When your LLC elects a new tax classification using IRS Form 8832 or Form 2553, you’re generally bound by the Five-Year Lock-In Rule. This IRS rule restricts how often you can switch your business’s tax treatment—and it's designed to prevent tax classification abuse.

🔍 What Is the Five-Year Lock-In Rule?

Once a business files Form 8832 to elect a new federal tax classification, it typically cannot make another election to change its classification for 60 months (5 years). This is known as the 60-month limitation rule.

🧾 Why It Exists

The rule is intended to limit entities from switching classifications repeatedly to reduce their tax burden. Once you choose a structure—such as being taxed as a C-Corp—you’re locked in for 5 years unless a valid exception applies.

✅ Exceptions to the Five-Year Rule

• Change in Ownership: If more than 50% of the ownership changes, you may be allowed to file a new election earlier.
• Mistake of Fact: If the original election was filed under a mistake of fact, the IRS may permit an earlier change.

📁 Who Files Form 8832?

Form 8832 is commonly filed by:

• Single-member LLCs electing C-Corp status
• Multi-member LLCs or partnerships electing C-Corp treatment
• Unincorporated associations or certain foreign businesses

🕒 When to File Form 8832

• Initial Election: File within 75 days of entity formation for classification to apply from inception.
• Change Election: File up to 75 days before or 12 months after the effective date of the change.
• Relevant Ownership Change: File within 75 days of the ownership change to apply a new classification.
• After 60 Months: You may refile after 5 years if no exception applied earlier.

💡 Zoho Expense + Gbooks Tip

No matter your tax classification, Zoho Expense helps you stay audit-ready. Automatically track receipts, categorize business expenses, and stay compliant with IRS requirements—even while your tax classification is locked in.

Gbooks Pro Tip: Use Zoho Expense to build a rock-solid audit trail. And once you file Form 8832 or 2553, plan to stick with your tax choice for the next five years.

📌 FAQ

Q: What is the 60-month limitation rule?

A: It’s an IRS rule that prevents you from filing another tax classification change for 5 years after submitting Form 8832.

Q: Are there exceptions?

A: Yes. Exceptions include ownership changes of 50% or more or elections made under a factual mistake.

Q: Does this apply to Form 2553 (S-Corp elections)?

A: Yes. The IRS generally restricts changes to S-Corp status within a five-year period as well.