Form 8832 is the IRS form that a Limited Liability Company (LLC) must submit to be taxed as a C Corporation. If you have an LLC and are currently taxed as a C Corporation but want to go back to being taxed as a sole proprietorship (single member LLC) or partnership (multi-member LLC), then you would also use Form 8832. Please note that this article contains general information only, so you should consult your own legal professional before making any decisions.
If you don’t complete Form 8832, you will receive the default tax treatment for your type of business.
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Most Common Uses for Form 8832
Type of business you have Default Tax Status Complete Form 8832 if you want to be taxed as a... Single-Member LLC Taxed like a sole proprietorship (Schedule C) C Corporation (to be taxed as an S Corp, complete form 2553) Multi-Member LLC Taxed like a partnership C Corporation (to be taxed as an S Corp, complete form 2553)
In this article, we’ll cover the following about Form 8832, which can be accessed here:
- Step-by-Step Form 8832 Instructions
- When and Where to File Form 8832
- Frequently Asked Questions About Form 8832
How you are taxed can be different from the business structure (e.g. sole proprietorship, partnership, LLC, Corporation) that you select. If you’re not sure which business structure to choose, you should read this article first.
Step-by-Step Form 8832 Instructions
Form 8832 (which you can get here) is a two-page, 11-question form from the IRS. Below, we provide you with step by step instructions on how to fill it out.
Step 1. Basic Business Information (Part I)
Before getting to the meat of the form, you need to provide some basic business information, including the following:
- Business name
- Business address
- Business phone number
- Employer Identification Number (EIN). You must have an Employer Identification Number (EIN)–a tax ID for businesses–in order to submit Form 8832. The IRS will not process the form if you leave this field blank or put in your Social Security Number instead.
If you already have an EIN for your business, use that EIN to fill out the form. You generally do not need a new EIN to change your tax treatment.
Step 2. Type of Election (Part I, Question 1)
In Part 1, Question 1, you’ll be asked to choose your reason for filling out Form 8832:
- Initial Classification By a Newly-Formed Entity – Choose this option if you just formed your business and are electing a tax classification for the first time; OR
- Change in Current Classification – Choose this option if you’ve already filed a tax return under one classification and now want to switch. For example, choose this option if you have a multi-member LLC that was taxed as a partnership but you would now like to be taxed as a C Corporation. Similarly, if you have a multi-member LLC that is currently taxed as a C-Corporation but you want to go back to default partnership treatment, then you would choose this option.
Step 3. Previous Elections (Part I, Questions 2a and 2b) (Skip if you chose “newly formed entity” in Step 2)
Your answers to Questions 2a and 2b determine if you are eligible to change your business’ tax treatment. In general, the IRS only allows one change in your tax election every 5 years. There are two exceptions to this rule:
- The previous election was for a newly-formed entity, and the election was effective on the business’ date of formation.
- More than 50 % of the business’ ownership interests have changed since the previous election (for example, a business that had 4 owners may be exempt from the 5 year rule if 3 of the owners changed after the initial election of tax status).
If you filled out another Form 8832 within the last 5 years, then answer “yes” to Question 2a and proceed to Question 2b.
If you did not fill out another Form 8832 within the last 5 years, then answer “no” to Question 2a and proceed to Question 3.
Question 2b asks whether your previous election was for a newly formed entity and whether the election was effective on the date of the formation? If your answer to Question 2b is “yes,” then proceed to Question 3.
If your answer to Question 2b is “no,” then you’re not currently eligible to submit Form 8832 and change your tax treatment unless at least half of the business’ ownership interests have changed since the last election. If that applies to you, you’ll need to attach a letter to Form 8832 signed by officers of your business showing that the business’ ownership interests have changed at least 50 percent.
Step 4. Owner Information (Part I, Questions 3 and 4)
Questions 3 and 4 ask about owner information. In question 3, you need to specify if the business has one owner or multiple owners. If the business has only one owner, indicate the name of the owner in Question 4 along with the owner’s “identifying number.” Identifying number usually means the owner’s social security number. If the owner is a business entity, then the identifying number may be an EIN.
Step 5. Affiliated Companies (Part I, Question 5)
If the owner or owners of your business are a group of affiliated companies that file a consolidated return, you’ll need to specify the parent company and its EIN number in Question 5. This question is to ensure that each company in the group receives the correct tax treatment.
Step 6. Type of Entity – Choose Your Tax Treatment (Part I, Question 6)
This is the heart of Form 8832. This is where you elect how you want to be taxed. Here are your choices:
- Choose (a) if your business was formed in the US and you want to be taxed as a C Corporation. (Remember, if you want to be taxed as an S Corporation, fill out IRS form 2553, not form 8832).
- Choose (b) if your business was formed in the US and you want to be taxed as a partnership.
- Choose (c) if your business was formed in the US and you want to be taxed as a sole proprietorship. In this case, your business earnings will be reflected on a Schedule C attached to your personal tax return.
- Choose (d) if a company is a “foreign entity” and you want to be taxed as a C Corporation.
- Choose (e) if a company is a “foreign entity” and you want to be taxed as a partnership.
- Choose (f) if a company is a “foreign entity” and you want to be taxed as a sole proprietorship.
Be careful when making your choice because, as mentioned above, you’re generally limited to one change in your tax status every 5 years. We recommend talking to your accountant or tax professional before submitting the form.
Step 7. Foreign Entities (Part I, Question 7)
If your business was formed somewhere other than the United States, then provide the country where the business was created. Some US territories are considered foreign entities for tax purposes. See page 7 of Form 8832 for a list of countries if you’re unsure.
Step 8. Effective Date of Election (Part I, Question 8)
In Question 8, you choose when you want your tax election to take effect. The date can generally be no sooner than 75 days before you file Form 8832 and no later than 12 months after you file Form 8832. If you leave the field blank, the IRS will take the date you submitted the form as the effective date.
Example: if you file Form 8832 on October 1, 2016 then you can choose an effective date between July 18, 2016 and October 1, 2017.
You should ask your accountant for advice on what effective date to choose as it can make a difference to your bottom line. For instance, if you are a seasonal business, there may be some strategic reasons for choosing one date over another.
Step 9. Signatures (Part I, Question 9)
For this question, provide the name, title, and phone number of the person that the IRS should contact should there be any questions about your form.
Form 8832 should be signed by a business owner, manager, or officer of the business. If the election is going to be active before the date you filed the form, it needs to also be signed by anyone who was an owner during the active period but is no longer an owner.
Step 10. Late Election Relief (Part II)
In Step 8 above, we mentioned the timeline for filing Form 8832. If you don’t apply at least 75 days after you want your election to be active, then you will need to seek late election relief. You may be eligible for late election relief if all the following four factors apply to you:
- You have already submitted a Form 8832 and were denied solely because it was filed late.
- Your deadline for filing taxes hasn’t yet passed, or you are up-to-date on all your taxes.
- There’s reasonable cause for the delay.
- 3 years and 75 days haven’t passed from the requested effective date of the election.
If these apply to you, explain the reasonable cause for delay in the blank space on the form.
When and Where to File Form 8832
When to File
As mentioned above, make sure you file your Form 8832 at the correct time, based on when you want your new tax election to take effect. The effective date can generally be no sooner than 75 days before you file Form 8832 and no later than 12 months after you file Form 8832. For example, if you want your election to be active January 1, 2017, you should file the form between January 1, 2016 and March 16, 2017.
Where to File
You should submit your completed Form 8832 at the appropriate IRS Service Center indicated on page 5 of the form. The Service Center will notify you if your election has been accepted, generally within 60 days after you file the form.
You should also attach a copy of the form to your federal income tax return in the year of the election.
Frequently Asked Questions About Form 8832
If I want my business to be taxed as an S Corporation, do I need to fill out Form 8832?
No. If you want to be taxed as an S Corporation, the faster option is to file IRS Form 2553 – Election by a Small Business Corporation.
According to guidance from the IRS, “An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules. File Form 8832 to elect classification as a C corporation. File Form 2553 to elect classification as an S corporation. An LLC electing classification as an S corporation isn’t required to file Form 8832 to elect classification as a corporation before filing Form 2553.”
If are an LLC and would like to be taxed as a C Corporation, then Form 8832 is the correct form to fill out.
Should I use Form 8832 if I am a Sole Proprietorship or Partnership and Want to Be Taxed as a Corporation?
No. A sole proprietorship or partnership that wants to be taxed a corporation should form a corporation by filing articles of incorporation with the Secretary of State.
Should I use Form 8832 if I am a Corporation and Want to Be Taxed as an LLC, Sole Proprietorship, or Partnership?
In general, no. Most states require a corporation to file articles of conversion before it can be taxed as an LLC, sole proprietorship, or partnership. Some states even require the corporation to file articles of dissolution and form a new LLC. We recommend contacting your state’s Secretary of State’s office to learn more.
If I am an LLC that’s currently taxed as a C Corporation and want to switch to be taxed as a partnership (multi-member LLC) or sole proprietorship (single-member LLC), should I file Form 8832?
Yes, Form 8832 is the correct form to fill out in this case.
What should I do if I am currently taxed as an S Corporation and want to convert to a different status?
There’s no specific document that the IRS requires for businesses to revoke S Corporation status. What most businesses do is send a letter to the IRS stating that they wish to revoke their S Corporation status. Then, you would file federal income tax returns based on on the type of business you would like to be. For example, file your taxes as a C corporation using Form 1120, or file as an LLC using Form 1065 and Schedule K-1. Follow your state rules for filing state tax returns.
The Bottom Line
Form 8832 is the IRS form that an LLC should use to change its federal tax classification. If you want to switch tax classifications for your business or your accountant advises you to do so, you will need to fill out this form. Hopefully, the Form 8832 instructions this article will make the process easier and faster for you. To learn more about selecting a business structure, which can be different from your tax election, click here.