Check the Box and Entity Formation

At the time of formation, a business entity must choose a tax classification, which is how it would like to be treated for U.S. income tax purposes.   These types include corporation, partnership, and disregarded entity.  Certain entities receive a default classification from the IRS.   These entities may choose to make a check-the-box election, which  allows them to elect out of their default classification by filing a Form 8832 (Entity Classificaction Election), with the IRS. Example, an eligible entity may elect to be classified as a corporation or a flow-through (partnership or entity disregarded from its owner) for U.S. income tax purposes. Non-eligible entities are per se corporations.  (provide link to per se corporation definition).  These entities are not able to make a check-the-box election. Code Section:  7701  (need to determine a good way to reference the code and reg sections). Reg Section:  Non-eligible Entities: Treas. Reg. § 301.7701-2(b) Eligible Entities:  Treas. Reg. § 301.7701-3(b). See Also

 

Form 8832 Purpose:

An eligible entity uses Form 8832 to elect how it will be classified for federal tax purposes, as a corporation, a partnership, or an entity disregarded as separate from its owner. An eligible entity is classified for federal tax purposes under the default rules unless it files Form 8832 or Form 2553, Election by a Small Business Corporation

Eligible entity:

An eligible entity is a business entity that is not included in items 1, or 3 through 9, under the definition of Corporation on Page 4 of the form. Eligible entities include limited liability companies (LLCs) and partnerships. Generally, corporations are not eligible entities. However, the following types of corporations are treated as eligible entities: 1. An eligible entity that previously elected to be an association taxable as a corporation by filing Form 8832. An entity that elects to be classified as a corporation by filing Form 8832 can make another election to change its classification. 2. A foreign eligible entity that became an association taxable as a corporation under the foreign default rule.

File this form if the eligible entity is one of the following:

• A domestic entity electing to be classified as an association taxable as a corporation.
• A domestic entity electing to change its current classification (even if it is currently classified under the default rule) (Default Rules are listed on Page 4 of the form).
• A foreign entity that has more than one owner, 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 taxable as 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 classification (even if it is currently classified under the default rule) (Default Rules are listed on Page 4 of the form).

 

Do not file this form if the eligible entity is:

• Tax-exempt under section 501(a);
• A real estate investment trust (REIT), as defined in section 856; or
• Electing to be classified as an S corporation. An eligible entity that timely files Form 2553 to elect classification as an S corporation and meets all other requirements to qualify as an S corporation is deemed to have made an election under Regulations section 301.7701-3(c)(v) to be classified as an association taxable as a corporation. All three of these entities are deemed to have made an election to be classified as an association.

 

When To File:

Generally, an election specifying an eligible entity’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An eligible entity may be eligible for late election relief in certain circumstances.

 

Where To File: 

File Form 8832 with the Internal Revenue Service Center for your state listed later. In addition, attach a copy of Form 8832 to the entity’s federal tax or information return for the tax year of the election. If the entity is not required to file a return for that year, a copy of its Form 8832 must be attached to the federal tax returns of all direct or indirect owners of the entity for the tax year of the owner that includes the date on which the election took effect. An indirect owner of the electing entity does not have to attach a copy of the Form 8832 to its tax return if an entity in which it has an interest is already filing a copy of the Form 8832 with its return. Failure to attach a copy of Form 8832 will not invalidate an otherwise valid election, but penalties may be assessed against persons who are required to, but do not, attach Form 8832. Each member of the entity is required to file the member’s return consistent with the entity election. Penalties apply to returns filed inconsistent with the entity’s election.

 

Acceptance or Nonacceptance of Election:

The service center will notify the eligible entity at the address listed on Form 8832 if its election is accepted or not accepted. The entity should generally receive a determination on its election within 60 days after it has filed Form 8832.