How to Close an S Corp. with the IRS

By Laura Payet

How to Close an S Corp. with the IRS

By Laura Payet

An S corporation (S corp.) enjoys special tax status with the Internal Revenue Service (IRS). You may elect to have the IRS treat your corporation as an S corp. if it meets certain eligibility requirements. Electing S corp. status allows a corporation to pass income through to its shareholders, who then report that income on their individual tax returns and pay taxes on it at their individual income tax rates. When you decide to close your S corporation, you must file the appropriate forms with the appropriate state agency as well as the IRS.

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Closing an S Corp.

Follow these steps to close your S corp. with your state and IRS.

1. Wind up your business.

Wrap up any existing contracts and pay any debts your corporation may have to wind up your business's affairs.

2. Dissolve the S corp.

Dissolve your S corp. by filing articles of dissolution with the appropriate state agency. An online service provider can help with this process to ensure that it goes smoothly.

3. File the required forms with the IRS.

All closing S corporations must file a final U.S. Income Tax Return for an S Corporation (Form 1120S) with the IRS. Check the box near the top of the form to indicate that it is your company's final return. Many S corporations also file Partner's Share of Income, Deductions, Credits, etc. (Form 1065, Schedule K-1) with their tax returns, which reports each shareholder's share of the business's income, losses, and deductions.

Depending on your S corporation's circumstances, you may also need to file a variety of other forms, listed in the IRS's Closing a Business Checklist. For instance, if you have employees, you are required to:

  • Make final federal tax deposits and file final employment tax returns
  • Include a letter with your final employment tax return stating the name and address of the person who will keep the payroll records after the company has dissolved
  • Issue final wage and withholding information to your employees using the IRS's Wage and Tax Statement (Form W-2)
  • Report to the IRS the information from the final W-2's issued using a Transmittal of Wage and Tax Statements (Form W-3)

If your business uses subcontractors, you must:

  • Issue final payment information to subcontractors using Miscellaneous Income (Form 1099-MISC)
  • Report to the IRS the information from the Form 1099-MISC via the Annual Summary and Transmittal of U.S. Information Returns (Form 1096)

You must also file returns for any business asset sales or the exchange of like-kind property.

Voluntarily Revoking S Corp. Status

You may choose to revoke your S corp. status voluntarily without closing down the company. If you do so, the IRS will treat your corporation as an ordinary C corporation, which means your corporation pays taxes on its income at the business level instead of passing it through to the shareholders. A group of shareholders owning more than 50 percent of the company must vote to terminate S corp. status, and this vote must be conducted in accordance with the corporation's bylaws and state law.

The IRS has no official form for this process. After the vote, the S corp. sends a letter to the IRS declaring its desire to cancel its tax status, including a signed statement of consent from each consenting shareholder. Revocation is effective as of the date specified in the letter. The S corp. should also file a final tax return using Form 1120S and check the box near the top to indicate "S election termination or revocation."

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.