The IRS has access to a vast amount of information, most of which is provided by the individuals and business entities it taxes or monitors. Each year corporations file a number of documents including tax returns, W-2s, 1099s, election forms and extension forms that provide detailed information. Many of these documents also directly and indirectly indicate who owns a given corporation.
The IRS has many internal sources that shed light on who a corporation’s owners are.
If the corporation has filed the proper paperwork to elect S corporation status then each year that S corporation must file its taxes using Form 1120S. In addition, an S corporation must submit Schedule K-1, both to the IRS and to each owner. In addition to providing the owner’s pro-rata share of corporate income or loss, the Schedule K-1s provide the name and tax identification number, or TIN, of each owner.
All corporations must report any dividends or distributions over $10 paid to shareholders. The Form 1099-DIV lists the paying corporation, its TIN, and the type of distribution – ordinary, qualified or capital gains – and the amount. Form 1099-DIV also provides the shareholder’s name and social security number or TIN.
Other IRS Forms
Most of the information the IRS needs it obtains internally through personal tax returns and information submitted directly to the IRS by corporations and other entities. These include W-2 forms which list benefits provided solely to employee shareholders. The IRS can cross reference self employment tax indicated on a personal return with the tax returns of corporations that have no employees. The IRS can also pull information from EIN submissions, tax returns, extension requests and other corporation forms where an officer typically signs the document. In most small businesses an officer is a shareholder.
Secretary of State
If the IRS cannot determine ownership from its own records, it will extend its search to public records. Each state’s secretary of state maintains a database rich in corporation data. Most states – Nevada is a notable exception – require the names of all shareholders as part of the Articles of Incorporation filed to create a new corporation. Most states also require an annual registration that typically reflects any change in or addition to ownership. One potential drawback for the IRS is the secretary of state information provides names but not social security numbers.
Like any other financial institution, the IRS may access individual or corporate credit reports when it needs additional information. If an owner guarantees any corporate debt or obtains a business credit card in his name, the company name will likely appear on his personal credit report.