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.

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.

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.

Ready to incorporate your business? Get Started Now

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.

Ready to incorporate your business? Get Started Now
What Happens to Your EIN When Dissolving a Corporation?


Related articles

How to Start a California S Corporation

To start a corporation in California, you file a document called articles of incorporation with the Secretary of State’s office. Every California corporation starts as a C corporation – which means that it is taxed according to the provisions of Subchapter C of the Internal Revenue Code. To convert your C corporation to an S corporation, you must file the required form with the IRS requesting that your corporation be taxed under Subchapter S of the Internal Revenue Code. Both the Secretary of State and IRS provide the necessary forms and information to facilitate starting an S corporation in California.

What Does Dissolved Mean for a Corporation?

A corporation is an independent legal entity, separate from its owners, who are known as shareholders. It is this independence that affords the shareholders limited liability for the debts of the company and enables them to easily transfer their shares in the business. But when a corporation decides to cease operations, or dissolve, it must undergo a process to terminate its independent legal status. Corporations are regulated under state law, so the dissolution process can vary. However, there are some general steps that all corporations must take.

The Termination of S Corp Status

S corporation status is an IRS-sanctioned tax designation that allows a corporation to retain liability protection for its shareholders but lets them be taxed like a partnership.This means that the S corporation is not taxed directly, but its shareholders add their share of the business’s annual income and losses to their personal returns and personally pay taxes on those amounts. To choose this status, the corporation must have fewer than 100 shareholders and cannot have any nonresident alien shareholders. It can only have one class of stock and cannot participate in certain industries. A corporation can have its S-corp status rescinded by the IRS or its shareholders can choose to give it up.

LLCs, Corporations, Patents, Attorney Help Incorporation

Related articles

How to Close an S-Corporation in North Carolina

To close an S corporation, or S corp, there are a number of steps you must take to ensure that the corporation has ...

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

According to the U.S. Census Bureau, 17 percent of new businesses fail within the first five years as a result of ...

Terminating a New York S Corp

A corporation is considered an independent legal entity under New York state law. S corporation status is an IRS tax ...

What Is an Inactive Corporation?

An inactive corporation legally exists but has no business activity. A corporation is created by filing the necessary ...

Browse by category
Ready to Begin? GET STARTED