SUP STAT (Form 8832)(mb)

7

SUPPORTING STATEMENT

Internal Revenue Service

Form 8832, Entity Classification Election

OMB # 1545-1516

1. CIRCUMSTANCES NECESSITATING COLLECTION OF INFORMATION

For Federal tax purposes, certain business entities automatically are classified as corporations,

under Internal Revenue Code section 1362(a). Other business entities may choose how

they are classified for Federal tax purposes. Except for a business entity automatically classified

as a corporation, a business entity with at least two members can choose to be classified as

either an association taxable as a corporation or a partnership, and a business entity with a

single member can choose to be classified as either an association taxable as a corporation or

disregarded as an entity separate from its owner.

Generally, an eligible entity that does not file Form 8832 will be classified under the default rules. An eligible entity that chooses not to be classified under the default rules or that wishes to change its current classification must file form 8832 to elect a classification.

T.D. 8697 contains final regulations that classify certain business organizations under an elective regime. These regulations replace the existing classification rules.

2. USE OF DATA

The IRS will use the information entered on Form 8832 to establish the entity's filing and

reporting requirements for Federal tax purposes.

3. USE OF IMPROVED INFORMATION TECHNOLOGY TO REDUCE BURDEN

There is no plan to offer electronic filing for this collection due to the low volume of filers.

4. EFFORTS TO IDENTIFY DUPLICATION

The information obtained through this collection is unique and is not already available for use or adaptation from another source.

5. METHODS TO MINIMIZE BURDEN ON SMALL BUSINESSES OR OTHER SMALL ENTITIES

Small businesses should not be disadvantaged as the form has been structured to request the least amount of information and still satisfy the requirements of the statute and the needs of the Internal Revenue Service (IRS).

6. CONSEQUENCES OF LESS FREQUENT COLLECTION ON FEDERAL PROGRAMS OR POLICY

ACTIVITIES

The IRS will use the information entered on Form 8832 to establish the entity's filing and

reporting requirements for Federal tax purposes.

Consequences of less frequent collection on federal programs or policy activities would consist

of decreased amount of taxes collected by the IRS, inaccurate and untimely filing of tax

returns, and an increase in tax violations.

7. SPECIAL CIRCUMSTANCES REQUIRING DATA COLLECTION TO BE INCONSISTENT WITH GUIDELINES IN 5 CFR 1320.5(d)(2)

There are no special circumstances requiring data collection to be inconsistent with Guidelines in 5 CFR 1320.5(d)(2).

7. CONSULTATION WITH INDIVIDUALS OUTSIDE OF THE AGENCY ON AVAILABILITY OF DATA, FREQUENCY OF COLLECTION, CLARITY OF INSTRUCTIONS AND FORMS, AND DATA ELEMENTS

In response to the Federal Register notice dated May 5, 2022 (87 FR 26801), IRS received no comments during the comment period regarding this form.

7. EXPLANATION OF DECISION TO PROVIDE ANY PAYMENT OR GIFT TO RESPONDENTS

No payment or gift has been provided to any respondents.

10. ASSURANCE OF CONFIDENTIALITY OF RESPONSES

Generally, tax returns and tax return information are confidential as required by 26 USC 6103.

11. JUSTIFICATION OF SENSITIVE QUESTIONS

There is no sensitive personally identifiable information (PII) in this collection.

12. ESTIMATED BURDEN OF INFORMATION COLLECTION

Approximately, 5,000 eligible entities will use Form 8832 annually to elect how it will be classified

for federal tax purposes, as a corporation, a partnership, or an entity disregarded as separate from

its owner. The average response time will take 7.18 hours for a total of 35,900 annual burden

hours. There are 5,000 average annual response even though this election is made once per

entity. 

Description	Number of Responses	Annual Responses	Number of Responses per Respondent	Hours per Response	Total Burden
Form 8832	5,000	1	5,000	7.18	35,900
Total	5,000				35,900

13. ESTIMATED TOTAL ANNUAL COST BURDEN TO RESPONDENTS

To ensure more accuracy and consistency across its information collections, IRS is currently in the

process of revising the methodology it uses to estimate burden and costs. Once this methodology is

complete, IRS will update this information collection to reflect a more precise estimate of burden

and costs.

14. ESTIMATED ANNUALIZED COST TO THE FEDERAL GOVERNMENT

The Federal government cost estimate is based on a model that considers the following three cost

factors for each information product: aggregate labor costs for development, including annualized

start-up expenses, operating and maintenance expenses, and distribution of the product that

collects the information.

The government computes cost using a multi-step process. First, the government creates a

weighted factor for the level of effort to create each information collection product based on

variables such as; complexity, number of pages, type of product and frequency of revision. Second,

the total costs associated with developing the product such as labor cost, and operating expenses

associated with the downstream impact such as support functions, are added together to obtain the

aggregated total cost. Then, the aggregated total cost and factor are multiplied together to obtain

the aggregated cost per product. Lastly, the aggregated cost per product is added to the cost of

shipping and printing each product to IRS offices, National Distribution Center, libraries and other

outlets. The result is the Government cost estimate per product.

The government cost estimate for this collection is summarized in the table below:

Product	Title	Allocated Portion of Labor and Downstream Impact Cost	Actual Print & Ship costs	Contract Costs	Total Product Cost
Form 8832	Entity Classification Election	$30,438	($0)	($0)	$30,438

15. REASONS FOR CHANGE IN BURDEN

There is no change in the paperwork burden previously approved by OMB. IRS is making this

submission to renew the OMB approval.

16. PLANS FOR TABULATION, STATISTICAL ANALYSIS AND PUBLICATION

There are no plans for tabulation, statistical analysis and publication.

17. REASONS WHY DISPLAYING THE OMB EXPIRATION DATE IS INAPPROPRIATE

IRS believes that displaying the OMB expiration date is inappropriate because it could cause

confusion by leading taxpayers to believe that the form sunsets as of the expiration date.

Taxpayers are not likely to be aware that the IRS intends to request renewal of the OMB

approval and obtain a new expiration date before the old one expires.

18. EXCEPTIONS TO THE CERTIFICATION STATEMENT

There are no exceptions to the certification statement for this collection.

Note: The following paragraph applies to all of the collections of information in this submission:

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.