1 month ago.

Hi, my name is*****'m an attorney and I feel your pain! Reference code 101 is generated when the IRS detects a potential name conflict. When a person creates a business entity such as an LLC, C or S corporation, etc., it's done on the state level. The Secretary of State will tell you if the name that the business owner has chosen is available. However: when you apply for an EIN for that business, the IRS doesn't distinguish by state. Although there are multiple references to the state of incorporation/creation on the EIN application, it remains possible and probable that the IRS may pick up a similar business in another state, so it's not unusual to receive a Reference 101. It just means that you have to submit the SS-4. You're fortunate that the IRS rep you got on the phone was able to clear the application. Many times they request copies of creation documents such as Articles, etc. In your case it looks like you'll be able to proceed with just the SS-4 via fax.

There are other reasons why an online application will fail, but your Reference Code 101 indicates a name conflict. For example: the IRS will not process an online EIN application if the responsible party is a business entity with its own EIN that was obtained online. Also, the IRS will only issue one EIN to a responsible party per day.

Good luck!

Customer: replied 1 month ago.
Thank you. A quick question for you as a tax attorney. I would like to hire a tax attorney to work in my firm. I am the owner. Most likeely I will form up as an LLC. I am an "EA and already have EAs, CPAs and Bookkeepers in my firm, mainly on a 1099 basis. One lawyer told me he could not work for a firm and charge for legal work unless the firm was a law firm owned by lawyers. This lawyer was in CA. Another told me it was no problem for my co. to hire a lawyer and bill clients.. I am starting to do more and more volume of IRS Representation, and it would be nice to have a lawyer. I am an EA myself. Most of my Rep work is flat rate. Some I charge by hour if I cannot predict. Sometimes, I would just like to consult a lawyer so I can tell client "I talked with a tax lawyer to double check things, and he agreed an OIC is best for you. No advantage to bankruptcy (or whatever)." It would be nice if a client did need to go to court, that I could have my firm attorney do it. Not sure if this is workable or not. Your best answer would be appreciated. You are certaintly 5 star and bonus. If you do not want ot answer this question, just say so.
Expert:  James Daloisio replied 1 month ago.

Hello again,

I'll be happy to answer this question. Give me a few minutes to do a bit of research so I can give you some authority for my response.

Jim

Expert:  James Daloisio replied 1 month ago.

Okay. Some lawyers get confused over the ethics rules regarding association with non lawyers. In California, rule 1-310 simply states that "a member shall not form a partnership with a person who is not a lawyer if any of the activities of that partnership consist of the practice of law." But it's perfectly acceptable for a business entity to hire an attorney as an employee, pay the attorney a salary, and bill clients for the costs. That's pretty much the definition of "in house counsel" as seen in banks, insurance companies, large corporations, etc. Your in house attorney would handle all the legal matters.

Hope that clears it up for you. Thanks.

Customer: replied 1 month ago.
OK. FYI I am located in Nevada. The lawyer I was talking to was in CA.I would like to confirm my understanding.1) paying a lawyer as a consultant is no problem. I can pay him per hour and have his input. Correct?
(This would be useful if I had a Representation clietn who was worried I was an EA and not a lawyer, or to go over alternatives like bankruptcy and I could tell client I had gone over case with legal counsel)2) Does this apply also if I pay lawyer on 1099?3) In extremis. there could be situations where lawyer did legal work for my firm for my client, such as filing bankruptcy or going to court, that I as an EA could not do. Can I bill the client for this work and pay the lawyer his hourly rate, or is this "entering into partnership"?3) If he does legal work I cannot do, e.g. files bankruptcy papers or goes to court on behalf of my client, can I pay him by the hour and charge my client.Thanks for your help so far.
Expert:  James Daloisio replied 1 month ago.

No problem! It's always gratifying to help some attorney somewhere obtain extra work! What you want to focus on is your relationship with the attorney. It may be employer/employee, or contractor/subcontractor. You just can't be partners. The law practice must be independent. Your clients pay you, and you pay your lawyer. You can hire an attorney and give him/her a W2 at the end of the year, or you can use an attorney on a contract basis and give them a 1099-MISC. Any reasonable fee structure should pass muster. Hourly, flat rate for specific services, etc.

To answer your questions specifically:

1) correct.

2) Your reference to 1099 I'm taking as a distinction between having the lawyer as an employee vs a subcontractor. Either way is fine.

3) Yes.

I've found that an attorney in a tax controversy evironment is most helpful in preparing financial statements (433's), sorting out innocent/injured spouse claims, and resolving trust fund issues for those contractors who didn't pay over their payroll taxes.

Customer: replied 1 month ago.
What state and city do you practice in?
Expert:  James Daloisio replied 1 month ago.

I'm just outside of Santa Barbara, CA, city called Goleta. And I'm winding down the practice...trying to retire!!!

Expert:  James Daloisio replied 1 month ago.

Just picked up your msg. I'm out of the country but will try to reach you tomorrow. Thanks!