What Papers to File with the IRS to Close a Business LLC

By Stephanie Kurose, J.D.

What Papers to File with the IRS to Close a Business LLC

By Stephanie Kurose, J.D.

Businesses may decide to close, or dissolve, for a number of reasons, such as owner retirement, bankruptcy, or insufficient funding. When this happens, the Internal Revenue Service (IRS) requires businesses, including those structured as limited liability companies (LLCs), to go through a number of formal steps in order to properly dissolve their company. This involves filing articles of dissolution with the agency that regulates businesses in the state where the LLC formed and a variety of documents—specifically, a final annual tax return, a final federal tax deposit, and final employment tax returns if the LLC had employees—with the IRS.

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The IRS website provides a comprehensive checklist of all the different forms that may be relevant to your business. In addition, online service providers can guide you through the process and help ensure you are filing what is necessary.

Employment Tax Returns

When dissolving an LLC with employees, the owners—called members—need to file either the Employer's Annual Federal Unemployment (FUTA) Tax Return (Form 940) or the Employer's Quarterly Federal Tax Return (Form 941). For businesses in the agriculture sector, the IRS requires members to file either Employer's Annual Federal Tax Return for Agricultural Employees (Form 943) or Agricultural Employer's Record of Federal Tax Liability (Form 943-A).

The LLC members must also issue final wage and withholding information to their employees on a Wage and Tax Statement (Form W-2) and report that information by filing Transmittal of Wage and Tax Statements (Form W-3).

Capital Gains or Losses

An LLC may elect to be taxed as a sole proprietorship, a partnership, or a corporation. The type of document the members need to file to report their gains or losses depends on the LLC's tax election.

If the LLC is taxed as a corporation, it must file Capital Gains and Losses (Form 1120, Schedule D). If the LLC is taxed as a partnership, it must file U.S. Return of Partnership Income (Form 1065). Finally, if the LLC is taxed as a sole proprietorship, the LLC member must file U.S. Individual Income Tax Return (Form 1040).

Business Asset Sales

After choosing to close, LLC members may wish to sell off any business assets to pay back creditors. If there are any assets remaining, they are distributed among the LLC's members. The LLC must report this process to the IRS. The members must file an Asset Acquisition Statement Under Section 1060 (Form 8594). In addition, if the LLC members exchanged business property for other assets, they must file Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2)) (Form 4797) to report such exchange.

Because each LLC is unique, members must ensure they file all of the dissolution documents relevant to their business. A member must file an annual tax return for the year the LLC goes out of business. If the LLC has employees, the members must also file final employment tax returns and make final federal tax deposits of those taxes. However, depending on the type of business and the state(s) where the LLC formed and operated, a member may need to file additional documents. Thus, it is important that every LLC makes sure it's filing the documents relevant to its business and following its state's LLC law. After filing all of these forms, the IRS will permit the LLC to dissolve.

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.

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