What the Form Is For
Form 8832 allows eligible business entities to choose their federal tax classification. It helps an LLC or other business structure determine whether it will be treated as a corporation, a partnership, or a disregarded entity for tax purposes. The Internal Revenue Service uses this election to determine how the entity reports federal taxes and how owners handle income on their individual returns.
When You’d Use Form 8832
You use Form 8832 when your entity does not want its default classification. A single-member LLC uses it to elect corporate treatment, and a multi-member LLC uses it to elect C corporation status.
Key Rules or Details for 2016
- Default classification rules: The IRS assigns each entity a default classification, and you must file Form 8832 only when choosing a different option that better fits your long-term tax planning goals.
- Effective date limits: The IRS requires an effective date that is no earlier than 75 days before filing and no later than 12 months after filing.
- EIN requirement: The IRS requires a valid Employer Identification Number before accepting Form 8832, and you cannot show as “Applied For.”
- Late election relief: The IRS allows late election relief when you meet certain conditions and file within the permitted window.
- Foreign entity rules: A foreign entity follows different federal tax classification rules, and its election depends on whether owners have limited liability under foreign law.
- Signature requirements: All owners or an authorized representative must sign the election, including owners present during any retroactive effective date period.
Step-by-Step (High Level)
Step 1: Determine eligibility
Review the entity’s default classification and confirm whether the business structure requires an Entity Classification Election. This ensures you file only when the preferred tax classification is different.
Step 2: Obtain an EIN
Apply for an Employer Identification Number (EIN) before preparing the form, as the IRS requires it for processing. Entities without an EIN must receive one before filing Form 8832.
Step 3: Complete the form
Enter the taxpayer identification number, business structure type, chosen tax classification, and effective date. Check the correct box for partnership, disregarded entity, or corporation under federal tax purposes.
Step 4: Gather required signatures
Collect signatures from all required owners or authorized managers. Confirm that signatures cover the entire period tied to any retroactive effective date you list.
Step 5: File with the correct Service Center
Mail the form to the IRS Service Center listed in the Form Instructions for your state. Confirm the correct address because different states use different Service Centers.
Step 6: Attach copies to tax returns
Include a copy of Form 8832 with the entity’s tax return for the year the change applies. Owners attach copies of their returns to their own returns when the entity does not file separately.
Step 7: Wait for IRS response
The IRS generally responds within several weeks, sending either an acceptance or a request for clarification. Keep the notice for future tax years and business information records.
Common Mistakes and How to Avoid Them
- Using the wrong effective date: Many filers choose dates outside the IRS limits. You can avoid this mistake by confirming the date is within the accepted retroactive or forward period.
- Missing signatures: Missing signatures can delay processing. To avoid this issue, check every ownership period and ensure that all eligible signers complete their portion before mailing.
- Incorrect default classification assumptions: Some entities misunderstand the IRS default rules, and you can avoid misclassification by reviewing the correct category for a Single-Member LLC or multi-member LLC before completing the election.
- Failing to secure an EIN first: Filing without an Employer Identification Number causes automatic rejection, and you can avoid this by confirming the EIN is active before preparing Form 8832.
- Using Form 8832 to elect S corporation status: Some filers mistakenly use Form 8832 for S corporation treatment, and you can avoid this mistake by filing Form 2553 when choosing S Corporation status.
What Happens After You File
The IRS reviews the entity classification request and sends a notice confirming approval or identifying issues. The entity must use the appropriate tax forms for its elected status, such as Form 1120 for a C Corp or Schedule C for a disregarded entity. Owners report income according to the election using the correct forms and schedules.
FAQs
Does Form 8832 change how my LLC pays federal income tax?
Yes, the election determines whether the entity uses pass-through taxation or corporate taxation. The chosen classification affects federal income tax reporting and how you complete your Income Tax Return.
Can I elect S corporation status using Form 8832?
No, you must file Form 2553 to elect S corporation status. Form 8832 only lets you choose corporate status, partnership status, or disregarded entity treatment.
Do Single-Member LLCs need to file Form 8832?
No, a single-member LLC automatically becomes a disregarded entity unless it chooses corporate treatment. Form 8832 is only needed when requesting a different classification.
Does changing tax classification affect self-employment tax?
Yes, a disregarded entity generally passes income through to the owner, which may create self-employment tax obligations. Corporate elections change how tax obligations are calculated.
Does Form 8832 affect state income taxes?
Some states follow the federal tax classification, while others use separate rules. You must confirm requirements with your state department of revenue.
Do I need a new EIN after changing my business entity classification?
Most entities retain their existing EIN after filing Form 8832, unless the Internal Revenue Service requires a different number due to major structural changes.
