8832 Late Classification? Reasonable Explanation?

[Gordo5]

8832 Late Classification? How can I make sure it is successful?

I’m a US citizen expat, and late in 2021 I got a business license to run a small company in the country where I’m living.

I found it very difficult to understand the instructions for Form 8832 (Entity Classification Election) and made the mistake of thinking that it only had to be filed with my 2021 tax return. Now I see that was incorrect and it should have been filed within 75 days of the company’s formation.

I always intended the business to be a single person LLC. But now I understand that IRS might classify it as a corporation if I don’t select to be classified as single person LLC on 8832.

I also know I have the option of Late Classification Relief sought under Revenue Procedure 2009-41, so I could set the effective date to the date the business was licensed in late 2021. But I have to give an explanation about why it was filed late.

Will my explanation– that I am starting a small business for the first time, don’t have any professional tax help, misunderstood the instructions, and the change will not cause any loss to the government because the company is not yet active and has no income – be sufficient to grant me relief?

If relief is denied, what will happen? Will they accept my reclassification but make it effective only 75 days prior to the date of their decision? Or else what will they do?

And if the relief is denied and they consider my business a corporation, or if I do get the change but it only takes effect 75 days prior to their decision, does that mean that I have to file some kind of corporate information return for 2021? And would that be filed with my personal 1040? Or would the “corporation” have to file its own tax return and get its own extension to file?

As I said, the business is inactive with zero income in 2021.

I am abroad and will have a personal 1040 filing extension to October 15 and will meet the 8832 late filing requirements of either having filed my 1040 already, consistent with being a single member LLC, not later than 6 months after the 1040 due date, or WILL file the return with these same conditions.

I already know about Form 8858 (Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs). I assume I must file that.

I would greatly appreciate any help, especially help to make a successful explanation why the form is late. And if there is some other form I have to file if they think my biz is a corporation.

Thanks in advance!

[Gordo5]

Sorry, I should have made clear: I want biz to be classified as a "foreign eligible entity with a single owner electing to be disregarded as a separate entity."

[Critter-3]

Did you get an EIN as a single member LLC ?   If so you are automatically considered a sole prop and not a corporation unless you choose to file an 8332 to be considered a corporation.   So what did the IRS say on the EIN confirmation page ?    Did they say you needed to file an 1120 ?  

[Gordo5]

Thanks for your reply! No, I didn’t get an EIN yet. I was thinking it would be simpler to use my Soc Sec number. But if getting an EIN would help my situation, I would gladly apply for one.

Are you sure this will work for a Foreign Entity? The rules are not the same as for a domestic entity. For instance, a domestic one person entity is automatically considered a disregarded entity by default.

But, by default, a foreign single person entity is “disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.” Unless it makes an election on Form 8832. I have no idea why the rule should be different for a foreign entity.

That means that, by the foreign default rule, the only category that fits my one person business is “An association taxable as a corporation if all members have limited liability.”

Your solution sounds great for me if it will work.

Thanks again.