We need to put down a business activity code on the 1120S form. And I found that I could use either of the two business activity codes in the list. But I want to know why the IRS collect this type of information. I am trying to figure out which one to put down in the form that will work better for us.


Thanks in advance!

“But I want to know why the IRS collect this type of information. I am trying to figure out which one to put down in the form that will work better for us.”------> You will not find the business activities code used anywhere but with the 1120s or whatever tax return you will file. So, you need to take your pick from the ones on 1102S that best fits your business. According to the IRS, classifying a business facilitates the administration of the Internal Revenue Code, the tax law. Practically speaking, the business activity code helps the IRS to determine for auditing purposes what is the right comparison group for a business. The IRS uses computer programs to compare financial ratios of a business with the same ratios for a comparable grouping of businesses in the same industry and within the general size range. Companies that show substantially different ratios from the average for their industry group are more likely to be flagged for further scrutiny.For the IRS, the more accurate the activity code designations are, the better this screening process will work. The IRS does not rely solely upon the business activity codes for categorization. They also request a brief description of the company’s principal business activity and of the company’s principal product or service.