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Sole proprietorship is considered disregarded entity for tax purposes which means business assets is owner's asset. The sole proprietorship dies with the owner so the business is now her asset. She can liquidate it or use the money however she wants without tax consequences. The final business return - Schedule C - will have to be filed, if it wasn't done yet, and if the business generated profit, there will be tax due.
If the spouse want's to continue the business, she will have to apply for a new EIN and run it as her own.
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