Settling an Estate: Which of the Business's Records the Executor Must Keep

When a business owner dies, the need to keep the business records does not end with the owner. For a sole proprietorship, that responsibility usually falls to whoever settles the estate; for an LLC, corporation, or partnership, the executor may need the records to administer the owner's interest while the entity's own record-keeping duties continue. Either way, the IRS retention windows that applied while the owner was alive keep running, generally three to seven years and longer in a couple of situations, measured from the returns rather than from the date of death.

The person handling this is usually the executor named in the will, or an administrator the court appoints where there is no will. Either way, part of the job is holding on to the business's records long enough to answer for the years it operated, and knowing which records those are before anything gets cleaned out or shut off.

The record-keeping duty moves to the person settling the estate

An estate is a separate taxpayer from the person who died. The IRS lays out the responsibilities of an estate administrator, and one of the early tasks is applying for a new EIN for the estate itself rather than reusing the decedent's Social Security number. If the estate continues a sole proprietorship, or the business's tax identity changes, a separate business EIN may also be needed; for an LLC, corporation, or partnership, whether a new EIN is required depends on the entity and the change in ownership, which is a CPA question. Before you can act on any of the accounts, you generally need Letters of Testamentary (or letters of administration) from the probate court, which is the document that proves your authority to a bank, to Intuit, or to anyone else holding the business's data.

Probate rules are set by the state, so whether and how the estate goes through the courts is a question for the estate's attorney. In many states an estate goes through probate, and that is as specific as this post will get on the legal side.

How long the records have to be kept

How long you hold the business's records is set by the same IRS rules the owner was under. The periods the IRS publishes run three years for a standard return, four years for employment tax records (counted from when the tax was due or paid, whichever is later), six years if a return left out more than 25 percent of gross income, and seven years if the business claimed a loss from worthless securities or a bad debt. If a return was fraudulent, or a required return was never filed, there is no limit at all.

Those windows generally run from the returns, which is why any outstanding returns get filed rather than left open: an unfiled year never starts its clock and stays open indefinitely. Our guide on how long to keep business records after closing walks through each window, and the retention schedule by document type breaks it down by the kind of record, so you are not holding everything for the longest possible period out of caution.

The books are what you account to the probate court with

Part of settling an estate is accounting to the court for what the person owned and what they owed. When one of those assets is a business, the business's own books are the evidence behind its share of that accounting: what it held, what it was owed, what it owed others, and what it was worth around the date of death. A general ledger that ties to the bank statements and to the documents behind each transaction makes that accounting defensible, where a pile of disconnected exports does not.

There is one order-of-operations point to raise here, then hand to the professionals. Taxes the decedent and the estate owe generally get settled before the remaining assets are distributed to heirs. The IRS Publication 559 for survivors, executors, and administrators covers the executor's duty to pay what is due, and a fiduciary who pays other claims ahead of the government out of an estate that cannot cover everything can end up personally responsible. Where that line sits in your situation is a question for the estate's attorney and CPA, not something to guess at.

If the business is being wound down

What happens to the business itself depends on how it was organized, and that is a call for the estate's CPA and attorney rather than one universal path. A sole proprietorship generally ends at the owner's death. An LLC, an S corporation, or a partnership may keep operating or may be dissolved, depending on its operating agreement and state law.

Where the business is actually being dissolved, the ordinary wind-down rules apply on top of everything above: the required final federal and state returns get filed, the formation and dissolution paperwork is kept permanently, and the IRS business account is closed, which the IRS closing-a-business steps describe as a letter rather than a cancellation, because an EIN is never reassigned to another company. Our guide on the records to keep when dissolving an LLC covers that case in full.

Where the QuickBooks clock comes in

If the business kept its books in QuickBooks Online, there is a timing problem that tends to surface at the worst moment. Nobody is thinking about an accounting subscription in the weeks after a death, so it often just lapses when the card on file stops working or the owner's bank account is frozen. Cancelling, or letting the subscription lapse, starts a clock: Intuit keeps a cancelled paid company in read-only mode for 12 months and then deletes it permanently, and a company that was still on a free trial gets only 90 days. Resubscribing later does not bring a deleted company back, and support cannot recover one after the window closes. Our guide on what happens to your QuickBooks Online data when you cancel covers what the read-only year does and does not let you do.

So the records the IRS can ask about for years, and the probate court expects you to account from, can sit in software that keeps them for one year and then erases them. The safer order is to get a complete, verified copy of the books out while the company is still open, then deal with the subscription. Getting into a deceased owner's QuickBooks is its own step, since Intuit reviews a request to become the primary admin and does not simply flip access on. Our executor's guide to a deceased owner's QuickBooks records walks through that request and the archive it protects. If you would rather hand the export off during everything else an estate involves, that is the archive we build for you: the full ledger, every report in cash and accrual basis, every attachment still linked to its transaction, and the payroll reports, all checked against the live books before anyone cancels.