The IRS obtains information about business ownership through various sources and mechanisms.

Here are some of the primary ways the IRS may learn about who owns a business…

1. Tax Returns – Business entities are required to file tax returns with the IRS, which typically include information about the business’s ownership structure. For example, partnerships and S corporations must file Form 1065 and Schedule K-1, which report the ownership interests and allocations of profits and losses to each partner or shareholder. Similarly, sole proprietors report business income and expenses on Schedule C of their personal tax returns (Form 1040), which identifies the individual owner.
2. Employer Identification Number (EIN) – Businesses are assigned an EIN by the IRS for tax reporting purposes. The EIN is used to identify the business entity and is included on tax returns, employment tax filings, and other official documents. The IRS can use the EIN to track the ownership and tax reporting activities of the business.
3. State Registration Records – Businesses are often required to register with state government agencies, such as the Secretary of State’s office or the Department of Revenue, depending on the state’s regulations. State registration records typically include information about the business’s ownership, structure, and other relevant details. The IRS may access these records to verify ownership information.
4. Bank and Financial Records – The IRS has the authority to obtain financial records from banks, financial institutions, and other third parties as part of its tax enforcement efforts. These records may include information about business accounts, transactions, and ownership interests.
5. Information Sharing Agreements – The IRS collaborates with other federal agencies, state governments, and international tax authorities through information sharing agreements to exchange data and identify potential tax compliance issues. These agreements may provide the IRS with access to additional information about business ownership and activities.
6. Whistleblower Reports – The IRS operates a whistleblower program that encourages individuals to report tax evasion, fraud, and other violations of tax laws. Whistleblowers may provide information about businesses and their owners that leads to IRS investigations and enforcement actions.
7. Tax Audits and Investigations – The IRS conducts tax audits and investigations to verify compliance with tax laws and regulations. During an audit, the IRS may request documentation and records related to business ownership, income, expenses, and other tax-related matters.

The IRS uses a combination of tax returns, government records, financial data, information sharing agreements, and enforcement activities to identify and verify business ownership. It’s essential for businesses to accurately report ownership information and comply with tax laws to avoid penalties and enforcement actions by the IRS.