An IRS change of ownership sets off a specific chain of federal filings that depends on two things: what kind of entity is being transferred, and whether the deal is structured as a stock sale, an asset sale, or an entity conversion. Both the buyer and the seller have their own deadlines. The Employer Identification Number may survive the deal or may need to be replaced. Tax attributes the business has built up over the years, including net operating losses and depreciation basis, may carry over intact, carry over with a cap, or disappear entirely. The rules below explain what each side has to file, what changes hands with the business, and where the traps sit.
Does the Business Need a New EIN
The EIN is the permanent tax identity of the business. Whether it survives an ownership change depends on whether the underlying legal entity changes, not on who now holds the equity.1Internal Revenue Service. When To Get a New EIN
A new EIN is required when:
- A sole proprietor incorporates, forms a partnership, or declares bankruptcy.
- A corporation receives a new charter from the secretary of state, or a merger creates a new corporation rather than one surviving corporation absorbing another.
- A partnership incorporates, one partner takes over as a sole proprietor, or the old partnership ends and a new one begins.
- An LLC terminates and reforms as a new corporation or partnership.
The existing EIN stays in place in most of the transactions people assume would require a new number. A 100% stock sale keeps the same EIN because the corporation itself has not changed, only its shareholders. A partnership keeps its EIN when interests change hands as long as the partnership continues to operate. An LLC that elects to be taxed as an S-Corporation or a corporation keeps its existing number as well.
When a new EIN is needed, the new entity applies on Form SS-4, which can be completed online for immediate issuance.2Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) When the EIN stays but the person with final authority over the entity’s funds and assets changes, the new owner must file Form 8822-B within 60 days to update the “responsible party” on record. This filing is mandatory, and it applies to every entity that has an EIN.3Internal Revenue Service. IRS Form 8822-B – Change of Address or Responsible Party – Business
What the Seller Files
The selling entity’s tax life ends with a final return. On the income tax return for its short year (from the normal start of its tax year through the closing date), the seller checks the “final return” box near the top of the form and reports all income, deductions, and tax through the transaction date.4Internal Revenue Service. Closing a Business The deadline for that final return is the same one that would apply to a full tax year, calculated from the end of the entity’s normal tax year rather than from the closing date. Partnerships also owe each departing partner a final Schedule K-1 reflecting income through the closing.
Deal structure controls whether a final return is even required. In a stock purchase, the corporation survives as the same taxpayer with new shareholders, and its tax year does not automatically close. In an asset purchase, the selling entity liquidates and files a final return, while the buyer either folds the acquired assets into its existing structure or houses them in a new entity with a new EIN.
Form 966 for Corporate Dissolutions
A corporation that adopts a plan of dissolution or liquidation after selling its assets must file Form 966 within 30 days of the board resolution.5Internal Revenue Service. About Form 966, Corporate Dissolution or Liquidation This applies to C-Corporations and to S-Corporations that were formerly C-Corporations. An S-Corporation that has never been a C-Corporation does not need to file it.
1099-DIV for Liquidating Distributions
Any shareholder who receives $600 or more in cash or property as part of a liquidation must receive a Form 1099-DIV showing the distribution.6Internal Revenue Service. Instructions for Form 1099-DIV These are not ordinary dividends. Shareholders treat them as payment in exchange for their stock, so the taxable result depends on whether the distribution exceeds their basis in the shares.
What the Buyer Files
Form 8594 in an Asset Purchase
When a business changes hands as a group of assets rather than through a stock transfer, both the buyer and the seller must file Form 8594 with their income tax returns for the year the sale closes.7Internal Revenue Service. About Form 8594, Asset Acquisition Statement Under Section 1060 The form applies whenever goodwill or going concern value attaches (or could attach) to the transferred assets, which covers almost every operating business sale.
Form 8594 requires both parties to allocate the total purchase price across seven classes of assets, from cash and bank deposits at one end to goodwill at the other. The allocation drives real tax dollars. It determines how much of the seller’s proceeds are taxed at ordinary rates versus capital gains rates, and it determines how quickly the buyer can depreciate or amortize what it bought. Buyer and seller must agree, and the IRS scrutinizes discrepancies between the two filings. If the allocation changes in a later year because of earnouts, purchase price adjustments, or resolved contingencies, the affected party files an updated Form 8594 for that year.8Internal Revenue Service. Instructions for Form 8594 – Asset Acquisition Statement Under Section 1060 Failing to file a correct Form 8594 by the return due date can trigger penalties under Sections 6721 through 6724 of the Internal Revenue Code unless you can show reasonable cause.
Section 338 Election for Stock Deals
A buyer who wants the depreciation benefits of an asset purchase without actually buying assets can elect under Section 338 to treat a qualifying stock purchase as if it were an asset acquisition. The corporation is treated as if it sold all its assets at fair market value and then repurchased them, producing a stepped-up basis but also an immediate tax on the deemed sale.9Office of the Law Revision Counsel. 26 USC 338 – Certain Stock Purchases Treated as Asset Acquisitions The election is made on Form 8023.10Internal Revenue Service. About Form 8023, Elections Under Section 338 for Corporations Making Qualified Stock Purchases
Employment Taxes Through the Transition
Employment taxes create the tightest deadlines in a business sale, and mistakes here hit the employees directly. The main issue is preventing workers from being double-taxed on Social Security wages when they move from the seller’s payroll to the buyer’s mid-year.
Successor Employer Status
When the buyer acquires substantially all the property used in the seller’s business and immediately hires the seller’s employees, it qualifies as a “successor employer” under the tax code. The successor can credit wages the predecessor paid to those employees earlier in the same calendar year toward the annual Social Security wage base, which is $184,500 for 2026.11Social Security Administration. Contribution and Benefit Base Without this credit, employees would effectively restart at zero and have Social Security tax withheld on wages that were already taxed once that year.12Office of the Law Revision Counsel. 26 USC 3121 – Definitions The same rule applies to the Federal Unemployment Tax Act wage base.
Form 941 for the Sale Quarter
Both the seller and the buyer file Form 941 for the quarter in which the sale occurs. The seller’s return covers wages paid through the transaction date and should include a statement identifying the new owner, the type of change, and the date it took effect. If the business has closed permanently, the seller checks the final return box on line 17 and notes the last date wages were paid.13Internal Revenue Service. Instructions for Form 941 The buyer picks up filing for wages paid from the transaction date forward.
W-2 Options
Employees who work for both the predecessor and the successor in the same calendar year can receive W-2s two ways. Under the standard approach, each employer issues a separate W-2 covering only the wages it paid. Alternatively, the predecessor and successor can agree under Revenue Procedure 2004-53 to have the successor issue a single W-2 covering all wages paid by both employers during the year.14Internal Revenue Service. Revenue Procedure 2004-53 The single-W-2 route is generally preferred because it simplifies filing for the employees. Under that arrangement, the successor assumes the predecessor’s entire W-2 reporting obligation for those workers.
Deposit Timing
The seller is responsible for all employment tax deposits on wages paid through the closing date, and deposits must continue on the normal schedule right through closing. The buyer is liable for wages from the closing date forward. Late deposits during the transition are a common and avoidable error that draws immediate failure-to-deposit penalties.
What Happens to NOLs, Basis, and Other Tax Attributes
Buying a business often means buying its tax history. Whether that history carries any value into the buyer’s hands depends on Section 382 for corporate loss carryovers and on deal structure for depreciation basis.
Section 382 and the NOL Limitation
For corporations carrying net operating losses, the key rule is Section 382. An ownership change occurs when one or more shareholders who each own at least 5% of the stock increase their combined ownership by more than 50 percentage points over a rolling three-year testing period.15eCFR. 26 CFR 1.382-2T – Definition of Ownership Change Under Section 382 A 100% stock sale is the clearest trigger, but mergers, reorganizations, and certain stock issuances can also cross the line if the net shift is large enough.
Once Section 382 applies, the amount of pre-change losses the new owners can deduct each year is capped. The annual cap equals the fair market value of the loss corporation’s stock immediately before the change multiplied by the federal long-term tax-exempt rate published monthly by the IRS.16Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change In practice, this formula produces a far smaller annual deduction than the total available losses and stretches the benefit out over many years. If the new owners fail to continue the acquired business for two years after the ownership change, the annual cap drops to zero and the pre-change losses become permanently unusable. Capital loss carryovers and certain tax credit carryovers face the same cap. Any accumulated earnings and profits in a C-Corporation transfer directly to the acquiring entity in a stock purchase, which matters for whether future distributions count as taxable dividends.
Section 382 primarily affects C-Corporations with accumulated losses. An S-Corporation that was formerly a C-Corporation and still carries NOLs from those years can also be caught. S-Corporations that have always been S-Corporations rarely face Section 382 issues because their losses pass through to individual shareholders instead of accumulating at the entity level.
Depreciation Basis
Whether the buyer gets a fresh depreciation clock depends on the deal structure. In an asset purchase, the buyer takes a new tax basis in each asset equal to the allocated purchase price, resetting depreciation. In a stock purchase, the buyer inherits the corporation’s existing (usually lower) basis, meaning less depreciation going forward. The Section 338 election described above is the workaround: it produces the asset-purchase basis result inside a stock deal, at the price of immediate tax on the deemed sale.
Partnership Interest Sales
Partnerships work differently. A sale of partnership interests does not automatically terminate the partnership. Since the Tax Cuts and Jobs Act repealed the “technical termination” rule, a partnership only terminates for tax purposes when no part of the business continues to be carried on by any partner. If the partnership has a Section 754 election in effect, the buying partner receives a basis adjustment to their share of partnership assets under Section 743(b), creating a separate depreciation schedule that benefits that partner alone.17Office of the Law Revision Counsel. 26 USC 743 – Special Rules Where Section 754 Election or Substantial Built-In Loss
Sole Proprietorships
The IRS does not recognize a sole proprietorship as a separate entity, so selling the business means selling individual assets one by one. The seller reports gains and losses on their personal return using Form 4797 for business property and Schedule D for capital assets.18Internal Revenue Service. About Form 4797, Sales of Business Property If the sole proprietor incorporates or forms a partnership, the IRS treats it as the end of one entity and the birth of another, with all the EIN and final-return consequences that follow.
Entity Conversions
A change in legal structure counts as an ownership change for filing purposes even when the same people remain in charge. An LLC electing S-Corporation status files Form 2553, then files a final return under its old classification and begins filing under the new one.19Internal Revenue Service. About Form 2553, Election by a Small Business Corporation A corporation electing S status, or an LLC that converts at the state level without changing its federal classification, keeps its existing EIN.
Buyer Liability for the Seller’s Unpaid Taxes
Buyers often assume that purchasing assets rather than stock insulates them from the seller’s tax problems. It does not, at least not fully. Under Section 6901 of the Internal Revenue Code, the IRS can assess the seller’s unpaid income tax against a “transferee” of the seller’s property.20Office of the Law Revision Counsel. 26 USC 6901 – Transferred Assets The IRS does not need to prove fraud. If the transfer left the seller without enough assets to pay its taxes, the buyer can be held liable up to the value of what it received.
That risk drives the tax due diligence checklist. Before closing, a buyer should review the seller’s filed returns, confirm that all employment taxes have been deposited, and consider requesting the seller’s account transcripts directly from the IRS. In an asset sale, unpaid employment tax liabilities do not automatically transfer with the assets, but transferee liability can bring them along under the right facts. At the state level, many jurisdictions have separate bulk-sale notification rules and offer tax clearance certificates that protect buyers from inheriting state tax debts. Those rules vary by state, and skipping them can create liability that no amount of federal compliance will prevent.