Finalize your fiscal responsibilities, so you can pave the way for new beginnings.

Our Corporate Dissolution Tax Package includes Final Federal tax return, one state return, Form 966 (required within 30 days of dissolution), and your EIN cancellation letter upon Federal Return submission. We cannot dissolve, this must be done through a legal firm.

So we include all the forms in our normal C-corp or LLC tax packages, plus the forms you need specifically to close out your company the right way. These include:

• Form 966 – Required to be filed by a C corporation when it undergoes a dissolution or liquidation.
• EIN Cancellation Letter and the mailing fee to submit it
• Form 982 – for the discharge of indebtedness
• A Federal tax extension – often you will need to wait for the State to close out the company

Your final tax return is due 3.5 months after the month your company is legally dissolved with the State in which you incorporated. Corporations will also need to file form 966 within 30 days of dissolving the company and a letter must also be sent to the IRS relinquishing the EIN number.

If you don’t close out your company properly then you can face several issues including:

• Continuous Tax Obligations – If your business is not closed the IRS and State agencies will expect continued tax returns. Failure to file can lead to failure to file penalties or even penalties for not filing form 5472 or form 5471 (both of which have large automatic fines)
• Legal Liabilities – As long as the business entity exists it could be subject to legal action, as can the owners and the board.
• Credit Issues – Ongoing financial obligations or penalties can impact the business’s credit rating and potentially the owners and directors depending on the business structure
• Dissolved Assets – If assets are not properly transferred before the dissolution this can lead to legal and tax complications.
• Discharge of Debt – if you don’t file form 982 you could miss out on tax benefits or relief related to the discharge of debt

Filing all tax returns and settling tax balances, penalties, fees, and interest is crucial when closing a corporation. This includes both federal and state returns, such as Delaware Franchise Tax and CA Minimum tax.

Delaware will never close a corporation for non-payment of taxes. While they currently don’t actively pursue companies for back franchise taxes, there is always a risk that they may come after the shareholder and decision makers in the future. Thus, it is recommended to pay up all taxes and close the company by dissolving with Delaware state when ceasing business.

There are two steps to doing this correctly. The first is to have a board resolution drafted that shows the vote to the to dissolve the company. Then, after the decision has been ratified, the articles of dissolution are filed with the state to formally terminate the corporation.

Generally, these documents require the help of an attorney to prepare. Thus, you will want to have the articles of dissolution and board authorizations prepared by an attorney for filing with the secretary of state. You can use a lawyer for corporate dissolutions who provides a high level of service for a fair price for Cleer clients.

Once you close your business that should be the end of receiving income from it. You shouldn’t be transacting business after the date of closing. Expenses that are paid after the business closes and prior to filing the timely filed final tax return can still be deducted on that final return and offset any income.

Any income received after the company closes will create an unincorporated business requiring an additional tax filing. This will result in needing an independent contractor tax return, if only one owner this means filing Schedule C included with the personal tax return, or a partnership return filed on Form 1065 if the company has more than one owner.

It is required to file form 966 within 30 days of closing the corporation. As this is a requirement of closing, it is crucial for notifying the IRS about the dissolution of the corporation. This form can be prepared by the attorneys filing the dissolution documents.

The corporate income tax return is generally due three and a half months after the month the company dissolution is filed by the state.

Some states are taking 18+ weeks to return dissolution documents, thus we now recommend filing an extension after dissolution, based on when the dissolution was submitted.

It is important to make sure that the return isn’t late when it is filed as certain penalties can be very steep for filing late, including the $25,000 penalty if Form 5472 needs to be included. Cleer will file an extension for you if needed as part of the Corporate Dissolution Tax Package, as sometimes it can take weeks to get the Certificate of Dissolution from your state.

If there were payouts made from earnings and profits, the information returns reporting the dividends on 1099-DIV or 1042-S will also be required, and repayments of loans could trigger the need for 1099-INT to be filed. SAFE notes remaining unpaid at dissolution generally don’t create cancellation of debt income, but it depends on the terms of the agreement, and if any partial payment was made out prior to closing, thus this needs to be reviewed carefully.

If you have registered to do business in any states other than the state of incorporation, you will need to withdraw or surrender your foreign qualification in that state. Each state has a process for doing this, and you may want to have the dissolution attorney file this for you. Oftentimes, you cannot surrender registration in the state until the final tax return for that state has been filed.

In most cases, states allow for up to a year after closing the business to withdraw the state registration.

Another requirement of closing a company is to write a letter to the IRS requesting that the Employer Identification Number (EIN) assigned to your company is deactivated from their system. This way it prevents the IRS sending requests for tax returns for later filing years. If you need help with this letter, Cleer provides it as part of our Corporate Dissolution Tax Package, and mailing it to the IRS is included in that service.

We include the EIN cancellation letter in our Corporate Dissolution Tax Package, and you can expect to receive it when we send through your tax return for your approval, before we submit the return. The timeline may vary, but we aim to provide a prompt and efficient service.

After receiving the stamped dissolution documents, file the final/current year Federal and State income tax returns. Returns should always be marked “Final Return” when they are filed and should use fiscal year dates ending at the date of dissolution, but this is just the start of what needs to be looked at for filing a final tax return properly.

Certain transactions can create the requirement to include Form 5472 for foreign shareholders, and debt can create taxable income in the year of dissolution or trigger information returns. Even though these returns are often far more complex than a standard tax year, at Cleer, we discounted our Corporate Dissolution Tax Package, to help you through this challenging time.