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Form 1120-S Schedule B Questions 4 and 5 (2025)

Updated October 18, 2026. Quick answer: Question 4 asks whether the S corporation owns 20% or more, or indirectly 50% or more, of another corporation, a partnership or a trust, and lists them. Question 5 asks about restricted stock and about stock options, warrants or similar instruments. The answers come from the corporation’s investment records and its stock records at year end.

Question 4a: ownership of corporations

The form asks, “At the end of the tax year, did the corporation:” “Own directly 20% or more, or own, directly or indirectly, 50% or more of the total stock issued and outstanding of any foreign or domestic corporation?” The form adds “For rules of constructive ownership, see instructions.” and, for a “Yes,” to complete columns (i) through (v). Column (v) asks for the date a qualified subchapter S subsidiary election was made when the percentage in column (iv) is 100%.

Question 4b: ownership of partnerships and trusts

Question 4b asks whether the corporation will “Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial interest of a trust?” The listing asks for the name, the type of entity, the country and the maximum percentage owned in profit, loss or capital.

Constructive ownership and the maximum percentage

For question 4 the instructions say “the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply to ownership of interests in partnerships and trusts as well as corporate stock.” They continue: “Generally, if an entity (a corporation, partnership, or trust) is owned, directly or indirectly, by or for another entity (corporation, partnership, estate, or trust), the owned entity is considered to be owned proportionately by or for the owners (shareholders, partners, or beneficiaries) of the owning entity.”

For question 4b the term “maximum percentage owned” is defined this way: “the highest percentage of interest in a partnership’s profit, loss, or capital as of the end of the partnership’s tax year, as determined under the partnership agreement”. If the agreement states no fixed percentages, the instructions say “use a reasonable method in arriving at the percentage items” and add “Such method must be consistent with the partnership agreement.” They also say “Maintain records to support the determination of the share of profits, losses, and share of capital.”

Question 5: restricted stock, options and warrants

The instructions have no separate paragraph for question 5, so the form’s own captions are the guide. Question 5a asks “At the end of the tax year, did the corporation have any outstanding shares of restricted stock?” For a “Yes” the form asks for the “Total shares of restricted stock” and the “Total shares of nonrestricted stock”.

Question 5b asks “At the end of the tax year, did the corporation have any outstanding stock options, warrants, or similar instruments?” A “Yes” calls for the “Total shares of stock outstanding at the end of the tax year” and the “Total shares of stock outstanding if all instruments were executed”.

Where the number comes from

The percentages in question 4 come from the corporation’s investment records and, for partnerships, the partnership agreement, combined under the constructive ownership rules quoted above. The share counts in question 5 come from the corporation’s stock ledger and its records of any restricted stock, options or warrants. The questions before these are on the Schedule B questions 1 to 3 page.

Where it goes next

Every “Yes” on question 4 or 5 carries its own columns or share counts on page 2 of the return. The next questions, on a material advisor disclosure, built-in gain and interest expense, are on the Schedule B questions 6 to 11 page. A corporation that owns a foreign entity may also have Form 5471 or Form 8858 to consider. This page is part of the Form 1120-S line-by-line walk-through.

Edition and line numbers

This page reads the 2025 Form 1120-S and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. The form’s title line reads “U.S. Income Tax Return for an S Corporation” and the period line reads “For calendar year 2025 or tax year beginning”. Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its questions differently.

Common mistakes

  • Counting only direct ownership. The form asks whether the corporation owns “directly or indirectly, 50% or more”
  • Reading the partnership percentage from the wrong measure. The instructions define it as “the highest percentage of interest in a partnership’s profit, loss, or capital”
  • Keeping no support for a partnership percentage. The instructions say “Maintain records to support the determination of the share of profits, losses, and share of capital.”

Related: Form 1120-S, Form 5471, Form 8858, Form 1065, and LLC or partnership basics.

Sources

Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.

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