IRS Form 8832 is filed by limited liability companies (LLCs) to be taxed as C corporations (C-corps). LLCs also file Form 8832 to revert to being taxed as a sole proprietor or partnership if C-corp status was elected previously. An LLC that doesn’t file Form 8832 is taxed as a sole proprietor or partnership.
You can download a PDF of Form 8832 from the IRS website by clicking the thumbnail below:
What is Form 8832?
Form 8832 is used by LLCs to elect how they wish to be taxed. LLCs are created under state laws and aren’t recognized as a type of entity for federal income taxes. Therefore, LLC owners must elect their entity type for federal income taxes.
LLCs with one owner, known as single-member LLCs, choose between being taxed as a sole proprietor, C-corp, or S corporation (S-corp). LLCs with more than one owner, known as multimember LLCs, choose between being taxed as a partnership, C-corp, or S-corp. Check out our article about the important tax differences between partnerships, S-corps, and C-corps for more information.
Ensuring that you have the most accurate bookkeeping system in place will save you a lot of headaches during tax time. If you’re not sure which one to choose, check out our recommendations for the best small business accounting software.
Who Must File Form 8832
Form 8832 must be filed by an LLC that elects to be treated as a C-corp. A single-member LLC wishing to be treated as a sole proprietor or a multimember LLC wishing to be treated as a partnership doesn’t have to file any form as these are the default treatments. Any LLC wishing to be treated as an S-corp should file Form 2553 instead of Form 8832.
Here’s a summary of LLC choices and how they make the election:
Choosing how to be taxed has long-term consequences and is one of the most important decisions an LLC will ever make. Form 8832 can be filed again if an LLC wants to change how they’re taxed. For example, an LLC can elect to change back from an S-corp or C-corp to a partnership.
However, changing from one type of entity to another after operations have begun is usually a taxable event. We highly recommend that you consult a tax professional before choosing the tax status of your business. Bookkeeper360 has tax and accounting professionals that will help you organize your company correctly.
Step by Step Form 8832 Instructions
Form 8832 is a three-page, 11-question form from the IRS. Here are the step-by-step instructions for filling it out:
Step 1. Basic Business Information
The top of Form 8832 requires some basic business information, including the following:
- Business name
- Business address
- Business phone number
- Employer identification number (EIN). You must have an EIN—a tax ID for businesses—to submit Form 8832. The IRS won’t process the form if you leave this field blank or input your Social Security number instead.
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. If you select this choice, you can skip step 3 of our guide and go to step 4.
- 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 multimember LLC that was taxed as a partnership but you would now like to be taxed as a C-corp. Similarly, choose this option if you have a multimember LLC that is currently taxed as a C-corp but you want to go back to default partnership treatment.
Changing your classification after beginning business creates complex tax scenarios. You are treated as liquidating your current business and transferring all the assets to a newly formed business. This typically has tax consequences, and you should seek the advice of a tax professional before making the change.
Step 3. Previous Elections (Part I, Questions 2a and 2b)
The IRS typically allows one change in your tax election every five years. An exception is if the previous election was for a newly formed entity and the election was effective on the business’ date of formation.
There is a second exception if more than 50% of the business’ ownership interests have changed since the previous election. However, filing a new Form 8832 under this exception requires a private letter ruling from the IRS, which requires a hefty user’s fee along with professional fees to hire a tax attorney.
Your answers to Questions 2a and 2b determine if you are eligible to change your business’s tax treatment. If you’ve filed another Form 8832 within the last five years, then answer “yes” to Question 2a and proceed to Question 2b. If you did not fill out another Form 8832 within the last five 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 is “no,” then you’re not eligible to submit Form 8832.
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.” The 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 in Question 5. This question is to ensure that each company in the group receives the correct tax treatment.
Step 6. Type of Entity (Part I, Question 6)
This is the heart of Form 8832. This is where you elect how you want to be taxed. Below you will find a list of your choices along with a brief explanation of each:
- Choose “a” if your business was formed in the United States and you want to be taxed as a C-corp. Remember: if you want to be taxed as an S-corp, 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.
- Choose “d” if a company is a “foreign entity” and you want to be taxed as a C-corp.
- 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.
This is a very important decision with long-term tax consequences that can’t be undone. We recommend talking to your accountant or tax professional before submitting the form. If you don’t have a tax advisor, Bookkeeper360 has a team of professionals that can help you get your business properly organized.
Step 7. Foreign Entities (Part I, Question 7)
Provide the country where the business was created, if not in the US. Some US territories are considered foreign entities for tax purposes. If you’re unsure, see page 8 of Form 8832 for a list of countries.
Step 8. Effective Date of Election (Part I, Question 8)
In Question 8, you choose when you want your tax election to take effect. If you are a new business, then the effective date should be the date your business began operations. An election effective after operations begin creates a complex tax scenario. If this is the case, you should consult a tax professional.
Step 9. Signature and Telephone Number (Part I, Questions 9 and 10)
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.
Step 10. Late Election Relief (Part II)
Form 8832 is due 75 days after the effective date. You may be eligible for late election relief if you meet the following criteria:
- You have already submitted a Form 8832 and were denied solely because it was filed late.
- You are up to date on all your taxes.
- There’s reasonable cause for the delay.
- Form 8832 is no more than three years late.
If these apply to you, explain the reasonable cause for the delay in the blank space on the form.
When to File Form 8832
Form 8832 must be filed between one year prior and 75 days after its effective date. Most LLCs want their Form 8832 to be effective for their first tax year, so the form must be filed no sooner than one year and no later than 75 days after beginning business. For example, if you started operations on February 1, 2022, Form 8832 must be filed between February 1, 2021, and April 16, 2022.
The Form 8832 instructions provide certain conditions that will allow the filing of Form 8832 up to three years late. See the discussion of Form 8832 in step 10 for more information.
Where to File Form 8832
Form 8832 cannot be filed electronically. The Form 8832 Instructions provide two different mailing addresses, depending upon where the LLC is located:
You should also attach a copy of Form 8832 to your federal income tax return in the year the election is effective.
IRS Form 8832 is used by an LLC, such as a partnership, C-corp, or S-corp, to elect its initial federal tax classification or change its existing classification. The election or change of tax classification is incredibly important, and we recommend you seek professional tax advice before making any decisions.