When an eligible entity, such as a limited liability company (LLC), is formed, the Internal Revenue Service (IRS) may automatically declare your entity classification for you. However, if you’d prefer to elect your classification yourself or change your current classification, you can file Form 8832. Keep reading to learn about what Form 8832 is, who needs to file, and key instructions.
What is Form 8832?
Form 8832, Entity Classification Election, is a form that eligible entities use to elect their entity classification rather than accept the IRS’s default classification. If you didn’t elect your tax classification or want to change the classification, you can file Form 8832 (or Form 2553 for S corporations). There are some time limitations which we’ll outline later.
IRS default domestic entity classification
When an eligible domestic entity is formed, the IRS automatically chooses its entity classification based on the number of members. A one-member entity is automatically deemed a disregarded entity, whereas an eligible entity with two or more members is classified as a partnership.
IRS default foreign entity classification
The IRS has different default tax classification rules for foreign entities. For foreign entities, their default classification is based on limited liability. The IRS will automatically treat a foreign entity as a partnership if it has two or more members and at least one member lacks limited liability, whereas a single-owner entity without limited liability is classified as a disregarded entity. However, unlike domestic entities, an eligible foreign entity can technically be automatically deemed a corporation if all members have limited liability.
Who needs to file Form 8832?
Domestic or foreign business owners of eligible entities who wish to choose or change their tax classification election should file Form 8832. An eligible business must have an Employer Identification Number (EIN) and can’t be a business that’s automatically classified as a corporation. A few examples of entities that may be eligible include LLCs, partnerships, and disregarded entities.
Is Form 8832 required for an LLC?
Filing Form 8832 is optional and not required for LLCs. If the LLC member or members are content with the default classification, they don’t need to file Form 8832. Instead, they can continue with the status the IRS provided them.
However, as mentioned above, an eligible LLC can elect a different classification if it chooses to do so.
Form 8832 instructions
Aside from the mailing page and IRS instructions, Form 8832 is a three-page document comprised of general information and two main parts. The beginning of the form asks for general information, including the business entity’s name and address, the employer identification number (EIN), and whether there has been an address change, late classification relief, or a change in classification relief.
Part I: Election Information
Part I, Election Information, is on the first two pages of IRS Form 8832 (after the mailing page). This section asks for the following information:
Type of election, such as an initial classification of a newly formed entity, or a change in current classification
Whether the entity previously filed an entity election that had an effective date within the last 60 months
Whether the entity’s prior election was an initial classification election by a newly formed entity that was effective on the date it was formed
If the entity has only one owner (in this case, you must provide the name and identifying number of the owner)
If the eligible entity is owned by one or more affiliated corporations that file a consolidated return (in this case, you must provide the parent corporation’s name and EIN)
Type of entity, such as a domestic or foreign partnership, disregarded as separate from the owner entity, or corporation
Signatures with dates and titles, confirming that you agree to the entity being taxed/classified in the way selected on the form, you’ve reviewed the election form and consent statement, everything on the form is accurate and complete, and you’re authorized to make this election for the entity
Part II: Late Election Relief
The Part II, Late Election Relief section is on the third page of Form 8832. You’ll only need to fill this section out if the entity is requesting late election relief.
According to the IRS, your entity may qualify for late election relief if:
The entity failed to classify because Form 8832 was filed after the deadline.
You haven’t filed yet for the first year the election was supposed to apply because the return isn’t due yet, or you did file, and your filings have been consistent with the classification you wanted.
The eligible business entity has a reasonable cause for failing to make the entity classification on time.
It’s been less than three years and 75 days from the requested effective date of the eligible entity’s classification election.
Once you’ve determined whether your entity is eligible for late election relief, you’ll need to provide the following information:
An explanation as to why the entity classification election was not filed on time
Signatures with dates and titles confirming you and any other owners reviewed the election form and any attachments, the form is accurate and complete, you’re aware of the facts behind the election, and the entity meets the requirements to qualify for late election relief
What is the deadline to file Form 8832?
Technically, there’s no set calendar date deadline to file Form 8832. However, there are strict timing rules depending on the circumstances of the election.
If you’re filing a new classification, it can’t take effect more than 75 days before the date the election is filed
If you choose to set a future effective date, it can’t be more than 12 months after the filing date
If you miss the 75-day window, you may be eligible for late election relief. However, you must file within 3 years and 75 days of the intended effective date to be eligible
Form 8832 vs. 2553
The difference between Form 8832 and Form 2553 is the ability to elect S corporation status.
As mentioned above, an eligible entity may elect to be classified as an S corporation, which differs from a C corporation. However, you may notice that this isn’t an option on Form 8832. This is where Form 2553 comes in. Form 2553 is the Election by a Small Business Corporation, otherwise known as an S corp. According to the IRS, a corporation or other entity eligible to elect to be treated as a corporation may elect to be an S corporation. If you’re electing for your LLC to be taxed as an S corporation, you should file Form 2553, not Form 8832. You can find further instructions and requirements for Form 2553 here.
FAQs
The bottom line
If you’re an owner of an eligible entity and want to change your tax classification, you’ll want to file Form 8832 (or Form 2553 for S corporations). While there are a few requirements to be eligible or to file, filling out Form 8832 is a relatively simple process.
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