Form 966: Understanding Corporate Dissolution or Liquidation

IRS Form 966: Understanding Corporate Dissolution or Liquidation

IRS Form 966, titled “Corporate Dissolution or Liquidation,” is an essential form for corporations that are in the process of dissolving or liquidating. When a corporation ceases its business activities and winds down its operations, it must file Form 966 to notify the Internal Revenue Service (IRS) of its intent to dissolve. This process ensures that the corporation complies with federal tax laws and meets its tax obligations during the liquidation process.

In this guide, we’ll explore the purpose of Form 966, who needs to file it, how to complete the form, and what the dissolution or liquidation process entails.

What is IRS Form 966?

IRS Form 966 is used by corporations to formally notify the IRS of their decision to dissolve or liquidate. This form is required by the IRS to ensure that the corporation has complied with tax regulations during the liquidation process and that all necessary tax filings are completed.

When a corporation is liquidated, its assets are sold off, and the proceeds are distributed to its shareholders. The corporation then ceases to exist as a legal entity. Filing Form 966 is a crucial step in the dissolution or liquidation process, as it ensures the IRS is aware of the dissolution and can properly close the corporation’s tax account.

Who Must File Form 966?

Corporations that decide to dissolve or liquidate their business must file Form 966 with the IRS. The requirement applies to both domestic corporations and foreign corporations that are voluntarily dissolving or liquidating.

Here are the key criteria for filing Form 966:

1. Corporate Dissolution or Liquidation:
   The form must be filed by a corporation that has decided to dissolve or liquidate its business. This can be due to a variety of reasons, such as the completion of its business purpose, a merger, or a decision to cease operations.

2. Corporations Under IRS Jurisdiction:
   The form applies to corporations that are subject to IRS jurisdiction, meaning those that are incorporated or doing business in the United States. Foreign corporations may also need to file if they are involved in U.S. activities.

3. Voluntary Dissolution or Liquidation:
   Form 966 is used for voluntary dissolutions or liquidations. If the dissolution or liquidation is due to involuntary actions (e.g., bankruptcy), different procedures may apply.

4. Filing Deadline:
   Form 966 must be filed within 30 days of the corporation’s dissolution or liquidation. This deadline is essential to ensure the corporation is compliant with IRS regulations and that its tax obligations are fulfilled.

How to Complete IRS Form 966

IRS Form 966 is a relatively simple form to complete, but it requires accurate and detailed information about the dissolution or liquidation process. Here’s a breakdown of the sections and the information required:

1. General Information:

   • Name of Corporation: Enter the full name of the corporation as it appears on the official records.
   • Employer Identification Number (EIN): Provide the corporation’s EIN, which is used to identify the business for tax purposes.
   • Date of Incorporation: Indicate the date the corporation was originally formed.

2. Type of Dissolution or Liquidation:
   This section asks whether the dissolution or liquidation is voluntary or involuntary. Most corporations filing Form 966 will be doing so voluntarily. Check the appropriate box that reflects your situation.

3. Date of Dissolution or Liquidation:
   Enter the official date that the corporation was dissolved or began its liquidation process. This is crucial for the IRS to track the corporation’s dissolution timeline.

4. Liquidation of Assets:
   In this section, the corporation must report the liquidation of its assets and the distribution of any remaining property to its shareholders. This is part of the final steps of the dissolution process.

5. Verification and Signature:
   The form must be signed by an officer of the corporation. The signature verifies that the information on the form is accurate and complete. The officer must also provide their title and the date of signing.

6. Additional Information:
   Corporations may be asked to provide further documentation or additional forms related to the dissolution, such as a final tax return, if necessary. Be sure to check if the IRS requires any supplementary filings.

Where and How to Submit Form 966

Once Form 966 is completed, it must be submitted to the IRS. Here are the submission methods:

1. Mailing the Form:
   You can mail Form 966 to the appropriate IRS address. The correct mailing address depends on your location and whether you are submitting the form with other documents, such as a final tax return. Be sure to review the IRS instructions for Form 966 to determine the correct address.

2. With Other Tax Filings:
   If the corporation is also filing a final tax return, such as Form 1120 (U.S. Corporation Income Tax Return), you may attach Form 966 to the return and submit it together. However, if you are filing separately, follow the IRS instructions for proper submission.

Tax Implications of Corporate Dissolution or Liquidation

Dissolving or liquidating a corporation has various tax consequences, and understanding these is important for ensuring compliance with IRS rules. Here are some key tax considerations:

1. Final Tax Return:
   The corporation must file a final tax return for the year it dissolves. This return reports any income or gains from the liquidation and ensures that the IRS is aware of the corporation’s final year of operations.

2. Capital Gains and Losses:
   When a corporation liquidates its assets, it may recognize capital gains or losses on the sale of those assets. These gains or losses will be reported on the corporation’s final tax return.

3. Distributions to Shareholders:
   Any distributions made to shareholders during the liquidation process are generally taxable. Shareholders may need to report the liquidation distribution on their personal tax returns, typically as capital gains or dividends.

4. Corporate Liabilities:
   The corporation must settle any outstanding debts or obligations before completing the liquidation process. If the corporation has liabilities that exceed its assets, it may face challenges in fully satisfying its creditors.

5. State-Specific Requirements:
   In addition to federal tax obligations, corporations must also consider state-level dissolution or liquidation rules. States may require additional filings or fees when dissolving a corporation, and these rules vary by jurisdiction.