Do I need to close my EIN number? This is a question that many business owners and individuals often ask when they believe their Employer Identification Number (EIN) is no longer in use. An EIN is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify a business entity for tax purposes. Understanding when and why you might need to close your EIN number is crucial to avoid potential tax penalties and legal issues.
In this article, we will explore the various scenarios in which you may need to close your EIN number and the process involved. By the end, you should have a clearer understanding of whether you should take this step and how to go about it.
1. Business Closure
One of the most common reasons for closing your EIN number is the closure of your business. If you have dissolved your business, whether due to bankruptcy, liquidation, or simply deciding to stop operating, it is essential to close your EIN number. This action ensures that the IRS is aware that your business no longer exists and that any future tax liabilities or inquiries are directed to the correct entity.
To close your EIN number due to business closure, you will need to complete Form 966, “Termination of a Business,” and submit it to the IRS. It is important to note that you must wait until all tax returns have been filed and any taxes owed have been paid before closing your EIN number.
2. Change in Business Structure
If your business undergoes a significant change in structure, such as converting from a sole proprietorship to a partnership or corporation, you may need to close your existing EIN number and apply for a new one. This is because the IRS treats different business structures as separate entities for tax purposes.
In this case, you will need to file Form 8832, “Change in Filing Status,” with the IRS to notify them of the change in your business structure. Once the IRS processes your form, you will receive a new EIN number for your revised business structure.
3. Mergers and Acquisitions
When your business is involved in a merger or acquisition, it is essential to close the EIN number of the acquired or merging entity. This ensures that the IRS recognizes the new entity as the successor to the old one and avoids any confusion regarding tax liabilities.
To close your EIN number in this scenario, you will need to file Form 966 and provide the necessary documentation to the IRS, such as a copy of the merger or acquisition agreement.
4. Incorrectly Obtained EIN
In some cases, individuals or businesses may have obtained an EIN in error or for an unintended purpose. If this happens, it is crucial to close the EIN number to prevent any misuse or fraudulent activities.
To close an incorrectly obtained EIN, you can contact the IRS directly and provide the necessary information. The IRS will then process your request and close the EIN number.
Conclusion
Closing your EIN number is an important step to ensure that your business remains in compliance with tax regulations and to avoid any legal issues. By understanding the various scenarios in which you may need to close your EIN number and following the proper process, you can rest assured that your business is in good standing with the IRS. Always consult with a tax professional or the IRS for guidance specific to your situation.
