How to Close a Corporation With the IRS

By John Cromwell

A corporation is a business entity that is legally distinct from its shareholders. This means that, in addition to the shareholders not being personally responsible for the business’s liabilities, the corporation is a separate taxable entity. When a corporation decides to shut down, it must file several documents with the IRS and settle any final tax bills before it can dissolve.

A corporation is a business entity that is legally distinct from its shareholders. This means that, in addition to the shareholders not being personally responsible for the business’s liabilities, the corporation is a separate taxable entity. When a corporation decides to shut down, it must file several documents with the IRS and settle any final tax bills before it can dissolve.

Step 1

File final quarterly and annual income and employment tax forms. As an employer, a corporation is supposed to withhold certain amounts from their employees' paychecks as well as contribute to certain federal programs. Prior to dissolution, you must file the corporation’s final quarterly employee tax form along with all necessary payments. In general, you must file Form 940 – Employer’s Annual Federal Unemployment Tax Return and Form 941 – Employer’s Quarterly Federal Tax Return.

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Step 2

Forward final wage and withholding information to the corporation’s employees. This information is contained on Form W-2 and informs the corporation’s former employees how much money was paid on their behalf to certain taxes.

Step 3

Prepare and file the corporation’s final tax return. The corporate return is Form 1120. In addition to including all of the corporation’s income and expenses for its final year, be sure to mark the Final Return Box in section E of the form. The box can be found near the top of page 1.

Step 4

Report termination of the corporation to the IRS. Since the corporation is dissolving, you must report that information separately to the IRS using Form 966. You must also disclose the type of return your business filed, your business’s Employer Identification Number (EIN), when the corporation decided to terminate, and the amount of shares that were outstanding when the corporation decided to terminate. The form must be filed within 30 days of the day the corporation decided to dissolve and submitted to the IRS office where you sent your corporation’s income tax return.

Step 5

Close your corporation’s EIN account. Draft a statement detailing why you are closing the corporate account and include a copy of the corporation’s EIN Assignment Notice, if possible. Include in the statement the corporation’s legal name, EIN and address.

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How to Close an S-Corporation in North Carolina

References

Related articles

How to Close an S Corp With the IRS

An election with the IRS to have your corporation taxed as an S corporation can provide tax advantages over a C corporation. A corporation must meet certain IRS eligibility rules to elect to be treated as an S-corp. An S-corp is taxed as a disregarded entity and does not pay entity-level taxes. If the corporation ceases to meet the eligibility rules or decides to end its status as an S-corp, it may file to revoke the S election and continue as a C-corp. Dissolution under state law will also end a corporation’s sub-chapter S status once a final tax return is filed.

How to Close a Corporation Down

The life of a corporation is governed by state law. Unlike sole proprietorships, which are dissolved by simply ceasing business operations, determining an appropriate time to close up shop in a corporation can be more complex. Most states require that the decision be in writing and approved by a majority of the shareholders. Once the decision is made, the corporation remains in existence to "wind up" final corporate affairs, including making required filings with the state and paying all taxes and debts.

How to Cancel an Incorporation

When a business incorporates, it becomes a distinct legal entity. The corporation’s liabilities are its own; its shareholders are generally not personally responsible for those obligations. The incorporation is also required to file its own tax returns. Due to its legal independence, cancelling corporate status requires filing documents with a number of organizations. Businesses incorporate under state law, so the specific steps for dissolving the organization will vary. Check the laws of the state where the business is incorporated for the exact process your corporation will have to follow.

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