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The Importance of Properly Dissolving a Corporation for IRS Purposes


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Starting a corporation can be an exciting and daunting process. There are many steps involved, from choosing a business name to obtaining necessary licenses and permits. However, what many business owners may not realize is that the process doesn't end when the corporation is formed. Properly dissolving a corporation is just as important as starting one, especially when it comes to IRS obligations.

Dissolving a Corporation

Dissolving a corporation means legally ending the existence of the business entity. This process is necessary if the corporation is no longer conducting any business or if the owners have decided to close the business permanently. In the case of the question at hand, dissolving a corporation before ever conducting any business is known as "dissolving before commencing business."

The process of dissolving a corporation can vary depending on the state in which the corporation was formed. In this case, the corporation was formed in New Jersey, so the dissolution process must follow the guidelines set by the state of New Jersey. This typically involves filing paperwork with the state, notifying creditors and shareholders, and settling any outstanding debts or obligations.

IRS Obligations

While properly dissolving a corporation is important for legal and financial purposes, it is also crucial for IRS obligations. It is the responsibility of the corporation's owners to ensure that all IRS requirements are met, including those related to dissolution. This means that even if the corporation never conducted any business, there are still steps that must be taken to inform the IRS of its dissolution.

The first step in fulfilling IRS obligations is to cancel the corporation's Employer Identification Number (EIN). An EIN is a unique nine-digit number assigned to a business by the IRS for tax purposes. This number is used to identify the corporation and is necessary for filing tax returns, paying taxes, and opening business bank accounts. Therefore, it is important to cancel the EIN once the corporation is dissolved to avoid any potential confusion or issues with the IRS.

In order to cancel the EIN, the corporation must file a final tax return with the IRS, even if there was no business activity. This final tax return is known as Form 966 and must be filed within 30 days of the date of dissolution. This form notifies the IRS of the corporation's intention to dissolve and includes information such as the corporation's name, address, and EIN. It is important to note that failure to file this form may result in penalties and fees.

Additionally, the corporation must also file a final employment tax return if it had employees during its brief existence. This includes Form 941 for reporting payroll taxes and Form 940 for reporting federal unemployment taxes. These forms must be filed and any outstanding taxes must be paid in order to properly dissolve the corporation for IRS purposes.

Seeking Professional Guidance

Dissolving a corporation can be a complex and overwhelming process, especially when it comes to fulfilling IRS obligations. It is always recommended to seek guidance from a tax professional to ensure that all necessary steps are taken and all requirements are met. They can also assist with filing the proper paperwork and reporting any outstanding taxes.

In conclusion, properly dissolving a corporation is not only necessary for legal and financial purposes, but it is also crucial for fulfilling IRS requirements. Even if the corporation never conducted any business, it is important to take the necessary steps to inform the IRS of its dissolution and cancel the EIN. Seeking guidance from a tax professional can help ensure that all obligations are met and the dissolution process is completed smoothly.