Is Form 8832 required?

A SMLLC was formed several years ago and has operated as a Schedule C. The client would like to be taxed as an S corporation starting in 2021. Obviously, a Form 2553 must be timely filed but I am not certain whether a Form 8832 is required.

The deemed election rules of Section 301.7701-3(c)(1)(v)(C) seem to allow the S election without filing Form 8832. I read the April edition article of Tax Adviser and it says that it is not necessary to file both an 8832 and 2552 for a newly-formed entity. They don't specifically say that an existing entity can file only Form 2553 because they, too, qualify for the deemed election.

https://www.thetaxadviser.com/issues/2020/apr/electing-s-status-llc.html

For LLC clients that are not newly formed, are you filing both the 8832 and 2553 or just the 2553?

Just the 2553.
I faxed one in July and have not heard back so I would suggest mailing with delivery confirmation.

The 2553 is a double election: 1. to be taxed as an 'association' which means corp, and 2. As an S corp. This matters when/if you decide to dump S status: you default to a C corp until liquidated. It's not confusing, but so many are still confused by it.

[url][/url]In the scenario above, a SMLLC wishes to be taxed as an S corporation to save FICA or Medicare tax. That's probably the case in the lion's share of S elections. If an 8832 is filed along with the 2553 and the S election is not approved, or terminated upon audit, the result is a C corporation. That could spell a disaster.

If only a 2553 is filed and the S election is disapproved, or terminated upon audit, the result would be the default classification which is a DRE. Benefits not received but no potential harm of being taxed as a C corporation.

The Tax Adviser speaks to this in their April 2020 article:

https://www.thetaxadviser.com/issues/2020/apr/electing-s-status-llc.html

Why would any business not desirous of being a C corporation, ever file a 8832 when making an S election?

I do not think it says that if the S election is terminated upon audit the result will be DRE. It says if the S election is never effective on the election date, the result will be a DRE.

We both agree about the invalidation except your language is much clearer. Thank you.

My assumption was the SMLLC meets all the criteria to make the election in the first place. If so, the only other issue upon audit that relates to its formation would be the LLC Operating Agreement and whether the language that was inconsistent with it being treated as an S corporation. If so, as you said, the IRS could invalidate the S election making it never effective.

In that case, had a Form 8832 also been filed, rather than filing the Form 2553 alone, the SMLLC will be treated as a C corporation from the effective date of the Form 8832.

I know two practitioners who've told me they always file Form 8832 as well as the 2553. I don't understand what benefit it offers while seeing there could be a downside to doing so.

I just file the 2553.