FS-2020-14, September 2020 A corporation is a separate taxpaying entity with shareholders that exchange money, property or both, for the corporation's capital stock. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. Corporations must take certain actions when ceasing operations whether they've been in business a few months or many years. Here's information on typical final forms and schedules that a corporation going out of business file. Income tax returns A C corporation must file Form 1120, U.S. Corporation Income Tax Return. They report capital gains and losses on Schedule D (Form 1120). An S corporation must file Form 1120-S, U.S. Income Tax Return for an S Corporation. They report capital gains and losses on Schedule D (Form 1120-S). For the tax year in which the corporation ceases to exist, filers need to check the "final return" box, which is near the top of the front page of the return below the entity information. They do the same on Schedule K-1, Shareholder's Share of Income, Deductions, Credits, etc. They must file Form 966, Corporate Dissolution or Liquidation, if they adopt a resolution or plan to dissolve the corporation or liquidate any of its stock. Also, corporations may need to file these forms with their Forms 1120 or 1120-S: Form 4797, Sales of Business Property, if they sell or exchange property used in their business. They also need to file this form if business use of certain Section 179 or listed property drops to 50% or less. Form 8594, Asset Acquisition Statement, if they sell their business. Employment taxes Corporations with one or more employees must make final federal tax deposits. If corporations don't withhold or deposit income, Social Security and Medicare taxes, the Trust Fund Recovery Penalty may apply. The penalty is the full amount of the unpaid trust fund tax. The IRS may impose it on all persons who the Service determines is responsible for collecting, accounting for and paying these taxes and who acted willfully in not doing so. A responsible person can be an officer or employee of a corporation, an accountant, a volunteer director/trustee, or someone who signs checks for the corporation or has authority to cause the spending of business funds. Corporations need to file Form 941, Employer's Quarterly Federal Tax Return (or Form 944, Employer's Annual Federal Tax Return), for the calendar quarter in which they make final wage payments. They check the box and enter the date final wages were paid on line 17 of Form 941 or line 14 of Form 944. They must attach a statement to their return showing the name of the person keeping the payroll records and the address where those records will be kept. Corporations must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for the calendar year in which final wages were paid. They need to check box d in the Type of Return section to show that the form is final. Corporations also need to provide Forms W-2, Wage and Tax Statement, to their employees for the calendar year in which they make final wage payments. Generally, they furnish copies B, C and 2 to the employees. They file Form W-3, Transmittal of Income and Tax Statements to transmit Copy A to the Social Security Administration. Reporting due dates Visit IRS.gov for information on employment tax due dates. Other reporting for corporations with employees If employees receive tips, the corporation must file Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, to report final tip income and allocated tips. If the corporation provides employees with a pension or benefit plan, they need to file a final Form 5500, Annual Return/Report of Employee Benefit Plan. Corporations that pay contract workers Corporations report payments to contract workers who they've paid at least $600 for services (including parts and materials) during the calendar year in which they go out of business on Form 1099-NEC, Nonemployee Compensation. Some filers must file Forms 1099 electronically. Those who file paper forms must also file Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to transmit paper copies of Forms 1099 to the IRS. Recordkeeping How long a business owner should keep a document depends on several factors. These factors include the action, expense and event recorded in the document. Businesses should keep records relating to property until the period of limitations expires for the year in which they dispose of the property in a taxable disposition. Business owners should keep all records of employment taxes for at least four years. Employer identification numbers Once the IRS has assigned an employer identification number to a corporation, it becomes the permanent federal taxpayer identification number for that business. To close their business account, corporations need to send the IRS a letter that includes the complete legal name of their business, the EIN, the business address and the reason they wish to close their account. If they have a copy of the notice that the IRS issued with the EIN assignment, they should include that with the letter. They should write to the IRS at: Internal Revenue Service, Cincinnati, Ohio 45999 Corporations that: made a federal tax deposit or other federal tax payment, are liable for any business taxes, or are notified by the IRS that a business tax return is due, must file the appropriate tax returns before the IRS can close their account. More information: Publication 542, Corporations Closing a Business* Closing a Business video Small Business and Self-Employed Tax Center* Paying Yourself Publication 3402, Taxation of Limited Liability Companies IRS provides guidance under the CARES Act to taxpayers with net operating losses *available in multiple languages
