Dental Partnership Dissolutions: Filing of Final Returns and Closure of Accounts

     In our article titled Dental Partnership Dissolutions: Winding Up the Practice’s Business and Affairs, we discussed some of the key rights and obligations that a well-crafted partnership dissolution agreement will address in connection with winding up the practice’s business and affairs. For instance, we stressed the importance of including clear provisions regarding the collection of partnership accounts receivable, payment of partnership liabilities and expenses, and termination of partnership employees. A partnership dissolution agreement should also list each step that the partnership must take regarding the filing of final federal and state tax returns, and the closure of related accounts. If each of these steps are expressly listed in the agreement, it will not only help organize the partners for the winding-up, but will also reduce the likelihood of finger-pointing when the necessary steps are not taken.

Partnership Tax Returns

     Under federal tax law, if a partnership terminates because the partnership and its partners cease to conduct the business of the partnership, the tax year of the partnership ends on the date on which the winding up of the partnership affairs is complete. Thus, assuming the partnership is taxed as a partnership for federal income tax purposes, the partnership would file a final Form 1065 U.S. Return of Partnership Income for the short period beginning on the first of the tax year and ending on the date that the partnership completes its winding up of its business and affairs. Once final tax returns have been filed, the partnership should work with its accountant to provide the IRS with the necessary request to close the partnership’s business account relating to its Employer Identification Number (EIN).

Final Federal Tax and Information Returns and Closure of Accounts

     In addition to filing the partnership’s final federal income tax return, the partnership should work with its accountant to file final federal tax and information returns, and to close the accounts. For instance, if the partnership has employees, the partnership will need to file a final Form 941, Employer’s Quarterly Federal Tax Return, and make all tax deposits and payments for employee income tax withholdings, Social Security, and Medicare Taxes (FICA). The partnership will also need to file a final Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. Further, the partnership must issue final wage and withholding information (Form W-2) to the partnership’s employees, and issue any necessary payment information on Form 1099-MISC. This is a non-exhaustive list of actions that partners must take with regard to filing final federal tax and information returns. To ensure that the partnership does not miss a step, we strongly encourage you to consult with your legal and tax advisors as part of winding down your dental partnership.

Final State and Local Tax Returns and Closure of Accounts

     Federal tax returns and accounts are not the only consideration when winding up a dental partnership. Rather, the partnership must also ensure that it files final state and local tax returns and closes the necessary accounts. For instance, in Ohio, if the partnership has employees, the partnership must file a final Ohio Form IT 941, Ohio Employer’s Annual Reconciliation, with respect to Ohio Employer Withholding Tax; cancel the partnership’s workers’ compensation coverage by filing Form U-117, Notification of Policy Update, and close its account with the Ohio Bureau of Worker’s Compensation; and close the partnership’s unemployment compensation account with the Ohio Department of Jobs and Family Services by filing Form JFS 20110, Disposition of Business. Again, these are just a few of the actions that must be taken with respect to the filing of final state tax returns and closure of accounts. To avoid penalties and other legal and tax issues, is imperative that the partnership seek professional advice and take all the required actions.

Contact Nardone Limited

     Dissolving and winding-up a dental partnership can be fraught with hazards. It is important to seek professional legal advice to assist in properly thinking through the process. The dental attorneys at Nardone Limited have vast experience guiding dentists through both amicable and hostile partnership dissolutions. If you are considering dissolving a dental practice partnership or would like more information regarding your dental practice partnership, contact Nardone Limited.