The use of a W-9 with your IRA LLC investing is a certainty. Don’t be afraid to complete and submit….you will need to complete at some point in time, especially if you make a passive investment with an investment sponsor. The W-9 is not submitted to the IRS; rather, a W-9 is utilized to collect information for tax reporting, including the 1099-MISC form. Which still leads you to ask: how do I complete a W-9 for an IRA LLC?
Most people do not know that a primary purpose of the form is to confirm that you are a U.S. citizen. The IRS wants to make sure that if you were a foreign citizen, the investment sponsor would need to withhold 30% for tax purposes, since it is difficult to collect potential taxes otherwise from a foreign citizen. Bottom line: do not be afraid to complete the form.
While it really isn’t that difficult to complete a W-9, it can be a bit confusing for the IRA LLC account owner (manager of LLC). The purpose of this blog is to explain how you should complete the form if you have a single member (e.g., one owner; a single IRA). For those of you who have two or members (owners), the completion of the W-9 will be slightly different and we will address how to complete separate from this blog.
Line 1 — As the manager of the IRA LLC, you first reaction would be that the LLC entity name be identified on Line 1….and, this would be incorrect. You are thinking “well, the investment was in the name of the LLC, so why wouldn’t Line 1 be completed with the LLC name?” And, that would be a very good question. But in reality, you are stating that ultimate ownership of the LLC for tax reporting purposes is the IRA account.
So, in Line 1, you would want to indicate the IRA custodian name and the custodian for benefit of (as an example): IRA Custodian Trust Company cfbo Johnny Johnson IRA. You do not want to list the LLC entity name.
Line 2 — This is where you will identify the LLC name (e.g., ABC, LLC).
Line 3 — You will check the very first box for a sole proprietorship or single-member LLC. There is nothing else you need to complete on this line IF you have a single-member LLC.
Line 4 — You can enter an “A” which corresponds to Section 501 of the Code (retirement plans).
Line 5 — You will enter in the address for the LLC (e.g., 1111 Anywhere Avenue).
Line 6 — You will enter in the City/State/AZ for the LLC
Line 7 — You can skip.
That was easy….but, of course there are some options (and differences of opinion on) the final steps on entering an Identification Number. It is important to note that you would probably exercise Options 1 or 2 below, but there are three options listed and why you might elect that option.
First, before the Options for the Identification Number, you will sign (I recommend that you write (“Manager”) after your name).
Option 1 — In conjunction with signing your name as “Manager”, utilize the EIN for the IRA custodian (e.g., IRA Custodian Trust Company, 27-9999999). Here’s the potential rub: first, you should always have the permission of a custodian in using their EIN. Many custodians will freely provide you this EIN. Heck, most even have it on their website. However, some custodians will say that since the investment is coming from the LLC (even though still under the custodianship of the IRA custodian), you cannot use their EIN. I can’t tell a client to use or not use the custodian’s EIN (I am not an authorized representative of the custodian), but I did want to point out that some custodians do not want you to use their EIN. However, I do not see any reason why it cannot be used.
Option 2 — In conjunction with signing your name as “Manager”, utilize your social security number. I do not like this option as well as legal ownership of the IRA LLC is not you, rather your IRA held through the IRA custodian.
Option 3 — Probably the purest…but also the most timely and confusing to everyone (most importantly, you) is to secure an EIN for your IRA. Timely because the approximate time line for filing and receiving the EIN for your IRA is about 2 months….ugh, who wants that, just to complete a W-9. Confusing because in most cases an IRA will not be used as investments are made from an LLC with its own EIN. Again, while probably the purest method, it just isn’t really that practical for many. (Please note: if your IRA was making an investment that was going to trigger UBIT (which most IRA account owners do not trigger), an EIN must be filed for the IRA as taxes would be due. Just wanted to make note of that, but that topic is for another day.
As you can see, it is not difficult to complete the W-9, but it is also easy to see why folks get confused.
As always, the information provided is intended to educate. It should never be interpreted as any form of tax, legal, financial or investment advice. Please consult with your respective professional in all such matters.