Key Takeaways

  • IRS Form 966 must be filed within 30 days of adopting a corporate dissolution or liquidation plan.
  • Filing Form 966 is mandatory for both complete and partial liquidations by C corporations and applicable foreign corporations.
  • A certified copy of the dissolution or liquidation plan must be attached to the form.
  • Failure to file Form 966 on time may result in IRS penalties or audit risks.
  • LLCs taxed as corporations may also need to file Form 966 upon dissolution.
  • Shareholder approval and a resolution or written plan are critical for IRS compliance.
  • A final Form 1120 (or 1120S for S Corps) should also be filed with the correct box checked.
  • Legal assistance can help ensure accurate filing and dissolution process completion.

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. 

IRS Form 966 Due Date and Timing Requirements

One of the most critical aspects of corporate dissolution is meeting the IRS’s Form 966 due date. Corporations must file IRS Form 966 within 30 days of the date the resolution or plan to dissolve or liquidate is formally adopted. This is a strict timeline, and missing the deadline may draw IRS scrutiny or lead to compliance issues.

It's important to note that this requirement applies not only to C corporations but also to foreign corporations that are conducting business in the U.S. and filing U.S. tax returns. Even in the case of partial liquidations, filing Form 966 remains a legal obligation.

To avoid filing delays:

  • Confirm the exact date the board or shareholders adopted the dissolution plan.
  • Mark your calendar to ensure Form 966 is filed within 30 calendar days of that adoption.
  • Consult with a tax advisor or legal counsel if there is uncertainty around the filing date or requirements.

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.

Who Must File Form 966?

The IRS requires any corporation undergoing a complete or partial liquidation to file Form 966. This includes:

  • Domestic C Corporations dissolving or liquidating operations.
  • Foreign corporations that are conducting business within the United States.
  • LLCs taxed as corporations if they are dissolving under state law.
  • S Corporations, although technically not required to file Form 966 in all cases, often do so to document compliance and maintain records with the IRS.

Corporations involved in mergers, reorganizations, or structural changes that include a liquidation of assets may also need to file. The form notifies the IRS that a significant change to the company’s tax obligations is underway.

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.

How Form 966 Affects Other Tax Filings

Form 966 is not a stand-alone document; it ties directly into your business’s overall tax obligations. Once dissolution or liquidation is underway:

  • You must file a final corporate income tax return—Form 1120 for C Corps or Form 1120S for S Corps.
  • On that return, indicate it is the final return by checking the appropriate box.
  • If you are distributing assets, you may also need to file Form 1099-DIV or Form 1099-B for shareholder distributions.
  • You may need to file Form 4797 if you're selling business property, and Form 8594 if there’s an asset sale.

Form 966 serves as a notification to the IRS that such follow-up tax forms are imminent, making coordination with your dissolution process essential.

Common Mistakes to Avoid When Filing Form 966

To ensure successful submission and compliance, corporations should avoid these common errors when filing Form 966:

  • Missing the 30-day filing deadline after adoption of the plan.
  • Failing to attach the certified copy of the dissolution or liquidation plan.
  • Providing incorrect dates, such as the incorporation or adoption dates.
  • Overlooking amendments to the original plan, which must be included in Box 9.
  • Using outdated forms; always use the latest version available on the IRS website.
  • Not coordinating with final income tax filings, such as Form 1120 or 1120S.

Avoiding these errors can prevent costly penalties or delays in the dissolution process.

Frequently Asked Questions

  1. What is the form 966 due date?
    The due date for filing IRS Form 966 is 30 days after the corporation adopts a resolution or plan to dissolve or liquidate.
  2. What happens if I don't file Form 966 on time?
    Failure to file on time can lead to IRS penalties, increased audit risk, and potential delays in closing tax accounts.
  3. Do S corporations need to file Form 966?
    S Corporations aren't always required to file Form 966, but doing so is recommended for proper documentation and IRS compliance.
  4. Can LLCs be required to file Form 966?
    Yes, LLCs taxed as corporations that undergo dissolution must file Form 966.
  5. Where do I file Form 966?
    Form 966 should be filed with the same IRS service center where your corporation files its income tax return. The address can be found on the IRS instructions for Form 1120.

If you need help with dissolving or liquidating your corporation with Form 966, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.