On IRS.gov, I chose LLC as a Corporation...can I change to Passthrough?

**Hooman** · 03-26-2008 02:43 PM

How easy is it to switch between these two?

Basically a few weeks ago when I was getting my EIN, I thought if choose the Corporation structure, because I assumed that I could evade the $800 annual tax fee if I get taxed as a Corporation.

Then after a little research I realized that I couldn't evade it, but it would be pro-rated so it was okay. I also realized (after also seeing this thread: Creating an EIN For a LLC) that maybe I should choose the passthrough entity for taxation?

Can I choose passthrough now by getting a new EIN, but change it to a C-Corp for 2008 because I will have more things to deduct?

Because I registered the LLC in November 2007. Apparently the cut-off date for taxation is December 17. I didn't have any expenses or revenue to report at that date, so it's just that annual fee. But in 2008 I'll have a lot of revenue and expenses (which I would like to deduct as much as possible).

So for now, I was just wondering if I go back to the IRS website, and change to passthrough entity, will it let me, or will I get penalized for doing this twice?

Thanks for any advice.

**Hooman** · 03-26-2008 02:51 PM

By the way, on the IRS website, when it gives you the EIN number, it says you can open a bank account using just that number, but you can't accept electronic payments. But you CAN open a bank account.

I went to my local bank with that EIN, and they told me they need the official letter from the IRS to open a bank account. On the IRS website it says you don't need the official letter to open a bank account. I know my bank is wrong, but how can I prove it to them, what if it's just their policy?

I was also dressed down, so I have a feeling maybe if I go in there looking more professional with a tie and a suit, this time maybe it will work without the official letter.

Just wondering if anyone else has opened a bank account without needing the official IRS letter?

**GuyBBY** · 03-26-2008 02:56 PM

Hooman: This is something that applied to changing from a multiple members LLC to a single member LLC, and I am pretty sure it will apply to your case as well.

Due to the sensitivity of EIN numbers and registration etc, I believe you are unable to simply "switch" or "cancel" a number, so direct contact with the IRS rep needs to be made.

To change your EIN status you must write or FAX a letter to the IRS facility where you originally filed your EIN and include the following…

Include the legal name of the LLC.

Include your position in the LLC.

Include the address of your LLC.

Include a copy(s) of your Articles of Amendment with the change(s) to your LLC.

Include an explanation of what you did and what you have realized (essentially your YE post) and what you want the resolution to be.

And address the coversheet (FAX) and/or letter to “Attention: EIN Operation”

It’s better to FAX the letter and documents instead of mailing them since it will take an average of 4 days via FAX versus 2 weeks via snail mail to process. If you’re unsure of what address or FAX number to use, it should be on the letter that the IRS sent you when they assigned your EIN, or you can go here Contact My Local Office and find the local office nearest you.

Hope this at least points you in the right direction, I would call your local IRS office first to ask the best way to do this.

Best

Guy

**GuyBBY** · 03-26-2008 02:58 PM

Regarding your "letter" situation. When you get an EIN there should be one of the last pages you are directed to, that said print this for your records, or something to that effect. I did that and brought it with me, I also got a pdf file from the IRS with the letter and explination of things, etc.

Guy

**Hooman** · 03-26-2008 03:01 PM

Originally Posted by GuyBBY

Hooman: This is something that applied to changing from a multiple members LLC to a single member LLC, and I am pretty sure it will apply to your case as well.

Due to the sensitivity of EIN numbers and registration etc, I believe you are unable to simply "switch" or "cancel" a number, so direct contact with the IRS rep needs to be made.

To change your EIN status you must write or FAX a letter to the IRS facility where you originally filed your EIN and include the following…

Include the legal name of the LLC.

Include your position in the LLC.

Include the address of your LLC.

Include a copy(s) of your Articles of Amendment with the change(s) to your LLC.

Include an explanation of what you did and what you have realized (essentially your YE post) and what you want the resolution to be.

And address the coversheet (FAX) and/or letter to “Attention: EIN Operation”

It’s better to FAX the letter and documents instead of mailing them since it will take an average of 4 days via FAX versus 2 weeks via snail mail to process. If you’re unsure of what address or FAX number to use, it should be on the letter that the IRS sent you when they assigned your EIN, or you can go here Contact My Local Office and find the local office nearest you.

Hope this at least points you in the right direction, I would call your local IRS office first to ask the best way to do this.

Best

Guy

That certainly does point me in the right direction. Thanks a lot for your help.

**GuyBBY** · 03-26-2008 03:55 PM

Taxes at the C Corporation level means double taxation, having a board or directors, issuing stock, etc. It is not the same, it is more complex and there are higher fees and requirements involved.

Put it this way:

ABC C Corp pays taxes on its money twice...once as the company, and second as shareholders when they pay taxes on their income off those shares. Also, ABC C has to have a board of directors, take mtg minutes, higher entity filing fees etc.

ABC LLC has 5 members and when they get "paid" they simply claim their income or loss on their own personal income taxes in April, using a 1065 and 1040. This means your income "passes through" your company, directly to your own personal filings.

There are entity taxes for the LLC on the whole, for example in VT I pay $250 annually as an LLC entity tax...but if I make $100,000k from my business, I pay taxes on that at my own tax bracket, on my personal filings.

" An LLC is a pass-through tax entity. This means that the income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is "passed through" the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns."

Guy

References that may help:

C Corporation vs S Corporation vs LLC
C Corporation, S Corporation, LLC-limited Liability Company- InfotaxSquare.com

**Hooman** · 03-26-2008 04:42 PM

Originally Posted by GuyBBY

Taxes at the C Corporation level means double taxation, having a board or directors, issuing stock, etc. It is not the same, it is more complex and there are higher fees and requirements involved.

Put it this way:

ABC C Corp pays taxes on its money twice...once as the company, and second as shareholders when they pay taxes on their income off those shares. Also, ABC C has to have a board of directors, take mtg minutes, higher entity filing fees etc.

ABC LLC has 5 members and when they get "paid" they simply claim their income or loss on their own personal income taxes in April, using a 1065 and 1040. This means your income "passes through" your company, directly to your own personal filings.

There are entity taxes for the LLC on the whole, for example in VT I pay $250 annually as an LLC entity tax...but if I make $100,000k from my business, I pay taxes on that at my own tax bracket, on my personal filings.

" An LLC is a pass-through tax entity. This means that the income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is "passed through" the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns."

Yeah, that info and those links certainly help. Now that I've read more about the LLC, I think I was making this more complicated than it needed to be.

Thanks also for that call center link you provided. I called up the IRS office to ask about the differences in filing as a Corporation vs. LLC, before seeing your response here. Yeah, the lady said the same thing pretty much, although she didn't use the 'passthrough' terminology. Seeing what you wrote helped me understand what she was saying.

I'm starting to get it now. I think that I made a mistake when I made this thread. I thought I had it setup to be taxed as a corporation, but you have to file an 8832 and get it approved by the IRS to be taxed as a corporation. I'm actually setup as just an LLC, so no need to go through with the change after all. But I'm glad I learned all this anyway.

I also learned that letter you printed out to take to the bank for opening an account is called a 147c. I'll have to get that faxed to me, since the official letter still hasn't arrived.

There's also some publications I'll be reading that talk more in depth about how LLCs and corporations differ in taxation. Publication 542 and 587.

Thanks again for your help GuyBB. One other thing I found interesting today is how much free resources and help are available on the IRS website. The phone support was certainly helpful also.

**GuyBBY** · 03-27-2008 10:28 AM

Not a problem at all Hooman, glad I could help.

If you want to talk further about some valuable resources I have used to guide me through the LLC process, materials that save you alot of time and enable you to fully grasp all the aspects involved with starting and maintaining an LLC, PM me and we can get in touch.

Best

Guy

**CIsaac** · 03-27-2008 12:08 PM

Just an FYI also, usually if you are a single-member LLC, for tax purposes the LLC is treated as a sole proprietorship (if you don't choose the C-corp; which you did)
If there are 2 members, then it is treated as a pass-through automatically. If you actually have 2 members, what you can do is go back and fill out form 8832 to elect pass-through (this means you won't have to change your EIN). If you're the only one, of course the advice you've been given earlier will really help you (they will have specific forms for you but I wll ditto that advice to call because sometimes their website is not as updated as far as information is concerned).

Also, the banks will require that EIN number letter; if you chose the option to have it mailed to you, I would just wait until it gets there in a month or so. If you chose the option to get it printed and you forgot to print it, then I would call them and request a copy.

Good luck!

-Cheryl Isaac-
IBS - Isaac Business Services