Episode 26: Latest W-9 Draft -- IRS Reverses Course on Sole Proprietor EIN Rule

The IRS has released a new draft of Form W-9—and this one brings welcome relief for accounts payable teams.

In this episode, Jason breaks down the May 4 draft update and explains why the IRS’s decision to remove the proposed restriction on sole proprietors using EINs is a big deal. That controversial change would have created a massive compliance burden, forcing companies to re-solicit W-9s and revalidate vendor records at scale. For now, that headache is off the table.

Jason also walks through what did change in the draft, including:

•  A new backup withholding exemption code tied to broker and Form 1099-DA reporting 
•  Updated (and much clearer) language around TIN reporting—specifically reinforcing that disregarded entity EINs should not be used 

Even though the EIN restriction is gone, the IRS is making its expectations more explicit—and that has real implications for how W-9s are completed and reviewed.

As always, this is still a draft. Jason closes with practical guidance on what AP professionals should be doing right now (hint: keep using the March 2024 version).

If you deal with W-9s, vendor onboarding, or 1099 compliance, this is a must-listen update.

Transcript

SPEAKER_00 0:00

Welcome to another Information Return Intelligence. I'm Jason Dynason. This podcast is sponsored by IOFM. Well, if you listen to this live, it's May 5th as this drops. And yesterday, May 4th, the IRS released another draft of the W9. And this is good news for accounts payable departments this latest draft, because the IRS has removed the prohibition on individual sole proprietors from using an EIN. In this latest draft, the only thing that's listed under what's new is a new backup withholding exemption code that applies to brokers and Form 1099 DA situations. Previous draft versions of the W9 had also included under What's New language about how people checking individual sole proprietor couldn't give an EIN anymore. That's all gone. Now we've talked about that at length in prior episodes, why the IRS wanted to make that change. It involves tax compliance and 1099s being issued under an LLC's EIN when the income off of that 1099 is actually taxable to the individual owner of the LLC. And if you deal with W9s at all, you know that it is a problem where single member, one owner, LLCs, taxed as sole proprietors, they're giving you the LLC's EIN all the time. So it was one of those things where it was like, I understood what the IRS was getting at with this proposed change, but it would have introduced a lot of complexities for accounts payable departments because you would have needed to search through every W9 and find everybody who had marked individual sole proprietor and given you an EIN and resolicited a new W9 from them. Depending on the number of W9s that you have on file, that could have been a really big project. So that now appears to be a moot point. Now keep in mind this is just a draft. None of this is official. Keep using the form that says March 2024 on it. Before we go further, a quick word from our sponsor, IOFM, the Institute of Finance and Management. They're a perfect place for you if you're listening to this podcast. You must be interested in this stuff. And IOFM is the perfect home for you if you're interested in these things. Whether it's 1099s, 1042s, W9, or cash management, other accounts payable and accounts receivable issues, handling your databases and ERP systems and all that, or just connecting with your peers in the industry. IOFM is the place for you. Check them out at IOFM.com. And now back to the show. There is one other change, and that is that this latest draft of the W9 tweaks the wording on the form in the TIN section, and it adds a sentence to the TIN area saying, quote, do not enter the employer identification number of a disregarded entity. So that means people checking individual sole proprietor can still give an EIN as long as it's in their name personally. They shouldn't give a disregarded entity LLC EIN. Now that is not new, that's how it has always been. People will argue with me about that sometimes, but it's how it's always been. But the thing is, in the past it was never stated that clearly on the form. So this latest draft would clarify the wording and be blunt and put it right out there. Now, again, to repeat myself, this is just a draft and it hasn't been released for real yet. This draft that was released on May 4th says June 2026 on it, but that doesn't necessarily mean that it's going to be released next month. At any rate, the form to continue using for now in your real-world day-to-day work is the one that says March 2024 in the upper left. That'll do it for this week's episode of Information Return Intelligence, sponsored as always by IOFM. I'm Jason Dynason. We'll see you next week. Dynason Media Ventures.