Form 1120, Schedule K, question 7 (startup tax question)

[kneljo]

On form 1120, Schedule K, question 7 says "At any time during the tax year, did one foreign person own, directly or indirectly, at least 25% of the total voting power of all classes of the corporation’s stock entitled to vote or at least 25% of the total value of all classes of the corporation’s stock?"

Would the above apply if no shares have been issued (shares were only authorized at incorporation)? In other words, can authorized shares be considered "stock entitled to vote" and what exactly does "all classes of the corporation's stock" mean --> would that include authorized shares, thereby requiring me to add the foreign individual?

[M-MTax]

NO ONE OWNS authorized but unissued shares.

[kneljo]

Perfect, that certainly does seem intuitive. Thanks for your prompt reply.

[kneljo]

One more question: I assume then, that the answer to the question (Form 1120, Schedule K, question 10) "Enter the number of shareholders at the end of the tax year (if 100 or fewer)" is zero given no shares have been issued (only authorized), even though there are 3 founders/directors/officers?

[M-MTax]

That's right if no one owns any shares.

[kneljo]

thanks for your help

[ErnestoF4]

That is correct, if there are no issued shares, there are no shareholders. Therefore, Line 10 for Schedule K of the Form 1120 should be zero.