What is Form 8832? Entity classification election

Form 8832, Entity Classification Election, lets an eligible entity such as an LLC choose its US tax classification instead of the default one.

The defaults

According to the Form 8832 instructions, a domestic eligible entity is a partnership if it has two or more members, and a disregarded entity if it has one. Most foreign-owned LLCs keep the default.

What electing to be a corporation changes

• The LLC becomes a taxpayer: it files a full Form 1120 and pays US corporate income tax on its profit.
• Form 5472 is then attached to that real Form 1120 under the normal corporate rules, instead of a pro forma Form 1120.
• An LLC owned by a nonresident cannot be an S corporation, so the alternative is a C corporation.

Timing limits

An election generally "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". Once an entity changes its classification, it generally cannot change again for 60 months. Late election relief exists in some cases.

The choice has tax effects in your country of residence too, so look at both sides before filing.