Close a Business With the IRS: Final Returns, Payroll and EIN

Closing a business with the IRS: the order of steps

The IRS lists the steps in this order. You cannot skip to the end: the IRS says it cannot close your business account until you have filed all necessary returns and paid all taxes you owe.

1. File a final return and related forms.
2. Take care of your employees: final wages, payroll tax deposits and payroll returns.
3. Pay the tax you owe.
4. Report payments to contractors.
5. Cancel your EIN and close your IRS business account.
6. Keep your records.

State taxes, licenses and the state filing that ends your LLC or corporation are separate. Handle those with your state agencies.

Step 1: The final return for your type of business

Sole proprietors

File Schedule C (Form 1040), Profit or Loss from Business, with your individual return for the year you close. The IRS also lists Form 4797 if you sold or exchanged property used in the business, Form 8594 if you sell your business, and Schedule SE if you had net earnings of $400 or more from self-employment.

Partnerships

File Form 1065 for the year you close, with Schedule D and Form 4797 as needed. Check the box that says this is a final return, and check the final K-1 box on each Schedule K-1 you issue to partners.

Corporations and S corporations

File Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution or plan to dissolve the corporation or liquidate any of its stock. File Form 1120 (or Form 1120-S for an S corporation) for the year you close, with Schedule D and Form 4797 if needed, and check the final return box. An S corporation also marks each shareholder's Schedule K-1 as final.

Selling the business or its assets

If you sell the business, the IRS lists Form 8594, Asset Acquisition Statement, for reporting the sale. Selling equipment, intellectual property or other business assets during the wind-up can also mean Form 4797. Sales of company data are no different: the proceeds are business income, and they belong on the final return.

Step 2: Final payroll and employment taxes

If you had employees, the IRS says to pay final wages and compensation, make final federal tax deposits, and file final employment tax returns.

Form 941 or 944

File Form 941 for the quarter in which you pay final wages, or Form 944 for the year. Check the box saying the business has closed, and enter the date final wages were paid. Attach a statement with the name of the person keeping the payroll records and the address where they will be kept.

Form 940 and W-2s

File a final Form 940 for federal unemployment tax and check the final return box. Give each employee a Form W-2 for the calendar year of the final wages, by the due date of your final Form 941 or 944, and file Form W-3 with Copy A of the W-2s. If your employees reported tips, the IRS also lists Form 8027.

Trust fund taxes

The IRS warns that the person responsible for collecting and paying withheld income and employment taxes can be held personally liable for unpaid amounts under the Trust Fund Recovery Penalty. Pay these first.

Retirement plans

If you offered a retirement plan, the IRS points to its guidance on terminating a retirement plan.

Step 3: Pay the tax you owe

File and pay what is due on your final returns. The IRS links to its payment options, including payment plans if you cannot pay in full.

Step 4: Report payments to contractors

If you paid any contractor at least $600 during the calendar year for services in the course of your business, report it on Form 1099-NEC. If you file on paper, the IRS says to include Form 1096.

Step 5: Cancel your EIN and close the account

The IRS does not delete an EIN; it closes the business account. To ask for that, send a letter that includes:

• the complete legal name of the business,
• the business EIN,
• the business address,
• the reason you want to close the account.

Include a copy of the EIN assignment notice if you still have it, and mail the letter to Internal Revenue Service, Cincinnati, OH 45999. Again, the IRS cannot close the account until you have filed all necessary returns and paid all taxes you owe.

Step 6: Keep your records

The IRS says to keep records relating to property until the period of limitations expires for the year you dispose of the property, and to keep employment tax records for at least four years. Its separate page on record retention gives the full set of periods: 3 years in most cases, and longer for refund claims, underreported income, bad debts and missing or fraudulent returns.

IRS publications that help

The IRS points closing businesses to Publication 5447 (Going out of business checklist), 5447-A (for sole proprietors) and 5447-B (for partnerships and corporations).

Common questions