Form 8832: Filing requirements and eligible businesses
Choosing the proper tax classification is crucial for your small business. Tax status affects your tax rates, liability, operational flexibility, and overall growth trajectory.
Eligible companies can select how they will be taxed with Form 8832, Entity Classification Election, provided by the Internal Revenue Service (IRS).
What is Form 8832?
Form 8832 is the IRS form that eligible businesses can use to elect how they want to be taxed or to change their current tax classification.
Limited Liability Companies (LLCs) with a C corporation tax status can use Form 8832 to convert to a partnership or sole proprietorship.
This form is also used by LLCs that want to be taxed as corporations rather than operating with their default tax classification. Even with a more complex taxation process, corporation tax status has several tax benefits for LLCs. For example, there's no self-employment tax that a partnership or a disregarded entity would pay.
Want to learn more about getting a C corporation tax status for your business? Check out our blog post on changing an LLC to a C corp.
LLC is a business entity type but not a tax classification. By default, the IRS assigns a newly formed LLC one of the two tax classifications – partnership or disregarded entity – depending on the number of its members. Learn more about tax classifications for an LLC in this article.
Who can file Form 8832?
You can use Form 8832 if your business is a domestic or foreign entity in one of the following situations.
Domestic entities
- You elect to be classified as an association taxable as a C corporation.
- You want to change your current business tax classification.
Foreign entities
- You want to be classified as a partnership. Your entity has more than one owner, and all owners have limited liability.
- You elect to be classified as an association taxable as a corporation. Your entity has at least one owner and has no limited liability for owners.
- You are a single business owner with limited liability and electing to be a disregarded entity for tax purposes.
- You elect to change your current business tax classification.
You can also elect an S corporation tax status for your business if you meet specific requirements. You must file Form 2553, Election by a Small Business Corporation, to do that.
The IRS has several exceptions for eligible entities to file Form 8832. For example, tax-exempt entities and real estate investment trusts (REITs) can not file this form.
When is Form 8832 due?
There's no specific due date for filing Form 8832. Note that the tax election can only be applied to an entire tax year.
If you choose an initial classification, you must file this form within 75 days of the business formation to make it effective from inception.
Although you can file Form 8832 anytime, timing affects the effective date. Generally, an election can not take effect later than 12 months after the date Form 8832 is filed or 75 days before the date it is filed.
If you need an election to take effect earlier than 75 days prior to the date you file Form 8832, you'll need to check if you apply for a late election.
How to file Form 8832?
1. General information: Enter the entity information and address details.
2. Late classification relief: Check the box if you seek relief under Revenue Procedure 2009-41 or 2010-32.
3. Part I: Election information:
- Check box 1a for first-time classification or 1b for changing classification.
- Acknowledge the 60-month change limitation unless exceptions apply.
- Provide the owner's name and ID number. Enter "none" for foreign owners without a US ID.
- Provide the parent corporation's name and EIN if in an affiliated group.
- Indicate if changing classification or electing out of default.
- Enter the foreign country's name if organized abroad.
- Enter the desired effective date within 75 days prior or 12 months after filing.
Ensure signatures from current owners, authorized officers, managers, or members, and all owners during the effective period if the election is retroactive.
4. Part II: Late election relief:
- Confirm failure to obtain classification was due to untimely Form 8832.
- Ensure no federal tax return was filed for the first intended year or that all returns were timely and without inconsistencies.
- Confirm reasonable cause for late filing.
- Identify all affected persons who needed to attach Form 8832 to their tax returns.
- Complete Form 8832, explaining the late filing reason on Line 11.
- Obtain signatures from an authorized representative and each affected person.
Once you complete Form 8832, you must mail it to the Internal Revenue Service Center for your state. Follow the instructions on Form 8832 for detailed information on where and how to file an entity classification election.
The IRS will send you a letter within 60 days accepting or denying your request to change your status. If you do not receive a response after 60 days, you can contact the IRS or send a letter to the service center to inquire about the status of your form.
Typically, after you've chosen a new tax classification, you're not allowed to alter it for a period of 60 months or five years.
Get help from a tax professional
It's crucial to seek professional advice before making any business tax moves, especially long-term decisions like entity classification election.
At TFX, we confidently guide you through the pros and cons of your decision before submitting an entity classification election for your business. Our team of professional tax advisors, boasting over 20 years of experience in business taxation, will assess your case and provide recommendations for optimizing your business taxes.
Book a phone consultation with a tax professional
Learn moreDisclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Always consult with a tax professional regarding your specific case.
Susan Turcotte, a seasoned CPA with over 45 years of accounting experience, holds a Bachelor's in Accounting and a Master's in Taxation from Bryant College. See more
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