1120 Schedule G Instructions: Reporting Ownership Shares for C-Corps

Corporations filing Form 1120 may need to complete Schedule G, which reports ownership details for certain shareholders. This helps the IRS track significant ownership stakes and ensure tax compliance. Understanding when and how to file this schedule is essential to avoid errors or omissions that could trigger scrutiny.

Which Corporations Must File

Not every corporation filing Form 1120 is required to complete Schedule G. It applies only to entities with shareholders who hold substantial ownership stakes or foreign ownership interests. This ensures transparency in corporate structures and helps the IRS monitor entities with concentrated ownership that could impact tax liabilities.

Domestic C-corporations must file Schedule G if any individual, trust, or partnership owns at least 20% of the total voting power or stock value. The IRS uses this information to assess potential tax implications, such as related-party transactions or controlled group considerations, which can affect deductions, credits, and overall tax liability.

Corporations with foreign shareholders face additional scrutiny. If a foreign individual or entity owns a significant stake, disclosure is required to prevent tax avoidance strategies that shift income outside U.S. jurisdiction. This aligns with compliance efforts under the Foreign Account Tax Compliance Act (FATCA) and Internal Revenue Code Section 6038A, which governs reporting for foreign-owned domestic corporations.

Ownership Threshold Criteria

Schedule G reporting is required when specific ownership percentages are met. The IRS mandates disclosure to identify individuals or entities with significant influence over corporate decisions, particularly those affecting tax obligations. Ownership thresholds include both direct and indirect holdings, meaning shareholders must account for shares controlled through related entities or family relationships.

A corporation must file Schedule G if any person or entity owns at least 20% of the total voting power or stock value. This includes direct shareholders and those whose ownership is attributed through Internal Revenue Code Section 318, which considers stock held by family members, partnerships, estates, trusts, and corporations.

If multiple shareholders collectively own 50% or more of the corporation’s stock and act in concert, their combined holdings must be reported. This ensures that controlling interests, even when spread across multiple related parties, are disclosed.

Specific Information to Disclose

Schedule G requires corporations to provide identifying details for shareholders meeting the reporting threshold. This includes the name, address, and taxpayer identification number (TIN) or employer identification number (EIN) of each reportable shareholder. The IRS uses this data to cross-reference tax filings and ensure income, dividends, and other transactions are properly reported.

Corporations must also disclose the percentage of total voting power and stock value each shareholder holds. Since ownership structures can be complex, these percentages must be calculated accurately, considering preferred stock, convertible securities, or other financial instruments that could influence control. Misreporting ownership stakes can lead to IRS inquiries or adjustments during audits.

Additionally, corporations must specify the type of entity holding the shares, such as an individual, partnership, trust, or another corporation. This classification matters because tax treatment varies based on the shareholder’s entity type. For example, stock held by a tax-exempt organization may have different tax consequences than shares owned by an S-corporation or a closely held personal service corporation.

Foreign Owner Considerations

Corporations with foreign shareholders must comply with additional IRS reporting requirements to ensure U.S.-sourced income is properly taxed.

One key requirement is withholding tax on dividends paid to foreign shareholders. Under Internal Revenue Code Section 1441, corporations must withhold 30% on payments to nonresident shareholders unless a tax treaty reduces this rate. To claim treaty benefits, shareholders must submit Form W-8BEN (for individuals) or Form W-8BEN-E (for entities). Failure to withhold the correct amount can result in penalties and interest.

Transfer pricing rules apply when foreign shareholders have significant influence over corporate decisions. Under Internal Revenue Code Section 482, the IRS can adjust transactions between related parties to reflect arm’s-length pricing. This is particularly relevant when a foreign parent company provides financing, intellectual property, or services to its U.S. subsidiary. Proper documentation, such as intercompany agreements and transfer pricing studies, is necessary to support these transactions and mitigate audit risk.

Documentation and Signature

Corporations must maintain records that substantiate the ownership details reported on Schedule G, including stock ledgers, shareholder agreements, and corporate resolutions outlining voting rights and equity distributions. Well-organized documentation supports accurate reporting and serves as a safeguard in the event of an IRS audit.

The corporation’s authorized officer, typically the president, treasurer, or another designated executive, must sign Form 1120, which includes Schedule G. By signing, they certify under penalty of perjury that the information provided is accurate. Misstatements or omissions can result in penalties under Internal Revenue Code Section 7206, which governs fraudulent tax returns. If errors are discovered after filing, corporations should consider submitting an amended return using Form 1120-X to correct inaccuracies before the IRS identifies discrepancies.

Potential IRS Follow-Up

Once Schedule G is submitted, the IRS may conduct follow-up inquiries if ownership details raise compliance concerns. Corporations with concentrated ownership, foreign shareholders, or related-party transactions are more likely to attract scrutiny. The IRS may request supporting documentation to verify reported ownership percentages, particularly if the corporation has a history of complex tax positions or prior audit adjustments.

In some cases, the IRS may initiate a full audit if discrepancies are identified between Schedule G and other tax filings. This could involve a review of stock transfers, dividend distributions, and transactions between the corporation and its significant shareholders. If an audit leads to adjustments, corporations may face penalties under Internal Revenue Code Section 6662 for substantial understatements of income tax. Ensuring proper withholding on foreign dividends and maintaining transfer pricing documentation can reduce exposure to costly enforcement actions.