IRS Reporting Requirements When Selling or Closing a Business

Corporations and other business entities can cease operations for many reasons and in a number of ways. In all cases there is far more to it than simply locking your doors. When a business is terminated, or its legal status changes, there are typical reporting requirements that must be met.

Here is a helpful guide to what to do when selling or closing a business:

Selling Your Business

When a business is bought or sold, both the buyer and seller of business assets must report to the IRS the allocation of the sales price and other business assets. IRS Form 8594 (Asset Acquisition Statement Under Section 1060) can be used to provide this information. Form 8594 should also be attached to the buyer and seller's federal income tax return for that year.

The IRS treats each asset as being sold separately in order to determine a gain or loss. Sold assets have multiple classifications, such as capital assets, depreciable business property, real business property, or property held for sale to customers — e.g., inventory or stock in trade. The sale of capital assets results in capital gain or loss. The sale of real or depreciable business property held longer than one year also results in gain or loss. Inventory sales result in ordinary income or loss.