How Do I Cancel or Terminate My EIN If I Close My Business?
Not all businesses are success stories. People close businesses for all kinds of reasons (the burden of it all, retirement, health issues, etc.). When it comes time to close your business, you must know the proper procedure and how to reconcile everything to avoid violating any laws or getting into legal trouble. Your EIN is your unique identifier with the IRS, and you should let the IRS know that your business is closing and you won’t be using your EIN any further.
What is an EIN?
An Employer Identification Number (EIN), or Federal Employer Identification Number (FEIN), is a nine-digit number the IRS assigns to your business for tax and other purposes. Your EIN identifies you to the IRS when filing different types of taxes (payroll, income, etc.). Employers, sole proprietors (with employees), corporations, LLCs, partnerships, nonprofits, trusts, estates, government agencies, certain individuals, and others all use EINs. Although some business structures don’t need an EIN, most have one anyway because of the advantages, such as building business credit. Whenever you contact the IRS, you use your EIN to identify your business, so the correspondence and information are linked to the proper account.
Steps to Close a Business
Starting a new business is a huge endeavor that requires a lot of hard work. Closing that same business later may be just as tricky. You can’t just walk away and do nothing. There are many steps involved in concluding your business activities from a personal standpoint and the IRS’s perspective. Thankfully, the IRS provides a comprehensive resource that outlines each step and why it is important. To remain compliant and stay out of legal trouble, you should always follow the federal government’s guidelines for closing your business.
The general steps to close a business are as follows:
1. File Your Final Tax Return
You must file a final tax return at the end of the year in which you close the business. The type will depend on the type of entity you have. Limited Liability Companies (LLCs) are organized at the state level and may be classified as a partnership, corporation, or "disregarded entity."
Sole proprietorships will file Form 1040 or Form 1040 SR. Additionally, according to the IRS, you may also need to file "Form 4797, Sales of Business Property, for each year you sell or exchange property used in your business. You also need to file this form if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less. You may need to file Form 8594, Asset Acquisition Statement, if you sell your business.* *You may need to file a Schedule SE (Form 1040), Self-Employment Tax, if you have net earnings of $400 or more from your business.
Partnerships must file Form 1065, U.S. Return of Partnership Income. According to the IRS, additional requirements are as follows:
When you file, you must:
- Report capital gains and losses on Schedule D (Form 1065).
- Check the "final return" box (it’s near the top of the front page of the return, below the name and address).
- Check the "final K-1" box on Schedule K-1 PDF.
You may also need to file these other forms with your Form 1065:
- Form 4797, Sales of Business Property, for each year your partnership sells or exchanges property used in the business. You also need to file this form if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less. Use Form 8594, Asset Acquisition Statement, if you sell your business.
When dissolving a corporation, you must file Form 966, Corporate Dissolution or Liquidation. Additional requirements according to the IRS are as follows:
- You must also file your corporation’s final income tax return. Remember to check the "final return" box, which is near the top of the front page of the return, below the name and address.
For a C corporation, you must:
- File Form 1120, U.S. Corporate Income Tax Return, for the year you close the business.
- Report capital gains and losses on Schedule D (Form 1120).
For an S corporation, you must:
- File Form 1120-S, U.S. Income Tax Return for an S Corporation for the year you close the business.
- Report capital gains and losses on Schedule D (Form 1120-S).
- Check the "final K-1" box on Schedule K-1.
Regardless of the type of corporation, you may also need to file these forms when you file your Form 1120 or 1120-S:
- Form 4797, Sales of Business Property, for each year you sell or exchange property used in the business. You also need to file this form if closing your business causes the business use of an eligible property under ~Section 179~to drop to 50% or less.
- Form 8594, Asset Acquisition Statement, if you sell your business.
2. Pay Your Employees
Pay your employees their final wages, including any overtime, bonuses, and paid time off. Make your final payroll tax deposits and report your employment taxes. Pay any remaining taxes.
3. Pay Contract Workers
Pay contract workers what you owe them. If you paid any contract workers \$600 or more, you must report it on Form 1099-NEC. Use Form 1096 to report all your contract payments for the year.
4. Deactivate Your EIN
Use the IRS’s procedure for deactivating your EIN (below). They cannot cancel it, but will deactivate it once you provide notice of the company closing, pay all your taxes, and file all your outstanding returns.
5. Close Your Business Bank Account
Close your business bank account once all automatic withdrawals have occurred and checks have cleared.
Retain all your business records for at least seven years in case of an audit.
How to Cancel an EIN Number
Once you decide to close your business for good, you will no longer need your EIN. The IRS cannot cancel it, but if you request it, they will deactivate it. However, that number will always be linked to your company. It is a permanent federal taxpayer ID number.
To deactivate your EIN, send the IRS a letter that includes your entity’s EIN, legal name, address, EIN assignment notice, if available, and your reason for deactivating. Mail to:
Internal Revenue Service MS 6055 Kansas City, MO 64108
Or
Internal Revenue Service MS 6273 Ogden, UT 84201
If you made any tax payments or own any business taxes, or you received a notice to file a business tax return, you must do so before the IRS will deactivate your EIN. You must make all outstanding payments and file all returns first.
Exempt Organizations That Cannot Deactivate an EIN
According to the IRS, You can’t deactivate your EIN if your exempt organization has:
- Applied for an exemption
- Been covered in a group ruling
- Filed an information return
To deactivate your EIN, send us a letter with:
- Your entity’s EIN, legal name, and address
- EIN assignment notice, if available
- Your reason for deactivating your EIN
Mail to:
Internal Revenue Service Attn: EO Entity Mail Stop 6273 Ogden, UT 84201
Or
fax it to 855-214-7520.
If you don’t meet the criteria to close your exempt organization, you can use the IRS’s procedure for terminating an exempt organization.
FAQs
Even if you never used your EIN, it will permanently be associated with your business. The IRS does not reuse EINs, and once you activate it, it will remain. The IRS does not cancel EINs, but it can deactivate one that is no longer in use because the company is closed. Be sure you won’t later reopen the business and won’t need it before you take this drastic step.
Closing up shop depends on your type of business and the legal structure you used to form it. Sole proprietorships can shut down without any hassles, but LLCs, partnerships, and corporations require a few additional steps. At the very least, you will need to file your final income, sales tax, and employee tax returns with the IRS or state government agency. You may also need to file additional documents with the federal government, deactivate your Employer Identification Number (EIN), and report the sale of your business assets.
The process for officially closing your business will depend on many factors. A few of the typical steps involved are as follows:
- Notify creditors that the LLC is dissolved.
- Close bank accounts.
- Cancel business credit cards.
- Cancel business licenses and permits associated with the LLC.
- Pay off any remaining debts to creditors.
- File your final tax return and pay any outstanding amount due.
- File any final reports to government agencies as needed.
Although your EIN does not expire, regardless of whether you use it or not, if you decide to close your business, you can "deactivate" it with the IRS. If you do not take this step, your EIN will remain active forever, and it will permanently be associated with your company.
Yes, an EIN is public information, especially for large, publicly traded corporations. It can be identified through the IRS or business agreements. However, the IRS cautions the public to be careful about disclosing their EIN to prevent identity theft or fraud.
If you obtain your EIN via the online system, you can begin using it as soon as you get it. However, it may take a few days for the government databases to populate, so please wait a little while before distributing it.
Whenever your business entity changes ownership and is restructured, you must change your EIN. However, there is no requirement to change your EIN when you change your business name or address.
If you do need to change your EIN, you’ll need to take the following steps:
- Contact the IRS and follow their requirements for changing your EIN: Ensure you adhere to IRS guidelines when requesting a change to your EIN.
- Update your EIN with any local and state taxation and licensing agencies: Notify relevant authorities to keep your records up to date.
- Provide your new EIN to your employees: Communicate the updated EIN to your employees for payroll and tax purposes.
- Update any payroll systems you use: Modify your payroll software or services to reflect the new EIN.
- Amend and revise any legal contracts or business agreements that require your EIN for filing: Ensure all documents and agreements are updated with the new EIN.
- Notify any financial institutions you do business with: Inform banks and other financial entities of the change to maintain continuity in financial transactions.
Typically, you cannot cancel your EIN, but the IRS will deactivate it upon your request. To deactivate an EIN, send a letter to one of the following IRS locations:
Internal Revenue ServiceMS 6055Kansas City, MO 64108Internal Revenue ServiceMS 6273Ogden, UT 84201Be sure to include your EIN, name, address, EIN confirmation notice (if you have it), and the reason for requesting deactivation. Please note that the IRS will deactivate an EIN only after all outstanding tax returns are filed and all taxes paid.