Form 966 Corporate Dissolution or Liquidation: Everything You Need to Know
Form 966 Corporate Dissolution or Liquidation is the IRS form that must be filled out when closing down an S corporation. 3 min read
2. Completing IRS Form 966
3. Satisfying the IRS Dissolution Plan Requirement
Form 966 Corporate Dissolution or Liquidation is the IRS form that must be filled out when closing down an S corporation. In this situation, you are responsible for notifying all relevant federal, state, and local government agencies and completing all IRS reporting requirements.
Steps to Closing an S Corporation
- Within 30 days of the vote to dissolve an S corporation, you must submit a completed Form 966 Corporation Dissolution or Liquidation.
- Attach a copy of the dissolution plan for submission to the IRS.
- When completing your final Form 1120S, U.S. Income Tax Return for an S Corporation, mark the checkbox labeled "Final Return."
- If you have business property sales to report, attach Form 4797 Sales of Business Property and Form 8594 Asset Acquisition Statement to your tax return.
- When you send shareholders their final Schedule K-1, mark the checkbox labeled "Final K-1."
- Pay all taxes the company still owes.
- When filing the Form 940 Employer's Annual Unemployment (FUTA) tax return, select Final as the type of return.
- To all forms, include a letter with the contact name and address of the person who will maintain archived payroll records.
- Send the IRS a written statement of your desire to close the business tax account for your S corporation along with an attached copy of the assignment letter for your employer identification number (EIN).
- After submitting these forms, retain copies for your records for at least seven years.
Completing IRS Form 966
Domestic corporations and foreign corporations that pay taxes in the United States are required to complete IRS Form 966. The steps to complete this form are as follows:
- Write your business's name, address, and EIN at the top of the form.
- Complete Box 1 with the date of incorporation.
- Complete Box 2 with the location of incorporations.
- Use Box 3 to indicate whether this is a complete or partial liquidation.
- Write the date on which the plan to dissolve or liquidate was adopted in Box 4.
- Fill in Box 5 with the location where the most recent tax return was filed and indicate whether it was e-filed.
- Use Box 6 to write the date of the first day before the last tax year.
- Write the date of the last tax year in Box 7a.
- In Box 7b, indicate whether the final tax return was filed as part of a consolidated return. If the answer to this question is yes, you must insert the name of the parent form in Box 7c, the parent's EIN in Box 7d, and the location where the return was filed in Box 7e.
- In Box 8, indicate the existing numbers of common and preferred shares when the liquidation plan was drafted.
- If the dissolution plan was amended, insert these dates in Box 9.
- Indicate the liquidation or dissolution section in Box 10.
- If filling out a supplement or amendment to a previous 966 filing, indicate the date of that filing in Box 11.
- Attach any required amendments, including a certified version of the dissolution plan.
- An authorized person must sign and date the bottom of the form, which can be submitted electronically, in the mail, or at an IRS service center.
Satisfying the IRS Dissolution Plan Requirement
The IRS requires that the corporation submit a certified copy of their official dissolution plan along with their Form 966. This includes the procedure that will be followed for liquidating the company and its stock. It's important that this plan follows your state's guidelines for dissolution. In most cases, the shareholders must vote for a corporation to dissolve, and sometimes a resolution may be required. Where a resolution exists, this can usually take the place of a dissolution plan.
The process of dissolution involves notifying creditors that business will cease and gathering and selling assets, satisfying liabilities, and distributing leftover assets to shareholders. Each creditor should receive a letter noting that the LLC is dissolving and that you desire to settle your account. Most states require that creditors are paid before assets are divided.
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