How to Close a Federal Tax ID Number: A Comprehensive Guide

Closing a Federal Tax ID Number (EIN), also known as an Employer Identification Number, is a critical step when your business structure changes, ceases operations, or undergoes a significant transformation. The process essentially involves informing the Internal Revenue Service (IRS) that the EIN is no longer required. While there isn’t a formal “closure” process that removes the EIN from the IRS database, notifying the IRS that you are no longer using it is crucial to prevent potential issues. Here’s a step-by-step guide on how to properly notify the IRS:

1. Identify the Reason for Closure: Determine why you are closing the EIN. Common reasons include:

   • The business has ceased operations.
   • The business has been sold or transferred to a new owner.
   • The business has merged with another entity.
   • The business structure has changed (e.g., sole proprietorship to LLC).

2. Prepare a Written Notification: The most reliable way to notify the IRS is through a written statement. This letter should include the following information:

   • Legal name of the business.
   • The EIN you wish to close.
   • Business address.
   • Reason for closing the EIN. Be specific. For example, “Business operations ceased on [Date]” or “The business was sold to [New Owner Name] on [Date].”
   • Date you want the EIN to be closed (typically the date operations ceased or the date of sale/transfer).
   • Sign and date the letter. The letter should be signed by an authorized individual (e.g., owner, partner, corporate officer).

3. Submit the Notification to the IRS: Mail the written notification to the IRS. The specific address depends on the state where your business is located. You can find the correct address on the IRS website by searching for “Where to File Certain Excise Tax Returns”. Use this page to locate the appropriate address under “Employer Identification Number (EIN) Notification.”

4. Retain a Copy of the Notification: Keep a copy of the notification letter and proof of mailing (e.g., certified mail receipt) for your records. This documentation serves as evidence that you notified the IRS of the EIN closure.

5. File Final Tax Returns: Ensure you file all outstanding tax returns, including employment tax returns (Form 941, Form 940), income tax returns (Form 1065, Form 1120, Schedule C of Form 1040), and any other applicable forms. Mark the returns as “final” by checking the appropriate box or indicating it clearly in the return. Failure to file final returns can lead to penalties and continued IRS correspondence.

6. Close Business Bank Accounts: Close any bank accounts associated with the EIN to prevent unauthorized transactions.

7. Cancel State and Local Registrations: Don’t forget to cancel any state and local business licenses and registrations associated with the EIN.

8. Keep Records: Maintain all business records related to the closed EIN for the retention period required by the IRS, generally three years from the date of filing the return or two years from the date the tax was paid, whichever is later.

While the IRS doesn’t officially “close” the EIN in the sense of deleting it from their system, following these steps ensures that you’ve properly notified them of the change, minimizing the risk of future complications.

Frequently Asked Questions (FAQs) about Closing a Federal Tax ID Number

Here are some common questions and answers to further clarify the process of notifying the IRS about an unused EIN:

How long does it take for the IRS to process the EIN closure notification?

There isn’t a formal “processing time” for EIN closure notifications. The IRS acknowledges receipt of the notification primarily when they stop expecting tax returns associated with that EIN. It’s crucial to ensure you’ve filed all final tax returns and marked them accordingly. Keep copies of your notification letter and mailing proof as evidence of your notification.

What happens if I don’t notify the IRS that my EIN is no longer needed?

Failing to notify the IRS can lead to several issues. The IRS might continue to expect tax returns from your business. If you don’t file these returns, you could be assessed penalties for failure to file. It’s essential to officially notify the IRS to avoid such complications.

Can I close an EIN online?

Currently, the IRS does not offer an online method for notifying them that an EIN is no longer needed. The official method is to submit a written notification by mail.

What if I don’t know the exact date my business ceased operations?

Provide the best estimate you can. Accuracy is important, but an approximate date is acceptable if you can’t pinpoint the exact day. Document how you arrived at that date in your records.

What if my business was sold to a new owner? Am I still responsible for the EIN?

Once the business is sold, the new owner is responsible for obtaining their own EIN if they plan to continue operating the business under a different legal structure. Your responsibility is to notify the IRS that your business (and EIN) is no longer active.

I’m changing my business structure. Do I need to close my existing EIN?

The answer depends on the change. If you are a sole proprietor incorporating as an S-Corp or LLC, you will need a new EIN. You should close the business under the old EIN. However, If the company has the same structure, a new EIN is not needed. Consult with a tax professional to determine the appropriate course of action.

What if I can’t find my original EIN paperwork?

You can try to locate your EIN through the IRS website using the “Lost or Misplaced Your EIN?” tool. Alternatively, you can call the IRS Business & Specialty Tax Line. If you previously filed tax returns, the EIN will be listed on those returns. If all else fails, you can try to reconstruct the information needed and submit your closure notification.

What happens if I need to reopen a closed EIN in the future?

The IRS doesn’t technically “reopen” an EIN. The same EIN can’t be used again. If you restart the same business with the same legal structure, you don’t need a new EIN; you simply resume using the existing one. If you’ve changed business structures or created a new legal entity, you would apply for a new EIN.

What should I do with my old business licenses after closing the EIN?

You should cancel all state and local business licenses and registrations associated with the EIN. Contact the relevant state and local agencies for instructions on how to properly cancel these registrations.

How long should I keep my business records after closing an EIN?

The IRS generally recommends retaining business records for at least three years from the date of filing the return or two years from the date the tax was paid, whichever is later. However, for significant transactions like asset purchases, you may need to keep records for longer. Consult with a tax advisor to determine the appropriate record retention policy for your situation.

Does closing my EIN affect my personal credit score?

Closing your EIN should not directly affect your personal credit score. An EIN is associated with your business, not your personal credit history. However, if you personally guaranteed any business debts, those debts could impact your personal credit score if they are not properly handled.

Can a tax professional handle the EIN closure notification for me?

Yes, a tax professional or accountant can prepare and submit the EIN closure notification on your behalf. Ensure they are authorized to act on your behalf by filing Form 2848, Power of Attorney and Declaration of Representative, with the IRS.

Closing a Federal Tax ID Number involves proper notification and diligent follow-up to ensure compliance and avoid future issues. By following these steps and addressing these common questions, you can navigate the process effectively. Remember to consult with a tax professional for personalized guidance based on your specific circumstances.