how to close an llc with irs [Excellent Tips]

Last updated : Aug 25, 2022

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okay in this video i wanted to talk about the procedures for canceling an ein with the irs so an ein is an employer identification number it's effectively the tax id number that's assigned to a business so it's a sole proprietorship business or business entity it can even be assigned to trusts estates joint ventures charitable organizations effectively it's the tax id number for anything that's not let's say an individual person okay now so just to start with um you can't actually cancel your ein so once the ein is assigned to a business entity or again like a trust a state charitable organization sole proprietorship joint venture whatever it is once that ein is issued it remains attached to that entity name or business name and it's never reused or recycled and so for those reasons you can't actually cancel it because again it's never going to come up again so the only way you can really cancel it or one of two ways right and again cancel is not the best term because it's not closed forever by canceling the ein you're basically just letting the irs know that they should not expect any additional filings beyond some certain date so the most common way an ein a business account is closed out is when you file a final tax return so in this example here we have john and jack have a delaware llc that's a partnership so the llc is a partnership needs to file a form 1065 every year so they formed this partnership they filed 1065 for 2018 2019 and 2020 and then in 2021 they decided they were going to close the business down all right and then close out the llc so on december 15th they filed the articles of dissolution to dissolve the llc so because the entity existed for 2021 it still has to file a tax return for so on the form 1065 for the 2021 tax year they check the final box on page one of that form 1065 and that lets the irs know that hey this entity is closed you should not expect to receive any additional filings beyond this year and that's important because the irs if they don't get tax returns from you every year when they think your business is still operating they send you letters right they'll send you irs notices that say hey look we think you're still operating why didn't you file a 1065 for this year and so that's why it's really important to make sure that when you file a final return make sure it is marked final okay so now aside from this example what do you do if you had an ein that was genuinely never used so if you apply for an ein and never used it so you you never open any bank accounts you never filed an initial tax return you never even gave this ein out to vendors or customers that you know you're going to receive payments from in that case you can submit a letter to the irs which states that i form the uh i apply for the ein but i'm actually never going to use it so don't expect anything for me now what the letter does is the irs knows that once they receive that they just close the business gown assigned to the i am and so this is the record on file that says okay look i you know the entity um or the sole proprietorship was open the ein was open um but really nothing ever happened right because and this happens quite often i have a lot of uh you know clients or individuals that i consult with and they you know opened a company or applied for an eim and the very next day decided it was a bad idea and so nothing ever happened this fact pattern would apply to those persons so in our example here jeremy decides that he's going to start a consulting company he's doing marketing so he doesn't want to form an llc or corporation just yet he's just operating as a sole proprietorship but he still needs an ein he needs an ein for banking purposes to fill out withholding certificates and so what he does is he goes online and he applies for an ein with the irs and he calls his business jeremy's marketing guru again there's no llc or corp after there because he doesn't have that entity set up it's just a sole proprietorship now once the union is assigned he decides that look i don't have any time to actually do this so i didn't generate any income no expenses but i have this ein what do i do with it in that case he can apply this procedure here where he can send a letter to the irs let him know he's not going to be using it the entity never conducted business and so the irs can just close the business account so if this is your faq pattern what you can do is you can send a letter to the irs uh i would recommend having the cp575 notice in front of you the cp575 notice is the notice that was sent to you after the ein was assigned so the ein number will be on there the business name the business address a contact person and that's important because you want to use that same information in your letter but also you want to include a copy when you send that to the irs so the letter you write to the irs should be should include the following information uh legal name the entity or the business and jeremy's case is just his sole proprietorship business the address for the ein you need the number on there obviously the reason you want to close the account so jeremy would indicate that i set this thing up and decided the next day i've never wanted to do anything with it so the ein really serves no purpose and then include a copy a photocopy of the cp575 notice and that just helps because the irs has something you know tangible in front of them that they can actually verify in their system so it makes it easier for them to look up the ein look up the business name and they they can go ahead and expedite that process with closing your ein well not again not closing your eim closing the business account so that ein will remain in existence forever it won't be reused it won't be recycled but at least the business account will be closed and that the irs won't be chasing you for any tax filings or information once you submit that letter so that covers it for this video tutorial i hope you found that helpful if you have any questions please leave me a comment below happy to answer any questions i can and of course i always look forward to seeing you again later thank you

Thanks for your comment Ivelisse Apresa, have a nice day.
- Gaynelle Coren, Staff Member

in this video i wanted to cover when from a timing perspective you need to file a final tax return for your business so if you have a u.s company uslc u.s corporation whatever it might be if you close your business you still have to file a tax return for that year but you'll need to indicate that it's a final tax return for the short period that the entity actually existed during the calendar year okay so for example if you have a business in delaware let's say it's a delaware llc that's a partnership so over the years you've been filing form 1065 which is a partnership tax return for each year the company existed uh then you decide okay we're closing the business so you file articles of dissolution with the state of delaware on october 1st 2020 so the entity is no longer legally in existence on october 2nd the next day 2020. so when do you need to file the tax return under this fact pattern well let's start with some of the basics right so the form 1065 still has to be filed for 2020. no way around that right 2020 the company existed for you know whatever this nine months up into this date um you had operations you had income expenses you need to file a return and on that return page one there is a check box where you indicate it's a final return that communicates to the irs that this is the last return i'm filing because the company was terminated um on october 1st 2020 okay so now back to the central issue when is the due date well foreign test 65 is normally due within two and a half months following the close of the tax year so generally a partnership's default tax year is december 31st or sorry the the default year end is december 31st right so you run jan 1 to december 31. it's a calendar year m um so the tax return is due by march 15 was which is two and a half months following the close of the tax year so how does the due date change when you have a closed entity if the llc is shut down on october 1st the tax year ended on october 1 2020 and you still have to apply this two and a half month due date so the tax return due date in this fact pattern will be two and a half months following october first two thousand twenty so the due date for this 2020 tax return is now december 15 2020 and not march 15 2021. so the date is significantly moved up because you closed the entity on october 1. so think about this in a couple of other examples what if you close an entity june 30th you have two and a half months following june 30th to file the tax return for that year now what happens in most cases is you will just file an extension request because a lot of times the forms aren't even available and you just don't want to deal with it so you still have to remember to file that extension request otherwise you're looking at late filing penalties and so this is what i see all too often as many companies forget that once that tax once that entity is closed the tax year closes and so the due date is no longer that calendar year-end standard it's going to be moved up to whatever the the close of the tax year was right so the due date is no longer the standard march 15 due date um and so if you wait until let's say january or february to file that tax return you might have already you might be well beyond the due date right if we go back to our example here october 1 you got to get the return filed or the extension filed on or before december 15th so if you waited to say january or february 2021 you've already missed it so now if you file you're looking at late filing penalties um and those for partnerships and s corps are you know a per partner or per shareholder fee times the number of months late you don't want to be in that position so very important to be mindful of these due dates so you don't um you know unnecessarily subject your company to late filing penalties which are frankly completely unnecessary as long as you just track the due dates so uh that covers it for uh you know what i want to talk about and when to file these final returns i mean the takeaway again is make sure that the return is marked final and then when you indicate the date the entity was closed that you're filing within the prescribed due date timeline so for form 1065s and form 1120s or s corporations you got two and a half months following the close of the tax year for corporate entities so that's c corporate entities filing a form 1120 you have three and a half months following the close of the tax year but in either scenario you can certainly file an extension which which gives you another six months which i always highly recommend doing anyway even if you feel like you might be able to meet the deadline with an original filing always file an extension just give you a bit of a buffer there because you just never know what could happen so that covers it for this video thank you so much for watching i hope you found that helpful if you have any questions please leave me a comment below and of course i look forward to seeing you again in the future thank you

Thanks Marilu your participation is very much appreciated
- Gaynelle Coren

About the author

Gaynelle Coren

I've studied computer architecture at Central Christian College of Kansas in McPherson and I am an expert in acoustics (outline). I usually feel annoyed. My previous job was sales floor stock clerk I held this position for 5 years, I love talking about caving and air soft. Huge fan of Jillie Mack I practice handball and collect bobbleheads.