I have a client who transitioned was one of two members of an LLC that was taxed as a partnership. She ended up buying the other partner out earlier this year, and filed the appropriate paperwork with the state to reflect single-owner LLC status. She did not file a form 8832 with the IRS as she wanted to take the default disregarded entity status that she would automatically get when the LLC went to one member.
Was this correct? I spoke with someone at the IRS today who admitted to me they were new but did not understand why my client did not file the 8832. I explained them that the default status of her single-member LLC was now a disregarded entity and he said "where did you read that?" I referred him to the Form 8832 instructions (see below). It got me a little concerned though. Does anyone else see the need for her having filed this? The client did this before they hired me, but I still want to be sure pass on any information.
Here's what stated in the 8832 instructions:
Domestic default rule. Unless an election is made on Form 8832, a domestic eligible entity is:
1. A partnership if it has two or more members.
2. Disregarded as an entity separate from its owner if it has a single owner.
A change in the number of members of an eligible entity classified as an association (defined below) does not affect the entity’s classification. However, an eligible entity classified as a partnership will become a disregarded entity when the entity’s membership is reduced to one member and a disregarded entity will be classified as a partnership when the entity has more than one member.
Who Must File
File this form for an eligible entity that is one of the following:
• A domestic entity electing to change its current classification (even if it is currently classified under the default rule).
Was this correct? I spoke with someone at the IRS today who admitted to me they were new but did not understand why my client did not file the 8832. I explained them that the default status of her single-member LLC was now a disregarded entity and he said "where did you read that?" I referred him to the Form 8832 instructions (see below). It got me a little concerned though. Does anyone else see the need for her having filed this? The client did this before they hired me, but I still want to be sure pass on any information.
Here's what stated in the 8832 instructions:
Domestic default rule. Unless an election is made on Form 8832, a domestic eligible entity is:
1. A partnership if it has two or more members.
2. Disregarded as an entity separate from its owner if it has a single owner.
A change in the number of members of an eligible entity classified as an association (defined below) does not affect the entity’s classification. However, an eligible entity classified as a partnership will become a disregarded entity when the entity’s membership is reduced to one member and a disregarded entity will be classified as a partnership when the entity has more than one member.
Who Must File
File this form for an eligible entity that is one of the following:
• A domestic entity electing to change its current classification (even if it is currently classified under the default rule).