EIN Number: Why Does a Nonprofit Need One?
Often people ask, "If an organization has an EIN, does that mean it is a tax-exempt nonprofit?"
The answer is no. The document that proves that a charity has been granted tax-exemption is the IRS Determination Letter.
Every 501(c)(3) organization received this document when their tax-exempt status was granted. The letter should be kept safe so it can be shared with anyone who asks to see it. Also, funders, such as foundations or government agencies, will request a copy of the Determination Letter before agreeing to provide a grant.
It is not unusual, especially for small nonprofits, to misplace their IRS Determination Letter. That makes it rough for donors who want to know if their donation is tax-exempt and for people like new board members who need to know that the organization they have agreed to serve is a bona fide charity.
A charity that has forgotten about or misplaced its determination letter may try to prove its tax-exempt status by saying, "We have an EIN." Unfortunately, that won't work.
If the determination letter cannot be found, there is a solution. The organization can get a new one from the IRS. There is a form to mail or fax, and you must know your EIN.
So, If the EIN Is Not Proof of Tax Exemption, What Is It?
All businesses (including nonprofits) need an Employer Identification Number (or EIN). The IRS uses that number to determine what business entities. The EIN is, basically, a social security number for your organization.
An EIN works just like individual Social Security numbers. The EIN is formatted like this: 12-3456789. It is issued by the IRS and can be used for all of your organization's legal activities.
There are other names for the EIN, such as Federal Employer Identification Number (FEIN), and Federal Tax Identification Number (TIN).
Also, your organization needs an EIN even if it has no paid employees. That's because the number is used for many of your business tasks such as:
- Opening a bank account
- Hiring employees
- Applying for business licenses that even a nonprofit might need such as a business license from its local government.
You should apply for an EIN as soon as your organization has been legally set up.
Once obtained, it is just as essential to protect your EIN as it is to protect a personal social security number. So guard it carefully.
How to Apply for an EIN
The person applying for the EIN must be a "responsible and duly authorized member or officer of the exempt organization." Your authorized agent or incorporator can also file for the EIN on your behalf.
That person will use his or her social security number for the application. However, once the EIN is established, no personal social security number will be needed.
The person applying for the EIN will need to have, besides his or her social security number, your organization's legal name and both the mailing address and the physical address of your organization.
There are two ways to obtain the EIN:
- Download IRS Form SS-4 from the IRS website. Fill out the form and fax or mail it in, or
- Apply online and have the confirmation letter emailed to you. It is the preferred method and the fastest.
Also, it is a good idea to print out the SS-4 and fill it out before you tackle the online form. If you don't do this, the online form could time out before you finish.
Once you have the EIN, you can use it on all the documents for your nonprofit, from applying for a bank account to filing your annual tax form (known as the 990).
Don't Fall for a Scam
There are lots of ads online for services that would like to help you apply for your EIN, at considerable cost! These are scams. You do not need a specialist to get your EIN. Work directly with the IRS by following the tips above, and you will do just fine. Plus, the IRS charges nothing.