How to Cancel a Tax ID Number for a Business
Learn how to properly close your business's tax ID number (EIN) with the IRS. Understand when and how to navigate this important administrative step.
Tax identification numbers (TINs) serve as unique identifiers for individuals and entities for tax administration purposes in the United States. These numbers facilitate the Internal Revenue Service (IRS) in tracking tax obligations and compliance. Various types of TINs exist, each serving a specific role in the tax system.
Identifying Your Tax ID and Its Status
Different types of tax identification numbers exist, including the Social Security Number (SSN), the Individual Taxpayer Identification Number (ITIN), and the Employer Identification Number (EIN). An SSN is issued by the Social Security Administration primarily to U.S. citizens and permanent residents for both tax and identification purposes. ITINs are issued by the IRS to individuals who are not eligible for an SSN but still have U.S. tax filing or reporting requirements, such as certain non-resident aliens. These personal identification numbers, SSNs and ITINs, are permanent and cannot be canceled or closed.
The Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN), is a unique nine-digit number assigned by the IRS to identify a business entity. Unlike SSNs and ITINs, an EIN is specifically for businesses and is the type of tax ID that can have its associated account “closed” or “deactivated” with the IRS, though the number itself remains permanently assigned to the entity.
Situations for Closing an EIN
Businesses typically consider closing an Employer Identification Number (EIN) when specific events occur that alter their operational or legal status. A common scenario involves the complete cessation of all business operations, meaning the business has permanently shut down. Another situation is when a business was initially formed and obtained an EIN but never actually commenced operations.
Changes in a business’s legal structure often necessitate obtaining a new EIN and, consequently, closing the old one. For instance, if a sole proprietorship transitions into a partnership or a corporation, a new EIN is generally required for the newly formed entity. Similarly, if a partnership dissolves and a new partnership is formed, or if a sole proprietorship changes ownership, the original EIN may need to be closed. However, minor changes such as a business name change or a change in location do not typically warrant closing an EIN.
The Process for Closing an EIN
The process for closing an EIN involves formally notifying the Internal Revenue Service (IRS) through a written letter. While an EIN cannot be truly “canceled” or “reused” by another entity, the IRS can close the business account associated with that number, effectively deactivating it. This notification ensures the IRS updates its records, preventing future unsolicited correspondence or perceived non-compliance.
To initiate the closure, a letter must be mailed to the IRS. This letter should clearly state the reason for closing the business account. The letter must include the complete legal name of the entity, the Employer Identification Number (EIN), and the business address. Although not always mandatory, attaching a copy of the original EIN Assignment Notice (Letter 147C) can be beneficial.
The letter should be sent to the appropriate IRS address. For most businesses, the mailing address is: Internal Revenue Service, Cincinnati, OH 45999. After mailing, the IRS processes these requests, and confirmation of deactivation is generally received within 45 days.
Post-Closure Considerations
After submitting a request to close an Employer Identification Number (EIN), several important steps must be completed to ensure full compliance with tax regulations. It is imperative to file all final tax returns for the business, encompassing income tax, employment tax, and any other applicable taxes, and to pay all outstanding tax liabilities. The IRS will not close the business account until all necessary returns have been filed and taxes owed are paid.
Even after an EIN is closed, maintaining accurate business records for the appropriate retention period is crucial. This practice ensures that documentation is available for any future inquiries or audits by tax authorities. An EIN, once closed, cannot be reactivated; if a business resumes operations or a new entity is formed, a new EIN is required.