Form 1120, Schedule K, Question 4b (startup Tax Qs)

[Tushi_Florida]

On form 1120, Schedule K, 4b says "Did any individual or estate own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the corporation’s stock entitled to vote? If “Yes,” complete Part II of Schedule G (Form 1120) (attach Schedule G)"

if new startup has two shareholders, each with >20% voting stock, does company need to file Schedule G form 1120 and indicate the individuals? Is it correct understanding of 4b?

[CherylW · Accepted solution]

Yes, the corp does need to file Schedule G.

If you take out the comma-separated text in the instructions, it becomes

"Did any individual or estate own directly 20% or more...of the total voting power of all classes of the corporation’s stock entitled to vote? If “Yes,” complete Part II of Schedule G (Form 1120) (attach Schedule G)"

[kneljo]

In addition, for Schedule K question 4b, if no shares have been issued (only authorized at incorporation), does that technically mean there is no stock entitled to vote and therefore I shouldn't fill out Schedule G? Or can authorized shares still be considered voting shares and thus I should fill out Schedule G?

[ReneeM7122]

In this case, you should not fill out Schedule G.  Shares that were issued (only authorized at incorporation)  are not included in the calculation of earnings per share (EPS) or the distribution of dividends; therefore, these shares carry no voting rights and cannot be reported on Schedule G.  They will not appear anywhere on the tax return.   

@kneljo

[AJain393]

@ReneeM7122 

Hi Renee,  80% of total common stock were issued to a solo founder and 20% were kept authorized. There was no revenue and no dividend distribution for the short tax year of 2020. 

Does the common stock carry voting rights or in other words, does Schedule G need to be filed? Thank you. 

[DaveF1006]

It depends. According to this IRS publication, Schedule G does need to be filled out if "certain entities, individuals, and estates that own, directly, 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the corporation's stock entitled to vote." As a rule,  Common stockholders are usually given voting rights, with the number of votes directly related to the number of shares owned. These are usually listed in the bylaws of the Corporation and would depend on if these voting rights were given to the solo founder. It is not naturally assumed unless it is specifically addressed in the bylaws. If so, then Schedule G needs to be filled out.