Home Blog What Is Form 8832 (Explained: All You Need To Know)

What Is Form 8832 (Explained: All You Need To Know)

Looking for Form 8832?

What is Form 8832?

What’s important to know it?

Keep reading as we have gathered exactly the information that you need!

Let me explain to you what Form 8832 is and why it matters!

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Let’s get started!

What Is Form 8832

Form 8832 is called “Entity Classification Election” allowing you to tell the IRS how to classify your business for tax purposes.

In other words, Form 8832 tells the IRS what type of company you own or operate so the IRS can apply the proper tax rules and rates.

Companies that do not specifically tell the IRS how they want to be classified for tax purposes will be classified based on the IRS’s default tax classification system.

Business owners and entrepreneurs should be careful as to how their business entity is classified so they do not pay more taxes than expected.

Choosing the proper tax classification for your business entity can result in important tax consequences and potentially significant tax savings.

Keep reading as I will tell you more about IRS Form 8832 and how it works.

The main objective of Form 8832 used by the IRS is to have business owners elect how they want their business to be classified for federal tax purposes.

When a corporation, partnership, or another entity provides the IRS with the 8832 Form, the IRS will then use the information on the form to establish the entity’s tax filing requirements and reporting obligations.

If an election is not made for a business entity, the IRS will apply the default rules.

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Who Must File Form 8832

Form 8832 can be filed by an “eligible entity” that is given the ability to elect how its should be taxed.

The following entities are considered as eligible entities:

  • A domestic entity electing to be classified as an association taxed like a corporation
  • A domestic entity electing to change its current tax classification 
  • A foreign entity that has more than one owner and all owners having limited liability electing to be classified as a partnership
  • A foreign entity that has at least one owner that does not have limited liability electing to be classified as an association taxed like a corporation 
  • A foreign entity with a single owner having limited liability electing to be an entity disregarded as an entity separate from its owner
  • A foreign entity electing to change its current tax classification

Some legal entities are not required to file Form 8832, namely:

  • Entities tax-exempt under Section 501(a)
  • A real estate investment trust as defined in Section 856
  • When electing to be classified as an S Corporation 

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Content of Form 8832

Form 8832 is called “Entity Classification Election” and it is relatively a short form containing three pages.

On top of the form, you’ll need to indicate your legal entity’s information such as the name of the eligible entity, address, and employer identification number.

In Part I of the form, you must make your election.

There are different fields and questions in Part I, namely:

  • Type of election
  • Has the eligible entity previously filed an entity election that had an effective date within the last 60 months?
  • Was the eligible entity’s prior election an initial classification election by a newly formed entity that was effective on the date of formation? 
  • Does the eligible entity have more than one owner? 
  • If the eligible entity has only one owner, provide the owner’s name and identifying number
  • If the eligible entity is owned by one or more affiliated corporations that file a consolidated return, provide the name and employer identification number of the parent corporation
  • Type of entity 
  • If the eligible entity is created or organized in a foreign jurisdiction, provide the foreign country of organization
  • Election is to be effective beginning (month, day, year)
  • Name and title of the contact person
  • Contact person’s telephone number

You also have Part II where you can request a Late Election Relief by providing the necessary explanations why your entity classification form was not filed on time.

The final section of the form is the signature field.

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When To File Form 8832

If you own or operate an eligible entity, you can file your Form 8832 essentially at any time.

For example, a new entity can file its form immediately following its formation or do it later on.

What’s important is when the tax classification will take effect.

When you file your Form 8832, the tax classification cannot take effect more than 75 days prior to the filing of the form and up to one year after the filing of the form.

If your form does not indicate a date, the filing date will be the effective day.

If you’re filing your Form 8832, make sure you understand the nuances between the filing date and the effective date so you can have your entity taxed properly.

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Default Tax Classification Rules

If you don’t file a Form 8832 for your eligible entity, the IRS will apply the default tax classification rules to your business.

Here are the default rules that the IRS may apply: existing entity default rule, domestic default rule, and foreign default rule.

The existing entity default rule applies to certain domestic and foreign entities that were in existence before January 1, 1997 and have an established federal tax classification.

Although these existing entities do not need to make an election to continue their classification, they can choose to change their tax classification.

The domestic default rule applies to partnerships if they have two or more members and disregarded entities separate from their owners with one single owner.

The foreign default rule applies to partnerships with two or more members with at least one member without limited liability, an association taxable as a corporation if all members have limited liability, and a disregarded entity separate from its owners if it has a single owner that does not have limited liability.

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Form 8832 FAQ

What are the classification options on Form 8832?

When you file your Form 8832, you the following election options:

  • A domestic entity electing to be classified as an association taxed like a corporation
  • A domestic entity electing to change its current tax classification 
  • A foreign entity that has more than one owner and all owners having limited liability electing to be classified as a partnership
  • A foreign entity that has at least one owner that does not have limited liability electing to be classified as an association taxed like a corporation 
  • A foreign entity with a single owner having limited liability electing to be an entity disregarded as an entity separate from its owner
  • A foreign entity electing to change its current tax classification

What if I don’t complete Form 8832?

If you don’t complete a Form 8832 for your eligible entity, the IRS will classify your legal entity based on its default classification rules.

If you are looking to change the default tax classification of your eligible entity, then it’s important that you make sure you file your 8832 Form.

What is the deadline to file Form 8832?

There’s no particular deadline for filing your Form 8832.

You can choose to file the form at any time such as at the start of your business or anytime during the life of your business.

However, you should be aware that the effective date of your form cannot be more than 75 days before the filing of your form and more than 12 months after it.

Who is not eligible to file Form 8832?

The IRS provides the detail of what entities are considered “eligible entities”.

If you’re a sole proprietor or a corporation, you are not eligible to file Form 8832.

Takeaways 

So there you have it folks!

What is the IRS Form 8832?

In a nutshell, Form 8832 is an Entity Classification Election form where some business entities can elect to be classified as a corporation, partnership, or disregarded entity.

Domestic partnerships, domestic LLCs, foreign partnerships, foreign LLCs, foreign corporations, and US-owned foreign corporations can elect to be taxed like a C Corporation, partnership, or disregarded entity.

Form 8832 is pretty simple to complete where you will need to provide your business name and address, business phone number, and EIN, and answer a few questions relating to your business and election.

Now that you know what Form 8832 is all about and how it works, good luck with your research!

Form 2553
Disregarded entity 
Tax distribution
Tax exemption 
Tax status 
Domestic corporation
Foreign corporation 
Affiliated company 
Limited liability 
Personal liability
Author

Editorial Staffhttps://lawyer.zone
Hello Nation! I'm a lawyer and passionate about law. I've practiced law in a boutique law firm, worked in a multi-national organization and as in-house counsel. I've been around the block! On this blog, I provide you with golden nuggets of information about lawyers, attorneys, the law and legal theories. Enjoy!

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