Closing a business involves a checklist of final tasks, from paying last paychecks to liquidating assets. A primary part of this process is handling federal tax matters. The Employer Identification Number (EIN) is the nine-digit identifier the IRS assigns to a business for tax purposes. Managing this number and its associated accounts requires understanding the specific IRS procedures to avoid future complications.
Can You Cancel an EIN
A common question is whether an EIN can be “canceled.” According to the IRS, an EIN cannot be canceled. Once assigned, it becomes a permanent federal taxpayer identification number for that business and is never deleted or reused for another entity.
The correct procedure is not to cancel the number but to “close your IRS business account” that is linked to the EIN. This action formally notifies the IRS that the business has ceased operations and will no longer have tax obligations like filing returns.
How to Close Your IRS Business Account
To formally close your business account, you must send a letter to the IRS, as the agency does not have a specific form for this action. This notification must be submitted through postal mail. The letter must contain specific details to ensure the IRS can accurately identify your business and process the request.
Your letter should include:
- The complete legal name of the business
- The nine-digit EIN
- The business mailing address
- A clear statement explaining the reason for closing the account
If you have the original EIN Assignment Notice (Form CP 575), including a copy with your letter can help streamline the process. It is advisable to keep a copy of this letter for your files. Mail the letter to the Internal Revenue Service in Cincinnati, OH 45999. After processing, which may take 45 days or more, the IRS may send a confirmation letter.
Filing Final Tax Returns and Payments
Sending the account closure letter must be preceded by settling all outstanding tax obligations. The IRS cannot close your business account until you have filed all necessary returns and paid all taxes owed. You must complete and submit a final tax return for the year your business ceases operations. On this final return, you must check the box indicating it is the “final return.”
Depending on your business activities, you may need to file several forms. If you had employees, you must file a final Form 941 or Form 944. You will also need to file Form 940 for the final year to report unemployment taxes. You must make all final federal tax deposits and pay any outstanding balances to prevent penalties and interest.
What Happens to Your EIN After Closing
Once an EIN is assigned, it remains permanently linked to the business entity, regardless of whether the associated IRS account is open or closed. The IRS does not reissue or recycle EINs, so the number will remain associated with your now-closed business in federal records.
The EIN becomes inactive after the business account is closed. If you decide to restart the same business in the future, you may be able to reactivate and use the original EIN. This would typically involve contacting the IRS to have the account reopened. However, if you start a new business entity, like a new LLC or corporation, you must apply for a new EIN.
What If You Never Used Your EIN
An entrepreneur might obtain an EIN but the business venture never gets off the ground. If the EIN was never used to open a bank account, hire employees, or file tax returns, the process for closing the account is more straightforward. Even if it was never used, the EIN does not automatically expire and you are still responsible for it.
You should follow the same procedure of writing a letter to the IRS to close the associated account. In the letter, explain that the EIN was never used and that the business never became operational. This communication prevents the IRS from sending notices about unfiled tax returns. Since there was no business activity, there are no final tax returns to file or taxes to pay.