For companies wishing to change their tax classification, Form 8832 is an essential document. Using this form, a business entity can choose whether it will be taxed as a corporation or a partnership. What transpires, though, if you file Form 8832 in error or later decide differently? Could you change it?
You can modify Form 8832, and the answer is yes. By submitting an additional Form 8832, you can alter Form 8832. However, the updated form needs to be submitted before the original election’s effective date. For instance, if you submitted the initial Form 8832 on January 1 and the election’s effective date is January 15, you must submit the updated Form 8832 before that date.
Can you convert your S corp to an LLC as a result? Yes, however there are more procedures that must be taken. You must first submit Form 8832 to modify your S corporation’s tax classification from a corporation to a partnership if you want to convert it to an LLC. After that is finished, you must submit Form 2553 to choose S corporation status.
Can an IRS power of attorney be electronically signed, to continue the discussion? Yes, you can now electronically sign an IRS power of attorney. On Forms 2848, Power of Attorney and Declaration of Representative, and 8821, Tax Information Authorization, the IRS has approved electronic signatures. The purpose of this modification was to make it simpler and more comfortable for taxpayers to delegate authority to their agents.
How long does it take the IRS to process a power of attorney, furthermore? Although the processing period for powers of attorney varies, on average, the IRS processes Forms 2848 or 8821 in less than 30 days. The processing time might be extended, nevertheless, during tax season’s busiest times.
Finally, which Form 2848 or 8821 should you use? The answer is based on how much power you wish to give your representative. Use Form 2848 if you want your representative to be able to represent you in interactions with the IRS, such as audits and appeals. However, you should utilize Form 8821 if you just want your representative to have access to your tax information.
In conclusion, even if mistakes can happen when submitting Form 8832, it’s a good idea to be aware that it can be changed before the initial election takes effect. Additionally, a S corporation can be converted into an LLC, and IRS powers of attorney can now be electronically executed. Depending on the amount of power you want to provide your agent, you should utilize Form 8821 or 2848, as processing times for powers of attorney vary.
The company will lose its S corporation status and be classified as a C corporation for tax purposes if a S election is lost. Double taxation may happen if the company’s profits are given to shareholders as dividends and are taxed both at the corporate and individual levels. To prevent mistakenly losing the S election, it is crucial to carefully analyze your options and submit Form 8832 in the appropriate manner.
A business entity must first file Form 8832 with the IRS to withdraw its prior election before it can break a S election. The entity then has to wait at least five years before making another S election, unless it can demonstrate that the cancellation was brought on by extenuating circumstances. Remember that changing a S election can have major tax repercussions, so it’s crucial to speak with a tax expert before doing anything.