11.2 State Law vs. Tax Classification
Key Takeaways
- State law: formation and liability. Federal law: taxation.
- Check-the-Box (1997): eligible entities elect classification via Form 8832.
- Default: 1 owner = disregarded; 2+ owners = partnership.
- Per Se Corporations: cannot elect (UK PLC, French SA, German AG).
- Domestic Inc./Corp = corporation for tax (can elect S-status, not partnership).
- Kintner Regulations replaced by Check-the-Box.
Last updated: January 2026
Why This Matters for the Exam
An LLC formed under state law has no inherent federal tax status. Know the defaults and per se corporations.
Expect at least 2-3 questions on classification.
The Distinction
| Governs | Authority |
|---|---|
| Formation and liability | State law |
| Taxation | Federal law (IRS) |
Check-the-Box (Treas. Reg. 301.7701-3)
| Effective | 1997 | | Form | 8832 (Entity Classification Election) | | Purpose | Override default classification |
Default Classifications
| Owners | Default Classification |
|---|---|
| 1 owner | Disregarded entity |
| 2+ owners | Partnership |
Per Se Corporations (Cannot Elect)
| Domestic | Foreign |
|---|---|
| Inc., Corp (state charter) | UK PLC |
| French SA | |
| German AG | |
| Mexican SA |
Form 8832 Use
| Action | Form |
|---|---|
| LLC → Corporation | Form 8832 |
| LLC → Disregarded | Form 8832 |
| C-Corp → S-Corp | Form 2553 (not 8832) |
Real-World Scenario
Scenario: Question about UK PLC changing classification.
- Per Se: UK PLC is per se corporation.
- Result: Cannot check the box—always taxed as corporation.
On the Exam
Expect 2-3 questions on classification, typically:
- Default Questions: "2-member LLC, no election—classification?"
- Per Se Questions: "Can UK PLC elect partnership?"
- Form Questions: "Which form for classification election?"
The key is to remember: 1 owner = disregarded. 2+ = partnership. Form 8832 to elect. Per se corps (PLC, SA, AG) cannot elect.
Test Your Knowledge
UK PLC—can it elect partnership status?
A
B
C
D
Test Your Knowledge
2-member LLC, no election. Default classification?
A
B
C
D
Test Your Knowledge
Which form to elect corporate status for LLC?
A
B
C
D