Form 8832: choosing how your entity is taxed

What are the default classifications?

State-law corporations cannot use Form 8832; they are corporations for tax. See how LLCs are taxed.

When should you file it?

• To have an LLC taxed as a C corporation, for example to retain profits at 21% or to suit investors.
• To change an LLC back from corporate treatment, after considering the tax cost of the change.
• For a foreign entity whose US tax classification matters, such as one owning US investments.

Not for S corporation status: an LLC electing S status files only Form 2553, which treats it as electing corporate classification at the same time. See Form 2553.

How do you complete and file it?

1. Confirm the entity is eligible

   And whether this is an initial or a change election.

2. Choose the classification

   In Part I, with the effective date.

3. Get the signatures

   Every member, or an authorized officer or member, as the instructions require.

4. File it

   At the IRS address for your location in the instructions, and keep proof of filing.

5. Wait for the acceptance letter

   The IRS confirms the election by notice.

How does the effective date work?

You choose the effective date, which can be no more than 75 days before the form is filed and no more than 12 months after. An election filed too late for the date you want takes effect 75 days before filing unless relief applies.

What is the 60-month rule?

After a change in classification, the entity generally cannot change again for 60 months. An initial election made by a new entity effective from its formation does not count as a change. The IRS can allow an earlier change if more than 50% of the ownership has changed.

What if you missed the deadline?

Late election relief is often available under a revenue procedure, if the request is made within 3 years and 75 days of the intended effective date, the entity failed only because the election was not timely, and there is reasonable cause. Write the relief statement at the top of the form and include the explanation the instructions require.

What happens when the classification changes?

A change is treated as a transaction for tax. An LLC moving from partnership or disregarded status to a corporation is treated as transferring its assets to a new corporation, which is usually tax-free if the rules for transfers to controlled corporations are met. Moving from a corporation back to an LLC classification is treated as a liquidation, which can be taxable to the corporation and its owners. Get advice before electing back.

Should a foreign-owned LLC elect corporate status?

Rarely to save tax: a corporation pays 21% US tax on its income and files Form 1120 with Form 5472, and dividends to the owner can face 30% withholding unless a treaty reduces it. It can make sense for a business that will reinvest in the US. See LLC or C corp for a foreign founder.

This guide is general information. It is not tax or legal advice for your situation.