How to Fill Out IRS Form 8832
Hi, I'm Priyanka Prakash, senior staff writer at Fundera.
Today, I'll show you how to fill out IRS Form 8832: Entity Classification Election.
This form is used whenever a business wants to opt out of default tax treatment for federal
tax purposes.
A common example is when a limited liability company (LLC) wants to be taxed as a C-corp.
By default, a single-member LLC is taxed as a disregarded entity, and a multi-member LLC
is taxed as a partnership.
This means that business profits and losses passed through to the owners’ personal income
tax returns.
However, if you correctly fill out and submit Form 8832, you can elect for the LLC to be
treated as a C-corp for federal tax purposes, and the business will pay a corporate income
tax.
Okay, let's get started with the form.
Start by providing your basic business information at the top, including your business name,
address, and phone number.
I'm going to provide this information for a sample business called ABC Bakery LLC.
Note that you need an EIN or employer identification number before filling out and submitting Form
8832.
If your business does not already have an EIN, you'll first need to apply for one using
IRS Form SS-4.
However, if you already have an EIN for your business, there's no need to apply for a new
one now.
In general, if you already have an EIN, you'll continue to use that same EIN for Form 8832
and going forward.
Check off this first box if you've changed your business address after filing Form SS-4
or your most recent tax return.
The other two boxes are for late tax classification relief.
When you file Form 8832, the IRS will take your date of filing as the effective date
of your new tax status unless you provide an alternate date.
You cannot provide an alternate date that's more than 75 days before you file the form
or more than one year after you file the form.
If you fail to file Form 8832, but would like to apply your change in business tax status
to previous tax years, then you should check off this box which says late classification
relief sought under revenue procedure 2009-41.
If you have reasonable cause for not filing form 8832, you typically can qualify for late
election relief as long as no more than three years and 75 days have passed from your requested
effective date of the tax election.
This last box which refers to revenue procedure 2010-32 applies to certain types of foreign
business entities.
In this case, none of these boxes apply to ABC Bakery LLC, so I'm going to skip and go
down to Part 1.
Part 1 of the form is about election information.
In item 1, indicate whether you have a newly formed business and are electing a tax classification
for the first time, or did you already elect a tax classification and now you'd like to
change it?
For example, maybe you had an LLC that elected C Corp tax status, but now you'd like to revert
back to the default tax treatment.
In this example, I'm going to assume that ABC Bakery is making its initial tax classification
and check off box a.
Next, we go to item 2a.
In general, once you change your tax classification, the IRS won't let you change it again for
60 months.
That's five years.
However, if your ownership significantly changes, by 50% or more, the IRS can make an exception.
New businesses, such as ABC Bakery in our example, will check off “no” in this question.
In this case, we can skip item 2b.
This question just indicates that only a change in your tax classification subjects you to
that 60 month rule which I just mentioned.
If you elect a classification for a new business that's effective on the business’s date
of formation, you're allowed to make another election, and the 60 month rule won't apply
to you.
Item 3 essentially tells you your tax status options after filling out and submitting Form
8832.
If you have a solely owned business, you can choose to either be taxed as a disregarded
entity, which means the business profits and losses will flow through to your personal
tax return.
Or, you can choose for your business to be taxed as a C-corp, in which case the business
will pay a corporate income tax.
Businesses with multiple owners can choose to be taxed either as a C-corp or as a partnership.
In the case of a partnership, the business profits and losses will flow through to each
partner’s personal tax return.
You also have the choice to elect to be taxed as an S-corporation, but that requires a completely
different form called Form 2553.
In this example, let's say that ABC Bakery is a two person LLC owned by Betty Business
and Chris Corporate.
I would select the first box in item 3, and then I can skip item 4, which applies only
to solely owned businesses.
I can also skip question 5 because none of the owners of ABC Bakery are corporations.
Both owners are individuals.
item 5 is probably the most important question on Form 8832.
This is where you choose your desired tax status for your business.
In this example, I have a domestic US-based LLC that's choosing to be taxed as a C-corporation,
so I'll check off the first box.
I'll skip item 7, which applies only to foreign entities.
In item eight, I need to provide the effective date of my tax election.
Let's say that ABC bakery wants their new tax election to take effect starting in 2020.
I'll type in January 1, 2020 as my desired effective date.
Remember that if you leave this field blank, the IRS will use the date of your filing as
the effective date of your tax status.
In item 9, note the name, title, and phone number of the business contact person that
the IRS can get in touch with if they have any questions about this form.
In this example, let's say that the contact person is Betty Business, who's the CEO of
ABC Bakery.
In item 10, have all business owners sign and date the form and provide their title.
Generally, all members of an LLC must sign the form.
Alternatively, any officer or owner should sign who's authorized by the bylaws or organizational
documents to make this tax election.
In this example, I would have both Betty and Chris sign and date the form after printing
it out.
For now, I'll just put in their titles: CEO for Betty, and let's say that Chris is the
chief financial officer or CFO.
Part 2 should only be completed if you're requesting late election relief for filing
Form 8832.
In this section, you'd provide a reasonable cause for the delay.
For example, there could have been a postal error, or maybe your accountant did not mail
the form in on time.
If you do fill out Part 2, you and other business owners or officers would have to sign at the
bottom of the page and date and provide your titles.
And that's it.
You've now completed Form 8832.
The cover page at the top will tell you the filing address based on which state your business
is in.
You also should attach a copy of Form 8832 to your business's federal tax return or information
return for the tax year of the election.
For example, if you use this form to convert from an LLC to a C-corporation for tax purposes,
you should attach a copy of your completed Form 8832 to Form 1120, which is the federal
tax return form for C-corporations.
The IRS will notify you within 2 months if they've accepted requested tax election or
not.
We hope this was helpful in filling out Form 8832.
For more tax information and small business insights, head over to https://fundera.com/blog,
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Thank you for watching, everyone.