- 1 Form 966 and Corporate Dissolution to IRS
- 2 Who Must File Form 966?
- 3 IRC 6043(a) Liquidating a Corporation
- 4 What Questions does IRS Form 966 Ask?
- 5 Adopting a Plan to Dissolve & Filing Form 966
- 6 Distribution of Property
- 7 Form 966 Penalty vs Indirect Penalty
- 8 We Specialize in IRS Offshore Disclosure & Compliance
Form 966 and Corporate Dissolution to IRS
IRS Form 966: When a corporation is ready to wind down their operations and subsequently dissolve, there are various hurdles the corporation has to go through. While many of the hurdles such as liquidating assets and final distributions are internal to the company — the IRS has its own set of filing requirements. One of the main filing requirements is Form 966, Corporate Dissolution or Liquidation.
While filing the form is important in order to avoid unnecessary headaches and notices from the Internal Revenue Service, the form does not dictate a mandatory penalty for late or untimely filing.
Who Must File Form 966?
Not every corporation that is undergoing liquidation or dissolution must file the Form 966.
As provided by the IRS:
“A corporation (or a farmer’s cooperative) must file Form 966 if it adopts a resolution or plan to dissolve the corporation or liquidate any of its stock. Exempt organizations and qualified subchapter S subsidiaries should not file Form 966. Exempt organizations should see the instructions for Form 990, Return of Organization Exempt From Income Tax, or Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation. Subchapter S subsidiaries should see Form 8869, Qualified Subchapter S Subsidiary Election.”
IRC 6043(a) Liquidating a Corporation
When a corporation is no longer active, and the officers have no intention of furthering the business, it may be time for the business to wind down (also referred to as “winding up.”
The business dissolves, and a corporate dissolution takes place.
As a result, the business will no longer operate as a corporate entity (it may continue as a non-corporate business).
26 U.S.C. 6043 refers to the liquidation provision of the Internal Revenue Code:
“a) Corporate liquidating, etc., transactions
Every corporation shall—
(1) Within 30 days after the adoption by the corporation of a resolution or plan for the dissolution of the corporation or for the liquidation of the whole or any part of its capital stock, make a return setting forth the terms of such resolution or plan and such other information as the Secretary shall by forms or regulations prescribe; and
(2) When required by the Secretary, make a return regarding its distributions in liquidation, stating the name and address of, the number and class of shares owned by, and the amount paid to, each shareholder, or, if the distribution is in property other than money, the fair market value (as of the date the distribution is made) of the property distributed to each shareholder.”
What Questions does IRS Form 966 Ask?
As far as tax forms go, the Form 966 is not too complicated.
The form is limited to questions involving the dissolution, and includes the following:
- Name of corporation
- Employer Identification Number
- Type of return 1120 1120-L 1120-IC-DISC 1120S
- Date incorporated
- Place incorporated
- Type of liquidation (Complete or Partial)
- Date resolution or plan of complete or partial liquidation was adopted
- Service Center where corporation filed its immediately preceding tax return
- Last month, day, and year of immediately preceding tax year
- Last month, day, and year of final tax year
- Was corporation’s final tax return filed as part of a consolidated income tax return? If “Yes,” complete 7c, 7d, and 7e. Yes No 7c
- Name of common parent
- Employer identification number of common parent
- Service Center where consolidated return was filed
- Total number of shares outstanding at time of adoption of plan of liquidation
- Date(s) of any amendments to plan of dissolution
- Section of the Code under which the corporation is to be dissolved or liquidated
- If this form concerns an amendment or supplement to a resolution or plan, enter the date the previous Form 966 was filed
Adopting a Plan to Dissolve & Filing Form 966
As provided by the IRS:
“File Form 966 within 30 days after the resolution or plan is adopted to dissolve the corporation or liquidate any of its stock.
If the resolution or plan is amended or supplemented after Form 966 is filed, file another Form 966 within 30 days after the amendment or supplement is adopted.
The additional form will be sufficient if the date the earlier form was filed is entered on line 11 and a certified copy of the amendment or supplement is attached. Include all information required by Form 966 that was not given in the earlier form.
Where To File
File Form 966 with the Internal Revenue Service Center at the address where the corporation (or cooperative) files its income tax return.”
Distribution of Property
The rules involving the distribution of property are complicated.
The below section refers to the basics of the corporate dissolution, distribution and U.S. tax.
In general, the corporation will recognize gain (or loss) when assets are distributed in accordance with the complete liquidation of stock.
As further provided by the IRS
“A corporation must recognize gain or loss on the distribution of its assets in the complete liquidation of its stock. For purposes of determining gain or loss, the For Paperwork Reduction Act Notice, see the instructions. Cat. No. 17053B Form 966 (Rev. 10-2016) Form 966 (Rev. 10-2016) Page 2 distributed assets are valued at fair market value. Exceptions to this rule apply to a liquidation of a subsidiary and to a distribution that is made according to a plan of reorganization. Foreign Corporations A corporation that files a U.S. tax return must file Form 966 if required under section 6043(a).
Foreign corporations that are not required to file Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, or any other U.S. tax return are generally not required to file Form 966.
U.S. shareholders of foreign corporations may be required to report information regarding a corporate dissolution or liquidation. See Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, and its instructions for more information.”
Form 966 Penalty vs Indirect Penalty
There is no direct Form 966 penalty for non-filing or late filing, but by not properly notifying the IRS of a dissolution or liquidation, it may result in collateral damage and other penalties.
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