Changes in Organization or Ownership
If you already have an Employer Identification Number (EIN), you may need to get a new one if either the organization or ownership of your business changes. If you incorporate a sole proprietorship or form a partnership, you must get a new EIN. However, do not apply for a new EIN if:
You change only the name of your business
A partnership or corporation declares bankruptcy
A corporation chooses to be taxed as an S corporation
You elected on Form 8832 Entity Classification Election, to change the way the entity is taxed, or
You change the location or add locations
You elect to be taxed as an S corporation.
The above list is not all-inclusive. To find out when you should not apply for a new EIN, refer to Employer Identification Numbers (EIN) - Do You Need a New EIN?
Note: If you are electing to be an S corporation, be sure to file Form 2553, Election by a Small Business Corporation.
Showing posts with label Business Closing. Show all posts
Showing posts with label Business Closing. Show all posts
Saturday, January 10, 2009
Closing a Business Checklist
There are typical actions that are taken when closing a business.
You must file an annual return for the year you go out of business.
If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes.
The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return.
If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.
You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business.
Below is a list of typical actions to take when closing a business, depending on your type of business structure:
Checklist
Make final federal tax deposits
File final quarterly or annual employment tax form.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF)
Form 941, Employer's Quarterly Federal Tax Return (PDF)
Form 943, Employer's Annual Tax Return for Agricultural Employees (PDF)
Form 943-A, Agricultural Employer's Record of Federal Tax Liability (PDF)
Issue final wage and withholding information to employees
Form W-2, Wage and Tax Statement (PDF)
Report information from W-2s issued.
Form W-3, Transmittal of Income and Tax Statements (PDF)
File final tip income and allocated tips information return.
Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (PDF)
Report capital gains or losses.
Form 1040, U.S. Individual Income Tax Return (PDF)
Form 1065, U.S. Partnership Return of Income (PDF)
Form 1120 (Schedule D), Capital Gains and Losses (PDF)
Report partner's/shareholder's shares.
Form 1065 (Schedule K-1), Partner's Share of Income, Credits, Deductions, etc. (PDF)
Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits, Deductions, etc. (PDF)
File final employee pension/benefit plan.
Form 5500, Annual Return/Report of Employee Benefit Plan (PDF)
Issue payment information to sub-contractors.
Form 1099-MISC, Miscellaneous Income (PDF)
Report information from 1099s issued.
Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF)
Report corporate dissolution or liquidation.
Form 966, Corporate Dissolution or Liquidation (PDF)
Consider allowing S corporation election to terminate.
Form 1120S, Instructions (PDF)
Report business asset sales.
Form 8594, Asset Acquisition Statement (PDF)
Report the sale or exchange of property used in your trade or business.
Form 4797, Sales of Business Property (PDF)
References/Related Topics
Canceling an EIN – Closing Your Account
Closing a Business
Contact local and state agencies.
There may be requirements relating to state and local governments as well. You can use the State and Local Government on the Net to link to the state and/or local government(s) that apply to your business.
Publication 3207, The Small Business Resource Guide, provides help on closing a business and links to other relevant sources. Order a FREE CD-Rom via the web.
Visit the Small Business Administration (SBA) Web site for a map to help you locate the relevant SBA resources closest to you . The SBA also provides advice on closing a business.
You must file an annual return for the year you go out of business.
If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes.
The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return.
If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.
You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business.
Below is a list of typical actions to take when closing a business, depending on your type of business structure:
Checklist
Make final federal tax deposits
File final quarterly or annual employment tax form.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF)
Form 941, Employer's Quarterly Federal Tax Return (PDF)
Form 943, Employer's Annual Tax Return for Agricultural Employees (PDF)
Form 943-A, Agricultural Employer's Record of Federal Tax Liability (PDF)
Issue final wage and withholding information to employees
Form W-2, Wage and Tax Statement (PDF)
Report information from W-2s issued.
Form W-3, Transmittal of Income and Tax Statements (PDF)
File final tip income and allocated tips information return.
Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (PDF)
Report capital gains or losses.
Form 1040, U.S. Individual Income Tax Return (PDF)
Form 1065, U.S. Partnership Return of Income (PDF)
Form 1120 (Schedule D), Capital Gains and Losses (PDF)
Report partner's/shareholder's shares.
Form 1065 (Schedule K-1), Partner's Share of Income, Credits, Deductions, etc. (PDF)
Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits, Deductions, etc. (PDF)
File final employee pension/benefit plan.
Form 5500, Annual Return/Report of Employee Benefit Plan (PDF)
Issue payment information to sub-contractors.
Form 1099-MISC, Miscellaneous Income (PDF)
Report information from 1099s issued.
Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF)
Report corporate dissolution or liquidation.
Form 966, Corporate Dissolution or Liquidation (PDF)
Consider allowing S corporation election to terminate.
Form 1120S, Instructions (PDF)
Report business asset sales.
Form 8594, Asset Acquisition Statement (PDF)
Report the sale or exchange of property used in your trade or business.
Form 4797, Sales of Business Property (PDF)
References/Related Topics
Canceling an EIN – Closing Your Account
Closing a Business
Contact local and state agencies.
There may be requirements relating to state and local governments as well. You can use the State and Local Government on the Net to link to the state and/or local government(s) that apply to your business.
Publication 3207, The Small Business Resource Guide, provides help on closing a business and links to other relevant sources. Order a FREE CD-Rom via the web.
Visit the Small Business Administration (SBA) Web site for a map to help you locate the relevant SBA resources closest to you . The SBA also provides advice on closing a business.
Declaring Bankruptcy and Closing Your Business
Bankruptcy proceedings begin with the filing of a petition with the bankruptcy court. The filing of the petitions creates a bankruptcy estate, which generally consists of all the assets of the person filing the bankruptcy petition. A separate taxable entity is created if the bankruptcy petition is filed by an individual under chapter 7 or chapter 11 of the Bankruptcy Code.
The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to.
This information is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. For additional tax information on bankruptcy, refer to Publication 908, Bankruptcy Tax Guide.
References/Related Topics
Closing a Business
The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to.
This information is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. For additional tax information on bankruptcy, refer to Publication 908, Bankruptcy Tax Guide.
References/Related Topics
Closing a Business
Sale of Business
The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.
A business usually has many assets. When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction. The sale of inventory results in ordinary income or loss.
Publication 541, Partnership interests
An interest in a partnership or joint venture is treated as a capital asset when sold. The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. For more information, see Publication 541, Partnerships (PDF).
Publication 550, Corporation interests
Your interest in a corporation is represented by stock certificates. When you sell these certificates, you usually realize capital gain or loss. For information on the sale of stock, see chapter 4 in Publication 550, Investment Income and Expenses (PDF).
Corporate liquidations
Corporate liquidations of property generally are treated as a sale or exchange. Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value.
In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. For more information, see Internal Revenue Code section 332 and its regulations.
Allocation of consideration paid for a business
The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method to allocate the consideration to each business asset transferred. This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. It also determines the buyer's basis in the business assets.
Consideration
The buyer's consideration is the cost of the assets acquired. The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets.
Residual method
The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code.
A group of assets constitutes a trade or business is either of the following applies.
Goodwill or going concern value could under any circumstances, attach to them.
The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code.
The residual method provides for the consideration to be reduced first by the cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposits). The consideration remaining after this reduction must be allocated among the various business assets in a certain order. To find out more about how to make the allocation among assets in proportion, refer to Publication 544, Sales and Other Dispositions of Assets.
References/Related Topics
Closing a Business
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.
A business usually has many assets. When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction. The sale of inventory results in ordinary income or loss.
Publication 541, Partnership interests
An interest in a partnership or joint venture is treated as a capital asset when sold. The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. For more information, see Publication 541, Partnerships (PDF).
Publication 550, Corporation interests
Your interest in a corporation is represented by stock certificates. When you sell these certificates, you usually realize capital gain or loss. For information on the sale of stock, see chapter 4 in Publication 550, Investment Income and Expenses (PDF).
Corporate liquidations
Corporate liquidations of property generally are treated as a sale or exchange. Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value.
In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. For more information, see Internal Revenue Code section 332 and its regulations.
Allocation of consideration paid for a business
The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method to allocate the consideration to each business asset transferred. This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. It also determines the buyer's basis in the business assets.
Consideration
The buyer's consideration is the cost of the assets acquired. The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets.
Residual method
The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code.
A group of assets constitutes a trade or business is either of the following applies.
Goodwill or going concern value could under any circumstances, attach to them.
The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code.
The residual method provides for the consideration to be reduced first by the cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposits). The consideration remaining after this reduction must be allocated among the various business assets in a certain order. To find out more about how to make the allocation among assets in proportion, refer to Publication 544, Sales and Other Dispositions of Assets.
References/Related Topics
Closing a Business
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.
Terminating your Retirement Plan upon Business Closure
In this stage – Terminating – business owners go through the often-confusing process of shutting down a retirement plan.
This process includes:
Notifying participants
Notifying appropriate government agencies
Distributing plan assets
… and perhaps choosing a new plan.
FAQ's
Why is the IRS holding the money from my retirement plan now that the plan has terminated?
When a plan has formally terminated and submitted a Form 5310, Application for Determination for Terminating Plan, the Service will review the application in an expedient manner. However, on many occasions there are questions raised which need to be addressed before a favorable letter is issued. Also, the employer or trustee is not required to hold the assets until a favorable determination letter is issued, but usually will do so as a safety feature to ensure that distributions will receive the favorable tax treatment to which qualified plan distributions are entitled.
NOTE: The Service does not maintain or hold the assets during the termination process.
When are assets required to be distributed after a plan has terminated?
Generally, an employer is required to distribute assets from a terminated plan as soon as it is administratively feasible after the date of plan termination.
Whether distributions are made as soon as it is administratively feasible is determined under all the facts and circumstances of a given case, but generally the Internal Revenue Service views this to mean within one year after plan termination (see Rev. Rul. 89-87, 1989-2, C.B.
This process includes:
Notifying participants
Notifying appropriate government agencies
Distributing plan assets
… and perhaps choosing a new plan.
FAQ's
Why is the IRS holding the money from my retirement plan now that the plan has terminated?
When a plan has formally terminated and submitted a Form 5310, Application for Determination for Terminating Plan, the Service will review the application in an expedient manner. However, on many occasions there are questions raised which need to be addressed before a favorable letter is issued. Also, the employer or trustee is not required to hold the assets until a favorable determination letter is issued, but usually will do so as a safety feature to ensure that distributions will receive the favorable tax treatment to which qualified plan distributions are entitled.
NOTE: The Service does not maintain or hold the assets during the termination process.
When are assets required to be distributed after a plan has terminated?
Generally, an employer is required to distribute assets from a terminated plan as soon as it is administratively feasible after the date of plan termination.
Whether distributions are made as soon as it is administratively feasible is determined under all the facts and circumstances of a given case, but generally the Internal Revenue Service views this to mean within one year after plan termination (see Rev. Rul. 89-87, 1989-2, C.B.
Closing your Business
If you are closing your business and have an EIN number with the IRS, the process is more involved than just closing your business than just locking the doors.
This section provides procedures for getting out of business, including what forms to file and how to handle additional revenue received or expenses you may incur.
5 things may occur with the closing of your business:
Changing Your Business Structure
Closing a Business Checklist
Declaring Bankruptcy
Sale of a Business
Terminating a Retirement Plan
The most important thing about closing a business is informing the IRS that it is closed and that no more filing requirements are needed. Making sure this is done can help you stay out of hot water. If the IRS thinks you still need to file tax returns, Forms 1065, 1120, 1120s, or employment returns, 941, 940, they will continue to pursue you for that information.
This section provides procedures for getting out of business, including what forms to file and how to handle additional revenue received or expenses you may incur.
5 things may occur with the closing of your business:
Changing Your Business Structure
Closing a Business Checklist
Declaring Bankruptcy
Sale of a Business
Terminating a Retirement Plan
The most important thing about closing a business is informing the IRS that it is closed and that no more filing requirements are needed. Making sure this is done can help you stay out of hot water. If the IRS thinks you still need to file tax returns, Forms 1065, 1120, 1120s, or employment returns, 941, 940, they will continue to pursue you for that information.
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