What Is Form 8832?

Partnerships and Limited Liability Companies can file this tax form. Businesses like a multi-member llc, file these tax forms if they want to be taxed as different kinds of companies, like a c corporation.

Who Must File Form 8832?

This form is not mandatory and an eligible entity should complete form 8832. It just gives eligible businesses the option to change their entity classification if they want to in a tax year. 

Why Is Form 8832 Important?

Business entities are given a default tax classification and sometimes businesses can reduce their taxes significantly, by changing how the business is taxed.

How Do I Fill Out Form 8832?

The form has two parts: Election Information (Part I) and Late Election Relief (Part II). Part I asks a series of questions pertaining to your tax status election. 

Part II is only for businesses seeking late election relief. 

When to File Form 8832?

The filing date for Form 8832 is within 75 days of the formation of your company. If you miss this timeframe, the IRS allows it to be filed in the first 75 days of each fiscal year.

When Is Form 8832 Due?

Due to Form 8832 not being mandatory, it doesn’t have a deadline per se as most tax returns. It can be filed at any point in the lifetime of an eligible entity. 

Where Should It Be Filed?

Businesses cannot e-File (electronically) Form 8832. 

After completing Form 8832, you need to send it to the appropriate IRS office for review. Where you send the form depends on what state your business is in.

How Long Does It Take To Prepare?

The estimated time of preparation is 17 minutes. 

Penalties for Not Filing Form 8832

It is not necessary to file this form. It is to the advantage of some taxpayers to choose whether their entity is to be taxed like a partnership (multiple owners), as a c corporation or is to be disregarded for tax (single owner entity) and taxed like a proprietorship.

What If You Have Never Filed Form 8832?

If you have never filed form 8832, the Internal Revenue Services will automatically tax you based on your business entity’s default tax classification. 

What to Know If You’re Already in Business

Form 8832 can be filled out at any point during the course of a business’s lifetime.

It is important to know that an entity can only change its status for tax every five years, with a few exceptions.

Entities Eligible to Use Form 8832
  • Domestic Partnership
  • Domestic LLCs
  • Foreign Partnerships
  • Foreign LLCs
  • Foreign corporations in certain jurisdictions
  • US-owned foreign entities (corporations) in certain jurisdictions.

Effects of Election

A business that is currently structured as a partnership and elects to be treated as a corporation; the partnership will be liquidated. All the liabilities and assets of the former partnership will be sold for stock in the new corporation. This stock will then be distributed amongst the former partners.

When changing your corporation to a partnership, the corporation will be dissolved. The assets and liabilities that were once owned by the corporation will be distributed to the shareholders, who will then contribute these items to the new partnership.

A corporation that decides to be treated as a disregarded entity will allocate all of the company’s assets and liabilities to one owner. 

Lastly, when a disregarded entity that is separate from its owner decides to elect corporate tax status, the owner will contribute all obligations and assets to the corporation.

Form 8832 vs. Form 2553

Understanding the difference between Form 8832 and Form 2553 is of the utmost importance if you’re interested in changing your business’s tax status.

Form 8832 allows businesses to request to be taxed as a corporation, partnership, or sole proprietorship when filing the relevant income tax return.

Form 2553 is the form corporations and Limited Liability Companies use to elect S Corp tax status. If you’re filing Form 2553, do not file Form 8832.

Choosing the Right Tax Status for Your LLC

There are advantages and disadvantages to every type of business entity. Each type of entity comes with its own legal and financial implications, as well as its own procedures for setting up. It is recommended to consult with your tax advisor before undergoing any elections.

Electing S Corporation Status with Form 8832

Generally, non-corporation business entities will make use of Form 8832. Even though it is possible to elect S corporation status using Form 8832, traditional corporations prefer to use Form 2553 to elect this status because it is made specifically for this purpose. 

Reasons to Consider Not Using Form 8832

Below are a few businesses that should consider not filing Form 8832 

  • Insurance companies
  • State-chartered banks (if FDIC-insured)
  • A business owned by a state or by a foreign government
  • Tax-exempt organizations
  • Real Estate Investment Trusts (REITs)

Reasons to Consider Using Form 8832

Partnerships and Limited Liability Companies for instance may benefit from filing Form 8832. 

Common Mistakes

Some common mistakes are the following:

  • Businesses do not need to file this form if they want to change their classification to an S Corporation and they should instead file Form 2553.
  • When you add more members to your single-member Limited Liability Company the business will be taxed as a partnership unless the business files Form 8832 to change the classification.

Is Form 8832 Complicated?

No! This is not a complicated form. It’s especially made easier with the advice and precision of experts like us.

Asena Advisors is the only multi-disciplinary (Accounting and Legal) international CPA firm in the United States that specializes in U.S. -Australia taxation.
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What Information Is Required in Form 8832?

You need the following information to complete it:

  • Business name
  • Business address
  • Business phone number
  • Employer identification number (EIN). Keep in mind that you must have an EIN even a small business (a tax ID for businesses) in order to submit Form 8832.

IRS Form 8832 Instructions: A Step-by-Step Guide

Step 1: Complete Your Basic Business Information

You can find Form 8832 on the IRS website.

This section asks for information regarding your business, including your business name, address, and EIN. 

Step 2: Complete Part 1, Election Information

Part 1 asks a series of questions regarding your tax status election.. Below are some of the questions asked in Part 1:

    • Whether you are filing to change your tax status for the first time or if this is a subsequent change. If this is not your first election, you need to provide relevant information and the timeline of your last election. 
    • Whether your business has more than one owner and depending on which box you check; you will have different tax status options.
    • Select the appropriate box for your business and desired tax status.
    • Select the month, day, and year that you would like your new tax status to take effect. Please note that you are not allowed to provide a date that is more than 75 days prior to the date on which you file.
    • Provide the name and title of someone within your business that the IRS may contact for additional information, as well as their phone number.
Step 3: Complete Part 2, Late Election Relief

Part 2 is only for those who are filing their entity classification election past the deadline. 

To be eligible for the late entity classification election relief, you need to fulfill all of the following requirements:

    • You failed to obtain your requested classification due to not filing Form 8832 on time.
    • You haven’t yet filed your taxes because the deadline hasn’t yet passed, or you’ve filed your taxes on time.
    • You can provide a sufficient reason why you could not file on time.
    • You are still within a window of three years and 75 days from your requested effective date.
Step 4: Mail IRS Form 8832

Mail the fully completed and signed form to the appropriate office. The address where you’ll send your form will depend on where your business is located.

Step 5: Keep an Eye on the Mail

The Internal Revenue Services will either accept or deny your Form 8832 filing request and will notify your business within 60 days of their decision. 

FAQs:

  1. Do I Have To File Form 8832?
    1. No, this is an optional form that is filed if you would like your entity to be taxed differently from its default classification. 
  2. Why Would I File The 8832?
    1. Businesses file this form if they want to be taxed as different kinds of companies, like a corporation.
  3. Which Businesses Can Use Form 8832?
    1. The following are considered eligible businesses for filing Form 8832:
      1. Partnerships
      2. Single and Multi-member LLCs
      3. Certain types of foreign entities (Page 5, Form 8832)
  4. Who Is Not Eligible To File Form 8832?
    1. Sole proprietorships are not eligible to file a Form 8832 election.
    2. If your business is a corporation that wants to be taxed as a Limited Liability Company, don’t file this form. Instead, contact your Secretary of State to find out how to convert your corporation.
    3. Additionally, if your business is an LLC that wants to be taxed as an S Corp, you must use Form 2553 instead of Form 8832.
  5. What Else Should I Know About Form 8832?
    1. You should differentiate between Form 8832 and Form 2553. Both allow certain businesses to request a new tax classification. The biggest difference between the two forms is the type of classification for federal tax purposes you request.
    2. Form 8832 allows businesses to request to be taxed as a corporation, partnership, or sole proprietorship, and Form 2553 is the form corporations and LLCs use to elect S Corp tax status. 
  6. What If I Don’t Have An Employer Identification Number?
    1. If you don’t have an EIN yet, you can easily apply for it for free online.  
  7. Do I Need To Change My Employer Identification Number If I Change My Tax Classification?
    1. No
  8. Who Can Sign My Entity’s Form 8832?
    1. It should be signed by a business owner, manager, or officer of the business. 
  9. Who Can Be An “Authorized Representative” For My Business On Form 8832?
    1. Your tax advisor
  10. Is This The Last Time I Have To Handle Form 8832?
    1. No. You should also attach a copy of the form to your federal income tax return for that year.
  11. How Long Will This Take Me To Fill Out?
    1. The IRS estimates that it takes just 17 minutes to fill out this form.
  12. Can I Use IRS Form 8832 To Elect To Be Taxed As An S-Corporation?
    1. No. You must fill out Form 2553.
  13. Can Partners Within A Corporation Be Taxed Differently Than Other Partners Within The Same Corporation?
    1. No. All partners and members must be taxed consistently – the same as the business.
  14. How Should I Classify My Business?
    1. There are pros and cons to every type of business entity and recommended to consult with your tax advisor before undergoing any elections.
  15. How Do I Know If I Should Change My Current Classification?
    1. Here are a few reasons you might want to change your current classification, including:
    2. 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.
    3. 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.
    4. When a single-member LLC adds more members, the business will be taxed as a partnership unless the business files Form 8832 to change this classification.
  16. What is the purpose of Form 8832?
    1. Businesses file this form if they want to be taxed as different kinds of companies, like a corporation.
  17. Does a single-member LLC need to file Form 8832?
    1. No
  18. Who must file IRS Form 8832?
    1. It depends since it is not mandatory. It provides eligible entities with the option to change their default classification. 
For more information on Form 8832, please contact one of our specialists at Asena Advisors. We make sure that your specific needs are catered for.

Shaun Eastman

Peter Harper