New rule for check-the-box election: find out what has changed

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US Treasury now requires original signatures

An important resource in tax planning for businesses in the United States may be getting a bit more difficult: it seems mandatory now to include original signatures (or signatures that are clearly not electronic signatures) on Form 8832.

This is the form used by individuals and corporations to choose the type of entity a company will be classified as to start operating in the US. This election is called check-the-box, and its procedure is very simple: just tick the box you want, indicate the date the election is to be effective, sign and submit the form to the Internal Revenue Service.

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The Treasury Department regulations, the IRS manual, and the instructions for completing the form itself do not provide clear guidance as to the requirement for original signatures on Form 8832, so until now it was common to use electronic signatures or photocopies to ensure submission of that document within the time limit.  

However, without notice, the IRS has been requesting original signatures for the processing of Form 8832. The good news is that previously submitted documents that are not within the new standard can be corrected: the IRS generally offers an opportunity to resubmit this form form with original signatures without penalty.

The effective date for the election may be changed if the corrected Form 8832 is not filed within 75 days after the requested effective date and the election does not meet the deadline extension requirements for late applications. This is important because, in certain situations, a change in the effective date of the election may substantially alter the information reported in US federal income tax with respect to transactions regarding the election result. In addition, in the event of a request for an initial classification election, a Form 8832 submitted late may result in the holding of another election within 60 months after the date of filing.

It is important to remember that before deciding if your company will be corporation, partnership or disregarded entity you need to seek the guidance of a qualified professional to carry out tax planning and advise companies in their decisions regarding the fiscal framework.