A qualifying LLC that has previously elected to be treated as a corporation for federal tax purposes by filing IRS Form 8832 and that has also elected S corporation treatment by filing IRS Form 2553 may reverse both elections to revert to treatment simply as a non-corporation partnership or sole proprietorship.
File a written statement notifying the IRS that that LLC is revoking its election to be treated as an S corporation. The procedure is detailed in the instructions that accompany IRS Form 1120S.
Read More: How to Change an LLC Filing as an S Corp to a Sole Proprietor
The IRS does not publish a specific form for termination of the election. Instead, the taxpayer is instructed to “file a statement” that communicates that desire. The written statement should be submitted in the form of a letter and should identify the corporation by name and by its employer identification number; clearly state that the corporation is “revoking its election to be an S corporation;” declare the effective date of the termination of the election, identify all members of the LLC and be signed and dated by those members.
File IRS Form 8832 -- Entity Classification Election -- to elect treatment as a partnership if the LLC has multiple members. This is the same form by which the initial election of the LLC to be treated as a corporation was made. Changing its IRS tax classification to that of a simple partnership is accomplished by filing a new Form 8832, checking boxes 1(b) and 6(b), among others.
File IRS Form 8832 electing treatment as a sole proprietorship if the LLC has just one member. Again, this is the same form by which the initial election to be treated as a corporation was made. Changing the IRS tax classification to that of a sole proprietorship is accomplished by filing a new Form 8832, checking boxes 1(b) and 6(c), among others.
Once the IRS approves termination of the S corporation election, the LLC will be taxed as a regular “C” corporation unless it files IRS Form 8832 to change tax structures.
A Limited Liability Company (LLC) is a state-chartered entity. Its owners are called “members.” The laws of the states in which they are chartered govern the creation and operation of LLCs, and the IRS does not recognize LLCs as such for federal tax purposes. Instead, it treats a single-member LLC as a sole proprietorship and a multi-member LLC as a partnership unless the member or members elect to be treated as a corporation by filing IRS Form 8832. (See Reference 1)
Both single- and multi-member LLCs can elect to be taxed as a corporation. This election does not change the LLC into a corporation for purposes of state corporate law; it just establishes the tax structure that the IRS will use for federal tax purposes.
John Parker is the long-standing editor of an internationally distributed technology magazine. Since 1975, his wide-ranging writing career has encompassed diverse projects spanning from legal boilerplate to editorials to technology tutorials. Parker holds a Doctor of Jurisprudence.