If you are a Canadian resident shutting down a US LLC, the procedural list shown by AI Overview is incomplete. The version most cross-border articles miss: foreign-owned single-member LLCs file a final Form 5472 with a final Pro-Forma 1120, and Form 966 is only required if you elected corporate taxation. On the Canadian side, the year of dissolution may also be the year you stop filing T1134 and T1135. This post walks the decision tree by entity type and ties the US and Canadian deadlines together.
30-second triage: dormant or voluntary dissolution?
Letting the LLC lapse looks cheaper, but is usually more expensive over five years.
| Path | Year-1 cost | Year-5 cumulative | Risk |
|---|---|---|---|
| Voluntary dissolution | $50-200 (state filing) + tax prep | One-time | Clean break |
| Dormant, let it lapse | $0 | $300-1,500 (state annual fees + late penalties) | Administrative dissolution, EIN remains, IRS expects 5472 each year |
| Dormant + final tax filings only | $0 state filing | $0-200 (depending on state) | EIN remains. State eventually administratively dissolves with no good-standing record |
Voluntary is the right choice if you owned active operations or if you may form another US LLC later. Dormant-and-lapse only works if you are certain you never need a US business presence again.
Canadian-specific complications first
Most US-side articles describe a procedure as if the owner were a US resident. As a Canadian, three issues sit upstream of the federal procedure.
Mind-and-management may have already made the LLC Canadian
The CRA can deem an entity a Canadian resident if its central management and control is exercised in Canada. A Canadian sole owner running a US LLC from Toronto, Vancouver, or Halifax usually meets that test. The implication: for CRA purposes, the LLC may have been a Canadian-resident corporation the whole time, with T2 corporate filing obligations and possibly Canadian-controlled private corporation (CCPC) status.
If you operated under this view, dissolution triggers a T2 final return and possible deemed disposition of corporate assets at fair market value.
LLC is not a US resident under the treaty
Article IV(1) of the Canada-US tax treaty defines residency. An LLC that is fiscally transparent in the US (disregarded or partnership) is not a US resident under the treaty. CRA typically treats it as a foreign corporation, not entitled to treaty rates that would otherwise apply to a US-resident corporation. This affects the dissolution if the LLC distributed dividends or interest before windup.
Terminal-year filings stack up
If you have been filing T1134 (controlled foreign affiliate information return) and T1135 (foreign property), the year of dissolution is usually the last filing year. You file these for the period ending on dissolution, not for the calendar year.
State-level dissolution cost comparison
The Articles of Dissolution (or Articles of Cancellation) is a state document. Cost and timing vary widely.
| State | Form name | Fee | Processing time |
|---|---|---|---|
| Delaware | Certificate of Cancellation | $200 | 1-2 weeks regular, 1 day expedited at +$100 |
| Wyoming | Articles of Dissolution | $60 | 5-15 business days |
| New Mexico | Articles of Dissolution | $25 | 1-3 weeks |
| Florida | Articles of Dissolution | $50 | 5-10 business days |
| California | Certificate of Cancellation | $0 | Up to 6 weeks (no fee but slow) |
Before filing, settle outstanding state annual fees and franchise taxes. California in particular charges the $800 annual minimum tax for any year the LLC existed even partially. Filing dissolution mid-year does not pro-rate this.
Federal final filing matrix by entity type
This is the part top-ranking articles flatten by saying "file a final 1120 or 1065." The actual obligation depends on classification.
| Classification | Final filings required | Form 966? |
|---|---|---|
| Disregarded SMLLC, no corp election | Final Form 5472 + final Pro-Forma 1120 (marked "Final return") | No |
| Multi-member LLC, default partnership | Final Form 1065 (marked "Final return"), final K-1s to partners | No |
| LLC with Form 8832 corp election | Final Form 1120 (regular, not pro-forma) marked "Final" + Form 966 within 30 days of dissolution decision | Yes |
| LLC with Form 2553 S-corp election | Final Form 1120-S + Form 966 within 30 days | Yes (rare for non-residents since S-corp ineligible) |
The 5472 piece for disregarded SMLLCs is the one most often missed. The penalty for missing the final 5472 is the same $25,000 minimum as ongoing failures. Mark all reportable transactions in the dissolution year, including final asset distributions back to the foreign owner.
Form 966, when you actually need it
Form 966 (Corporate Dissolution or Liquidation) reports the corporate dissolution decision to the IRS. It must be filed within 30 days of adopting the resolution to dissolve.
You file Form 966 if:
- The LLC elected corporate taxation via Form 8832, or
- The LLC made an S-corp election via Form 2553, or
- The entity is a regular C corporation (not LLC at all)
You do not file Form 966 if:
- The LLC is a disregarded entity (default for foreign-owned SMLLC), or
- The LLC is taxed as a partnership (default for MMLLC)
AI Overview and many cross-border articles say "file Form 966 within 30 days" as a universal step. That is incorrect for the most common Canadian case (disregarded SMLLC). Filing Form 966 when not required does not penalize, but it creates IRS file noise and confusion later.
EIN cancellation letter
The IRS does not have a form to cancel an EIN. The number stays on file forever. You write a letter requesting closure of the business account associated with the EIN.
Mail the letter to:
- Internal Revenue Service
- Cincinnati, OH 45999
Include in the letter:
- LLC legal name
- EIN
- Mailing address
- Reason for closing (dissolution)
- Copy of original EIN assignment notice (CP 575) if available
This is independent from filing the final tax return. The EIN cancellation request typically happens after final return is filed and accepted.
CRA terminal-year filings
The Canadian dissolution paperwork depends on what you were filing in prior years.
| If you were filing | Terminal year action |
|---|---|
| T1135 (foreign property over $100,000 CAD) | File T1135 for the year of dissolution. Stop filing the next year |
| T1134 (controlled foreign affiliate) | File T1134 for the period through dissolution. Final-year filing |
| T2 (if CRA treated LLC as Canadian resident corp) | File final T2 with deemed disposition of assets |
| Personal T1 reporting US LLC income | Report final-year income in Schedule 3, schedule the deemed acquisition cost reset |
If the LLC was operating actively under your management in Canada and CRA treated it as a CCPC, T2 final return is mandatory and complex. This is the case where engaging a cross-border CPA is necessary, not optional.
Departure tax pitfall
If you are also leaving Canada in the same year as the LLC dissolution (sometimes the same trigger event, the move itself), subsection 128.1 of the Income Tax Act applies. A deemed disposition of property occurs at fair market value as you cease Canadian residency.
LLC interests count as taxable Canadian property under this provision in most cases. The deemed disposition can create a Canadian capital gains tax liability separate from the US dissolution tax. Two separate exits, two separate tax events, on the same calendar.
If you are also dissolving the LLC the same year, sequence matters. Generally:
- Distribute LLC assets (US-side gain or loss)
- Dissolve the LLC at the state and federal level
- Become non-resident of Canada (departure tax on remaining assets)
Doing them in this order means the LLC interest no longer exists by the time you trigger 128.1, removing it from the deemed disposition pool. Doing them in reverse order can double-tax the same value.
Bank account closure sequencing
US business accounts (Mercury, Relay, Wise Business) require a zero balance and member resolution to close.
Recommended sequence:
- Pay all known US-side liabilities (state fees, registered agent renewals if charged annually, any vendor invoices)
- Distribute remaining cash to the Canadian member's personal account, recording it as a final 5472 reportable transaction
- Close the bank account
- Wait 60 days to confirm no late charges return
- File state Articles of Dissolution
- File final federal returns
Closing the bank account before final returns are accepted means you have no operating account if the IRS requests amendments. Closing after dissolution is also fine but creates timing complications for receiving any remaining mail.
Common rejection reasons checklist
Issues that surface across cross-border practice:
- Final 1120 not marked "Final return" on the form
- Final 5472 omitted entirely (most common penalty trigger)
- Form 966 filed for a disregarded SMLLC that did not need it
- State Articles of Dissolution filed before settling franchise tax balance
- T1134 / T1135 terminal-year filing missed
- Departure tax not coordinated with LLC interest valuation
- Bank account closed before final return filed, creating refund delivery problems
Frequently asked questions
Can a Canadian resident own a US LLC? Yes. There is no citizenship or residency requirement to form or own a US LLC. The complexity is in cross-border tax treatment, not formation eligibility.
What is the 90% rule in Canada? The 90% rule relates to the foreign tax credit and immigration year filings. It is tangentially relevant to dissolution if your final-year US LLC income makes up most of your annual income.
How long does dissolution take? State filing 1-6 weeks depending on state. Final tax returns can take 3-6 months for IRS processing. Total clean-close timeline is usually 6-12 months from decision to last confirmation.