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What IRS forms would you request from a borrower who is a 40% shareholder in a C-Corporation?

A) Form W-2.
B) Form 1099-MISC.
C) Form 1120S.
D) Form 1040.

User Tapper
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Final answer:

A borrower with a 40% stake in a C-Corporation should typically provide Form W-2 if they receive a salary, as well as Form 1120, which is the tax return for a C-Corporation. Form 1120S is for S corporations and would not be applicable in this case.

Step-by-step explanation:

When a borrower is a 40% shareholder in a C-Corporation, the relevant IRS forms that you would typically request include:

  • Form W-2, if they receive a salary from the corporation.
  • Form 1099-DIV for dividends received, although this is not requested from the shareholder but is something they would use to report dividend income on their personal tax return.
  • Form 1120, which is the U.S. Corporation Income Tax Return, to understand the financial health and profitability of the corporation in which they have a significant interest.
  • Form 1040 for their personal tax return, which shows the individual's total income, deductions, and taxes paid.

However, since the question specifically mentions a C-Corporation, Form 1120S would not be appropriate, as it is used for S Corporations, which are pass-through entities. Instead, Form 1120 is used for C-Corporations to report their income, gains, losses, deductions, credits, and to calculate their income tax liability.

User Renari
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