What Form 8832 Is For
Form 8832 lets eligible business entities choose their federal tax classification for tax purposes. It gives Limited Liability Company owners and other business entities control over how the Internal Revenue Service treats their business structure. This election affects federal taxes, self-employment tax, tax rates, and how owners report income on a tax return.
When You’d Use Form 8832
You use Form 8832 when you want the Internal Revenue Service to treat your entity differently from the default classification or when you make a change to your existing classification. Many business entities file this form when switching to a C corporation to avoid self-employment tax or when preparing for future S corporation treatment through Form 2553.
It also applies when a foreign entity seeks recognition of a classification for federal tax purposes, when owners restructure their business, or when the filing deadline coincides with an upcoming tax year.
Key Rules or Details for 2019
- Default classification rules: The Internal Revenue Service treats a single-member LLC as a disregarded entity and a multi-member LLC as a partnership. Filing Form 8832 allows entities to request a different treatment that better aligns with their long-term plans.
- Effective date limits: An effective date must fall within 75 days before filing or within 12 months after filing. Choosing a date outside this window results in the Internal Revenue Service adjusting the classification.
- Signature requirements: The form requires signatures from authorized owners or managers. Legally compliant signatures filed through electronic means are also acceptable for this tax document.
- 60-month rule: An entity generally cannot change its federal tax classification again for 60 months after an election, and understanding this limitation helps owners plan future tax obligations more effectively.
- Attachment requirement: You must attach a copy of Form 8832 to the entity’s tax return for the year of the election, and this attachment ensures the Internal Revenue Service verifies the chosen classification.
Step-by-Step (High Level)
Step 1: Confirm eligibility
Eligible business entities review default classification rules and determine whether an alternative option yields better results. This evaluation helps ensure that the chosen tax classification meets long-term needs while also considering federal taxes and compliance rules.
Step 2: Obtain an EIN
You confirm the entity has a valid EIN before filing. This identification number is required for all federal taxes, and ensuring accuracy prevents issues with Internal Revenue Service processing and future tax forms.
Step 3: Complete the form
You provide the entity name, mailing address, responsible party information, and desired classification. You also review questions about prior elections to confirm eligibility for a new classification, ensuring compliance with the 60-month rule.
Step 4: Collect legally-compliant signatures
You gather all required signatures and verify they meet Internal Revenue Service standards. Electronic signature rules enable the digital submission of documents with legally compliant signatures, which helps maintain accurate IRS paperwork.
Step 5: File with the correct service center
You mail Form 8832 to the correct filing address listed in the instructions. Using the correct mailing address ensures timely processing, especially when submitting the form near a filing deadline.
Step 6: Attach copies to required returns
You attach a copy of the filed form to the entity’s tax return. Entities filing Form 1065 or other federal taxes rely on these attachments to confirm classification and maintain compliance across tax years.
Step 7: Wait for Internal Revenue Service confirmation
You receive confirmation of acceptance or non-acceptance after processing. Keeping a copy of the submitted form helps maintain records and ensures proper federal tax purposes moving forward.
Common Mistakes and How to Avoid Them
- Missing an EIN: Filing without a valid EIN causes the Internal Revenue Service to reject the form, and you can avoid this issue by confirming the EIN before preparing any IRS paperwork. Having the correct number prevents processing delays.
- Incorrect effective date: Choosing an effective date outside the allowed window can lead to adjustments. To prevent these problems, calculate the date carefully. Reviewing instructions ensures the date falls within the correct range.
- Not attaching required copies: Forgetting to attach the election to the tax return can trigger notices, and you can avoid such events by keeping a checklist. Attaching documents ensures consistent entity classification across all filings.
- Overlooking the 60-month rule: Filing too soon after a prior election results in rejection, and you can avoid this problem by reviewing past elections. Checking records helps prevent unnecessary refiling.
- Incomplete signatures: Missing signatures can delay processing. To avoid delays, confirm that all required owners or authorized individuals have signed the form. Verifying this step ensures compliance with Internal Revenue Service requirements.
What Happens After You File
The IRS reviews the form after it is submitted and sends a letter indicating whether it was accepted or not. The accepted elections take effect on the approved effective date and instruct the entity on how to report income, calculate self-employment tax, and apply tax rates.
If your application is rejected, address the identified issues and resubmit it, ensuring that the tax year and filing deadline are taken into account. The IRS verifies whether the entity is eligible for earlier treatment when late election relief is applied, and then assigns the correct federal tax classification. Maintaining accurate records ensures the correctness of reports for future tax years.
FAQs
Who must file Form 8832?
Entities that want a federal tax classification different from the default classification must file Form 8832, because the Internal Revenue Service requires a formal election for alternate treatment.
Can an LLC elect to be treated as an S corporation?
An LLC can request S corporation treatment by first electing corporate status using Form 8832 and then submitting Form 2553 on time under section 1362(a) rules.
Can a foreign entity make an election?
A foreign entity can use Form 8832 to request an entity classification recognized for federal tax purposes, thereby establishing consistent reporting requirements with the Internal Revenue Service.
Does changing classification affect self-employment tax?
Changing an entity’s classification can affect self-employment tax because the Internal Revenue Service applies different rules to corporations, partnerships, and disregarded entities when determining federal tax obligations.
What if I miss the preferred effective date?
If the preferred effective date is missed, the entity can request late election relief, which allows the Internal Revenue Service to consider an earlier effective date when appropriate.
Does the form create a lawyer-client relationship?
Filing Form 8832 does not create a lawyer-client relationship, because the document simply informs the Internal Revenue Service of the entity’s chosen federal tax classification.
Do I need to update my address after filing?
You must update your mailing address or responsible party information using Form 8822-B, which ensures the Internal Revenue Service sends future correspondence to the correct location.
