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 corporation status was previously elected. An LLC that doesn’t file Form 8832 is taxed as a sole proprietor or partnership.
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 not 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 corporation or S corporation (S-corp). LLCs with more than one owner, known as multimember LLCs, choose between being taxed as a partnership, C corporation, or S corporation.
There are important tax differences between partnerships, S-corps, and C-corps. C corporations must pay tax on their income at the corporate level. Owners of C corporations might also pay tax on their individual returns, but only if the C corporation pays them a dividend. Partnerships and S corporations do not pay tax on their income. Instead, all of their business income is included in the owner’s personal return, even if no cash was distributed to the owner. A primary difference between partnerships and S corporation is that the income from a partnership is subject to self-employment tax, where income from an S corporation is not.
Who Must File Form 8832
Form 8832 must be filed by an LLC that elects to be treated as a C corporation. A single-member LLC wishing to be treated as a sole proprietor or a multimember LLC withing 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 corporation should file Form 2553 instead of Form 8832.
Here is a summary of LLC choices and how they make the election:
Type of LLC
To Be Treated As
No filing required
No filing required
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 are taxed. For example, an LLC can elect to change back from an S corporation or C corporation to a partnership.
However, changing from one type of entity to another after operations have begun is usually a taxable event. We highly recommend 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.
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 start operations on Feb. 1, 2020, Form 8832 must be filed between Feb. 1, 2019, and April 16, 2020.
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 Form 8832 to your federal income tax return in the year the election is effective.
Where to Find Form 8832
Form 8832 Instructions along with a fillable Form 8832 PDF can be found on the IRS website. Be sure to download the form to your computer and open it in a PDF application before beginning work. Any information you enter inside the web browser before downloading the form cannot be saved.
Step by Step Form 8832 Instructions
Form 8832 is a two-page, 11-question form from the IRS. Here are step-by-step instructions to fill 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 will not 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 corporation. Similarly, choose this option if you have a multimember LLC that is currently taxed as a C corporation, 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’s date of formation.
There is a second exception if more than 50% of the business’s ownership interests have changed since the previous election. However, to file a new Form 8832 under this exception requires a private letter ruling from the IRS, which requires a hefty users 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 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.
- 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.
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 professional, Bookkeeper360 has a team of tax 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. See page 8 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. 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, and you should consult a tax professional.
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.
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 delay in the blank space on the form.
Frequently Asked Questions (FAQs) About Form 8832
What is the purpose of Form 8832?
Form 8832 allows an LLC to elect if it wants to be treated as a sole proprietorship, partnership, or C corporation. New LLCs file the form most often, but it can also be used by existing LLCs to change their tax treatment.
Does a single-member LLC have to file Form 8832?
A single-member LLC only has to file Form 8832 if it wants to be treated as a C corporation. If the LLC wishes to be treated as a sole proprietorship, it doesn’t have to file anything. If it wishes to be treated as an S corporation, it should file Form 2553 instead of Form 8832.
When to use IRS Form 2553 vs 8832?
Form 2553 is for a C corporation or LLC to elect S corporation status. Form 8832 is for an LLC to elect C corporation status. An LLC that previously filed a Form 8832 to become a C corporation may subsequently file Form 2553 to become an S corporation.
IRS Form 8832 is used by an LLC to elect its initial or change its existing, federal tax classification, such a partnership, C corporation, or S corporation. The election and change of tax classification are incredibly important, and we recommend you seek professional tax advice before making any decisions. If you don’t already work with a tax professional, Bookkeeper360 is ready to help.