What Is a Check-the-Box (CTB) Election?

The “check-the-box” regulations are a simplified system from the Internal Revenue Service (IRS) that allows certain business entities to choose their classification for federal tax purposes. This system decouples a business’s legal formation under state law from its federal tax identity. The name comes from the method of making this choice: checking a box on a specific IRS form. This election allows businesses to align their tax structure with their financial objectives, offering flexibility in tax planning.

Default Entity Tax Classifications

The IRS applies default tax classifications to business entities that do not make a formal election. These automatic rules are determined by the number of owners an entity has and its legal structure.

For a domestic business entity with a single owner that is not organized as a corporation, the default classification is a “disregarded entity.” This means the IRS ignores the entity for tax purposes, and its financial activities, including income and expenses, are reported directly on the owner’s personal tax return, much like a sole proprietorship.

When a domestic entity has two or more members and is not a corporation, its default classification is a partnership. The entity itself does not pay income tax but files an informational return. Profits, losses, and other tax items are passed through to the members, who report them on their own tax returns.

Eligible Entities and Classification Choices

Only “eligible entities” can make a check-the-box election. These are business structures, such as Limited Liability Companies (LLCs) and partnerships, that are not automatically classified as corporations by the IRS. Businesses formed under a state’s corporation statute, known as “per se” corporations, are excluded and must be taxed as corporations.

An eligible entity with multiple members, such as a multi-member LLC, has a default status of a partnership but can elect to be taxed as a corporation. If it chooses corporate taxation, it can be treated as a C corporation, which is taxed at the entity level, or an S corporation, which combines liability protection with the flow-through taxation of a partnership.

A single-member eligible entity, like a single-member LLC, defaults to a disregarded entity. However, the owner can file an election to have the entity treated as a corporation for tax purposes. This allows a single-owner business to adopt a corporate tax structure, either as a C or S corporation, without changing its legal form as an LLC.

Preparing the Election Form

To change its tax classification, an eligible entity must file IRS Form 8832, Entity Classification Election. Before completing the form, the business must have its legal name, address, and an Employer Identification Number (EIN). If the entity does not have an EIN, it must apply for one before filing.

The form requires the entity’s basic details, including its name, EIN, and address. It also asks for the name and social security number or EIN of a designated contact person and a telephone number. The filer must check the box that corresponds to the desired tax classification, such as a corporation or a partnership.

The election’s effective date must be specified on the form. An election can be effective up to 75 days before the filing date or up to 12 months after. If no date is specified, the election becomes effective on the filing date. The form must be signed by each member of the electing entity or by any officer, manager, or member authorized to make the election, confirming consent to the change.

Submitting the Election

Form 8832 requires a physical signature and cannot be filed electronically. It must be mailed to the IRS service center designated for the state where the entity’s principal business is located. The correct mailing addresses are provided in the form’s official instructions.

A copy of the completed Form 8832 must be attached to the entity’s federal income tax return for the first year the election is effective. This serves as a record for the IRS that the entity is filing under its newly elected classification.

After submitting the form, the entity should receive an acceptance or nonacceptance notice from the IRS within 60 days. This notice serves as confirmation that the IRS has processed the request. If the notice is not received within that timeframe, the entity or its authorized representative can call the IRS to check on the election’s status.