“I Closed My Business — Why Is the IRS Still Filing Me?” — Dissolution vs. IRS Termination, the 2025 ‘True Closure’ Checklist
“I filed dissolution paperwork with the state, but the IRS keeps expecting returns.”
“The business is shut down, yet I’m still receiving notices about Form 1065 or 1120.”
This situation is far more common than most owners expect. The reason is simple but critical: state-level dissolution and IRS tax termination are not the same thing.
In other words, even if your state considers the business closed, the IRS may still view it as active for tax purposes.
This guide explains, under 2025 rules, what the IRS actually requires to recognize a business as terminated and how to avoid penalties, notices, and unnecessary follow-up filings — from an EA (Enrolled Agent) practical perspective.
- 1️⃣ What State “Dissolution” Actually Means
- 2️⃣ What the IRS Considers a “Termination”
- 3️⃣ Why IRS Filings Continue After Dissolution
- 4️⃣ Final Federal Returns by Entity Type (Deadlines)
- 5️⃣ Winding Up: Asset Distribution Order Matters
- 6️⃣ EA Checklist: If These Aren’t Done, the Business Isn’t Over
- 📌 Common Questions (EA Practical Answers)
1️⃣ What State “Dissolution” Actually Means
Dissolution is a state law concept.
When you file Articles or a Certificate of Dissolution with the Secretary of State,
you are formally declaring that the entity will no longer conduct business.
However, dissolution is rarely the end — it is usually the start of the winding-up phase.
Administrative closure does not automatically resolve taxes, assets, or liabilities.
State dissolution alone does not trigger IRS termination.
2️⃣ What the IRS Considers a “Termination”
The IRS focuses on substance over paperwork.
Instead of asking “Was dissolution filed?”, the IRS asks: Has the business actually stopped existing economically?
For partnerships (and LLCs taxed as partnerships), termination can force an early closing of the tax year and trigger a short-period return.
| IRS Termination Triggers (Partnership Focus) | Practical Meaning |
|---|---|
| Complete cessation of business activity | No meaningful revenue, expenses, operations, or asset movement |
| More than 50% ownership change within 12 months | Major equity transfers can create a tax termination event |
When the 50% ownership transfer rule applies, the transfer date becomes the IRS termination date.
This date determines the end of the tax year and the short-period filing deadline.
3️⃣ Why IRS Filings Continue After Dissolution
Many owners assume the IRS is “behind” or making a mistake.
In practice, the IRS continues filings because the business still appears
economically active.
- Business bank account still open and earning interest
- Outstanding receivables or unpaid expenses
- Assets not fully disposed of (equipment, vehicles, inventory, IP, domains)
- Final Return box not checked on the last filing
- Employment tax or sales tax accounts still open
A consulting LLC dissolves in April, but receives a $4,800 platform payout in June.
From the IRS perspective, the question becomes:
Was business activity truly finished?
True termination requires clearing final settlements, refunds, and expenses.
4️⃣ Final Federal Returns by Entity Type (Deadlines)
Final returns are one of the most common error points in practice, especially for partnerships with mid-year termination.
| Entity Type | Final Federal Filing | Key Deadline Notes |
|---|---|---|
| Partnership / LLC (Partnership Taxed) | Form 1065 (Final) | 15th day of the 3rd month after the termination month (Short-period return may apply) |
| S Corporation | Form 1120-S (Final) | Final box checked + all Schedule K-1s marked Final |
| C Corporation | Form 1120 (Final) | Final return + possible Form 966 filing |
If a partnership terminates on September 7, 2025, the termination month is September, and the Form 1065 deadline is December 15, 2025.
When a corporation adopts a formal liquidation or dissolution resolution, Form 966 is generally due within 30 days.
5️⃣ Winding Up: Asset Distribution Order Matters
The highest risk during closure arises during the winding-up phase.
The IRS and courts care deeply about distribution order.
1️⃣ Pay all creditors first (including member loans)
2️⃣ Return capital contributions to owners
3️⃣ Distribute remaining profits, if any
For corporations, failure to properly notify creditors can, in certain cases, expose directors to personal liability. This step is often overlooked but legally significant.
6️⃣ EA Checklist — If These Aren’t Done, the Business Isn’t Over
State dissolution ends the paperwork; IRS termination ends the economics.
⬜ State dissolution filed and confirmed
⬜ All business activity fully stopped (including settlements)
⬜ Winding up completed in proper order
⬜ All assets disposed of or transferred
⬜ Final federal return filed and marked Final
⬜ Payroll, sales tax, and state accounts closed
📌 Common Questions (EA Practical Answers)
Not automatically. Until the IRS recognizes a true termination, filing obligations may continue — especially if Final Return indicators, asset cleanup, or tax accounts remain open.
How is the Form 1065 deadline calculated after termination?
For partnerships that terminate mid-year, the filing deadline is the 15th day of the third month after the termination month. A short-period return is required.
Which entity type is hardest to terminate cleanly?
Partnerships (and LLCs taxed as partnerships) are typically the most complex. Ownership shifts, capital accounts, K-1s, and short-period rules all interact.
Claiming closure is easy. Proving termination is what prevents IRS letters.
This article is based on U.S. federal tax law as of 2025.
State laws and individual circumstances may vary.
Consult a qualified tax professional and legal advisor before finalizing dissolution or termination.