Form 8832

What is Form 8832?

Form 8832, Entity Classification Election, allows eligible business entities to elect how they will be classified for federal tax purposes, such as a corporation, partnership, or disregarded entity. It is essential for ensuring appropriate tax treatment based on the entity’s structure.

To put it simply, Form 8832 lets businesses tell the IRS how they want to be taxed. For example, a Limited Liability Company (LLC) can choose to be taxed as a corporation, partnership, or as part of its owner’s taxes.

It’s often used by new LLCs to align their taxes with their business goals. It’s also handy for existing businesses looking to change their tax setup to save money or simplify filing.

If filed late, the form allows relief under certain conditions, so businesses can still adjust their tax status retroactively if they meet the rules.

Who is Eligible to File Form 8832?

Domestic Entities Eligible to File

Form 8832 allows domestic entities to elect or change their federal tax classification:

1. Limited Liability Companies (LLCs):

• Single-Member LLCs: Can elect to be taxed as a corporation or remain a disregarded entity.
• Multi-Member LLCs: May choose corporate taxation instead of the default partnership classification.

2. Partnerships:

• General, limited, and limited liability partnerships may elect corporate tax treatment.

3. Unincorporated Associations:

• Cooperatives and other “eligible entities” may opt for corporate taxation.

4. Entities Changing Classification:

• Businesses can use Form 8832 to switch their classification to corporation, partnership, or disregarded entity status.

Foreign Entities Eligible to File

Foreign entities can also file Form 8832 for U.S. tax purposes under specific conditions:

• Multiple Owners with Limited Liability: Eligible to elect partnership taxation.
• Single Owner with Limited Liability: May opt for disregarded entity status.
• Foreign Corporations Adjusting Default Classification: Can use Form 8832 to change default rules.

Restrictions and Ineligible Entities

Certain entities are ineligible to file Form 8832:

• Tax-Exempt Entities: Those under Section 501(a).
• Real Estate Investment Trusts (REITs): Governed by Section 856.
• S Corporations: Entities filing Form 2553 are automatically classified as corporations.

Other Key Considerations

• 60-Month Rule: After making an election, entities cannot change classification for five years unless exceptions, such as ownership changes or filing errors, apply.
• Late Election Relief: Entities missing deadlines may qualify for relief under specific circumstances, such as reasonable cause or consistency with prior filings.

What are the Instructions for Filling Out Form 8832?

Part I: Basic Information

• Line 1: Check the appropriate box to indicate whether the entity is making its first classification election or changing an existing one.
• Lines 2a & 2b: Address the 60-month rule, which generally prohibits changing an entity’s classification within five years of a prior election unless exceptions apply, such as changes in ownership.
• Line 3: Enter the entity’s name and Employer Identification Number (EIN). If the entity doesn’t have an EIN, it must obtain one before filing. Existing entities with an EIN should continue using it, even after a classification change.
• Line 4: List the name and identifying number (SSN, ITIN, or EIN) of the entity’s owner(s).

Part II: Entity Classification Election

• Line 6: Indicate whether the election is to change an existing classification or opt out of a default classification.
• Line 7: If the entity was established in a foreign country, provide the country’s name.
• Line 8: Specify the effective date of the election. This date must fall between 75 days prior to and 12 months after the filing date. If no date is provided, the election defaults to the filing date.

Signature Section

1. Who Signs: The form must be signed by:

• All current owners of the entity, or
• An authorized officer, manager, or member based on the entity’s organizational documents.
• If the election is retroactive, signatures from former owners who held interest during the retroactive period are required.

2. Important Note: Use only original signatures; electronic signatures are not accepted.

Part III: Late Election Relief

• Eligibility: Complete this section if requesting relief for a late filing under Revenue Procedures 2009-41 or 2010-32.
• Explanation: Provide the reason for late filing and any supporting documentation that demonstrates reasonable cause.

Attaching the Form to Tax Returns

• After filing Form 8832, attach a copy to the business’s federal tax return for the year the election is made.
• If the entity isn’t required to file a tax return, the owners must attach the form to their personal returns for the relevant year.

Key Notes

• Do not apply for a new EIN unless the entity doesn’t already have one.
• Mailing: Form 8832 cannot be filed electronically. Print and mail the completed form to the appropriate IRS address for your location.

What Are the Deadlines and Timing Considerations for Form 8832?

When filing Form 8832, timing is everything. Businesses must pay close attention to deadlines to ensure their election is valid and complies with IRS regulations. Here are the essential timing considerations:

Timing for Election

Effective Date: The election’s effective date can be no earlier than 75 days before the filing date and no later than 12 months after.

• Example: If Form 8832 is filed on June 15, the election can take effect as early as March 1 or as late as June 15 of the following year.

60-Month Limitation

1. Restriction on Changes: Once a business changes its classification, it typically cannot change it again for 60 months (5 years).
2. Exceptions: Early changes may be allowed for specific reasons, such as:

• A significant ownership change (more than 50%).
• A mistake of fact in the original election.

Late Election Relief

1. Missed Deadlines: If a business misses the deadline, it may qualify for late election relief under IRS Revenue Procedure 2009-41.
2. Eligibility Criteria: To qualify, the business must:

• Have timely filed its federal tax returns consistent with the requested election.
• Provide a reasonable explanation for the late filing.

3. Relief Deadline: Requests must be made within 3 years and 75 days of the desired effective date.

Filing Considerations

1. First-Time Elections: New businesses should file Form 8832 before submitting their first federal tax return to establish their classification.

2. Classification Changes: Existing businesses changing their classification must ensure the timing aligns with the effective date and 60-month restriction.

Submission

Where to File: Submit Form 8832 to the IRS Service Center assigned to the business’s location. Also, include a copy of the form with the federal tax or information return for the year the election takes effect.

How to File Form 8832?

Step-by-Step Guide for Filing Form 8832:

1. Check Eligibility

Before starting, verify if your entity qualifies to file Form 8832. Generally, this form is used by LLCs and certain corporations to elect a specific tax classification. If unsure, consult a tax professional or refer to IRS guidelines.

2. Fill Out the Form

Section 1: Entity Information

• Enter the entity’s name and Employer Identification Number (EIN).
• If the entity lacks an EIN, apply for one using Form SS-4 before filing.
• Provide the entity’s current address and indicate any recent changes.

Section 2: Election Details

• Indicate whether this is the first election or a change to the current classification.
• If filing late, check the box to request relief under Revenue Procedure 2009-41 or 2010-32.

Section 3: Signatures

• Ensure the form is signed by authorized individuals, such as the entity’s owners or members.

3. Set the Effective Date

Choose an effective date for the election. The date:

• Cannot be earlier than 75 days before the filing date.
• Cannot be more than 12 months after the filing date.

If the date falls outside this range, the IRS will adjust it automatically.

4. Attach to Tax Returns

Attach a copy of Form 8832 to the entity’s federal tax return for the year the election applies.

• If the entity doesn’t file a return, owners or members must attach the form to their individual tax returns.
• Failing to attach the form may result in penalties, though the election itself remains valid.

5. Mail the Form to the IRS

Form 8832 must be mailed (not electronically filed) to the IRS Service Center corresponding to your location. Use the IRS instructions to find the correct address.

Timing Considerations

Timely Filing

• File Form 8832 before submitting the entity’s first federal tax return for the election year.
• For changes, file no later than 75 days before the requested effective date.

Late Filing

• Entities missing the deadline may qualify for relief if they meet specific conditions, such as timely filing tax returns consistent with the election.

Where to File

• Domestic Entities: Mail the form to the IRS Service Center assigned to your state or region.
• Foreign Entities: Follow special filing instructions if operating outside the U.S.

What is the difference between form 8832 and form 2553?

Form 8832 and Form 2553 serve distinct purposes in tax elections for businesses. Form 8832 is used to elect C-corporation tax status, applicable to LLCs, partnerships, and foreign entities, resulting in double taxation. In contrast, Form 2553 is for electing S-corporation tax status, suited for corporations and LLCs, offering pass-through taxation. Both forms must be mailed or faxed to the IRS, but they differ in eligibility criteria. Form 8832 permits foreign shareholders, while Form 2553 excludes non-U.S. citizens or residents as owners. Furthermore, Form 8832 requires no form of compensation for the owners who are employees, but Form 2553 demands reasonable compensation to owners who are employees.