How to Close a Business With the IRS

Step 1: Identify the Final Return for Your Entity Type

The IRS doesn't use one closing form for every business; which final return you file depends on how your business is classified:

• Sole proprietorship: report the business's last year of activity on Schedule C, filed with your individual Form 1040.
• Partnership: file a final Form 1065, marking the "final return" box, and issue a final Schedule K-1 to each partner.
• C corporation: file a final Form 1120, marking it as the final return.
• S corporation: file a final Form 1120-S, marking it as the final return, and issue a final Schedule K-1 to each shareholder.

Whatever form applies, checking the "final return" box tells the IRS this is the last return the business will file under that account.

Step 2: File Form 966 if a Corporation Adopts a Formal Dissolution Plan

If your business is a corporation, or an LLC taxed as one, and its shareholders or members adopt a formal resolution or plan to dissolve, the IRS requires filing Form 966 within 30 days of adopting that resolution, separate from the final return itself. Sole proprietorships and partnerships don't have an equivalent filing.

Step 3: Settle Employment Tax Obligations

A business that had employees needs to close out its employment tax filings before the IRS will consider the account closed:

• File a final Form 941 (quarterly) or Form 944 (annual), whichever you normally used, marking it as the final return.
• File a final Form 940 for federal unemployment tax.
• Issue a Form W-2 to every employee for their final year of wages, and submit the accompanying Form W-3 to the Social Security Administration.

Step 4: Report Final Contractor Payments

If the business paid an independent contractor $600 or more during its last year, issue that contractor a Form 1099-NEC and submit the corresponding Form 1096 to the IRS, following the usual annual deadlines even though the business is winding down.

Step 5: File Any Asset-Sale or Business-Sale Forms That Apply

If closing involved selling business assets, Form 4797 reports the sale of business property. If you sold the entire business to another party, Form 8594 reports how the purchase price was allocated among the assets sold. Not every closing business needs these forms; they apply only when assets or the business itself changed hands as part of the closure.

Step 6: Pay What You Owe

The IRS states directly that it cannot close your business tax account until you've filed every required return and paid every tax you owe. This includes income tax, employment tax, and any penalties or interest already assessed. If you can't pay the full amount at once, the IRS offers payment plans, but the account generally isn't considered closed while a balance remains outstanding.

Step 7: Cancel Your EIN by Letter

An EIN is permanently assigned to your business and is never reused for another entity, but you can close the IRS account tied to it. Send a letter including the business's complete legal name, its EIN, its address, and the reason you're closing the account to: Internal Revenue Service, Cincinnati, OH 45999. Include a copy of your original EIN confirmation notice if you still have it, and do this only after your final returns are filed and any tax owed is paid.

Step 8: Keep Your Records

The IRS recommends keeping employment tax records for at least four years after the tax becomes due or is paid, whichever is later, and keeping property-related records until the statute of limitations expires for the year you dispose of that property.

Closing With the IRS Is Separate From Dissolving at the State Level

Completing these federal steps closes your tax accounts; it doesn't end your business as a legal entity with your state. Your state still considers an LLC or corporation active, with ongoing annual report obligations and fees, until you separately file that state's dissolution or termination document. If your entity is an LLC, see our guide on how to close an LLC with the IRS for the LLC-specific version of this process, and our guide on how to dissolve an LLC for the state-side filing that completes the closure.

A Business With No EIN Still Has a Final Return to File

A sole proprietor who never obtained an EIN, filing taxes under their own Social Security number, still has a final Schedule C to file for the business's last year of activity; not having an EIN to cancel doesn't remove the final-return obligation itself.

An Uncanceled EIN Doesn't Expire on Its Own

If you stop operating but never send the IRS a cancellation letter, the EIN account can remain open on the IRS's books indefinitely, which can complicate things if the IRS later expects a return from an account it still considers active. Send the letter once you're done, rather than assuming inactivity closes the account automatically.

Order Matters More Than It Seems

Filing the final return, paying any balance, and sending the EIN cancellation letter are sequential, not simultaneous, steps. Sending a cancellation letter before your final return is filed and paid doesn't speed up the process; the IRS still expects the return and payment before it treats the account as closed.

This Is Not Legal or Tax Advice

How these steps apply to your specific situation, particularly if your closing business involves selling assets, settling disputes among owners, or working through existing tax debt, depends on facts this general checklist doesn't cover. Talk to a tax professional about your final returns and any tax consequences, and a business attorney about the state-level dissolution and any liability questions.