Do I Need to Cancel My EIN If I Close My Business?

An Employer Identification Number (EIN) is a unique nine-digit tax identification number assigned by the Internal Revenue Service (IRS) to businesses operating within the United States. Businesses obtain an EIN for various purposes, including filing federal tax returns, opening business bank accounts, and hiring employees. When a business closes, owners often wonder if they need to cancel their EIN.

Understanding EIN Permanence

An EIN serves as a permanent federal taxpayer identification number for a business entity, much like a Social Security Number identifies an individual. Once the IRS assigns an EIN, it remains associated with that specific business entity indefinitely. The IRS does not “cancel” or “delete” an EIN from its records, even after the associated business ceases operations. This permanence ensures that the IRS maintains a complete historical record of all tax filings and activities linked to that business. Even if a business is dissolved or becomes inactive, its EIN is not reassigned or reused for any other entity.

Notifying the IRS of Business Closure

While an EIN cannot be canceled, business owners should inform the IRS that the business associated with the EIN has ceased operations. This notification is important for IRS record-keeping and helps prevent future inquiries regarding unfiled tax returns. To notify the IRS, a letter should be sent to the Internal Revenue Service, Cincinnati, OH 45999. The letter must include the business’s complete legal name, its Employer Identification Number, the business address, and a clear reason for closing the account. Including a copy of the original EIN Assignment Notice can be helpful. Before sending this notification, it is necessary to file all outstanding tax returns and pay any taxes owed to the IRS.

Final Tax Obligations and EIN Use

Even after notifying the IRS of a business closure, the EIN remains essential for fulfilling all final tax obligations. Businesses must file their final income tax returns using their assigned EIN. For instance, corporations file Form 1120, S-corporations file Form 1120-S, and partnerships file Form 1065. It is important to check the “final return” box on these forms to indicate that no further returns will be filed for that tax period. Businesses with employees must also file final employment tax returns, such as Form 941 or Form 944, for the quarter in which final wages were paid. If the business made payments to independent contractors exceeding a certain threshold, information returns like Form 1099s must also be filed using the EIN.

EINs and Future Business Activities

If a business owner closes a business and later starts a new venture, a new EIN is generally required. This applies if the new business is a different legal entity or has a different structure, such as changing from a sole proprietorship to a corporation or partnership. For example, if you change your business structure from a sole proprietorship to a corporation, a new EIN is required. However, if the exact same business entity is merely reopened after a period of inactivity, the original EIN can often be reused. Simply changing a business’s name or its physical location does not necessitate obtaining a new EIN.