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Preparing Form 7203: Calculating S Corporation Shareholders' Stock and Debt Basis

Utilizing Prior Suspended Losses, Taxing Loan Repayments, Reconstructing Basis

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, September 19, 2023

Recorded event now available

or call 1-800-926-7926

This course will provide hands-on examples of reporting S corporation basis calculations on Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, including reporting loan repayments, stock blocks, and utilization of prior years' suspended losses. Our panel of flow-through veterans will offer tips for easing the reconstruction of beginning basis and best practices for tracking shareholders' basis.

Description

The requirement for shareholders to include a basis schedule with their returns has been in place since 2018 and has now been formalized with the requirement to file new Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations. While the instructions state the requirement to file this new form only applies in four specific situations, one of these is the receipt by a shareholder of non-dividend distributions. Where a shareholder does not meet any of the filing criteria, it is to the shareholder's advantage to track basis and memorialize the calculation on an annual basis to avoid the arduous process of reconstructing basis in the future.

The form is divided into three sections: Part I Shareholder Stock Basis, Part II Shareholder Debt Basis, and Part III Shareholder Allowable Loss and Deduction Items. Tax practitioners must properly determine whether a debt is in the form of an open note or formal note and what stock blocks the shareholder holds. Although these determinations may appear simple, they can significantly affect the tax paid by the shareholder. Whether a gain is treated as ordinary or capital, how prior period losses are netted in the current year, and the amount of a note and whether it is written all influence the amount of tax paid by a shareholder. Pass-through entity tax advisers need to thoroughly understand how to report shareholders' basis, the pertinent regulations governing these calculations, and potential conflicts between the form instructions and these regulations.

Listen as our panel of S corporation experts walks you through the preparation of Form 7203, Parts I-III to calculate an S corporation shareholder's stock and debt basis, emphasizing lessening the overall tax burden of the shareholder.

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Outline

  1. Form 7203: background
  2. Filing requirements
  3. Preparing the form
    1. Part I – Stock Basis
    2. Part II – Debt Basis
    3. Part III - Shareholder Allowable Loss and Deduction Items
  4. Calculations and examples
    1. Loan repayments
    2. Utilizing prior years' suspended losses
    3. Other examples
  5. Reconstructing basis
  6. Best practices

Benefits

The panel will cover these and other critical issues:

  • When are loan repayments treated as ordinary vs. capital income?
  • Potential differences between the IRS' Form 7203 instructions and the Code
  • How to report the utilization of prior year losses on Form 7203
  • Using stock blocks to minimize shareholders' tax
  • Differences between formal and open notes

Faculty

Jamison, Robert
Professor Robert W. Jamison, CPA
Professor Emeritus of Accounting
Indiana University

Mr. Jamison is Professor Emeritus of Accounting at Indiana University, Purdue University, Indianapolis (IUPUI). His...  |  Read More

Walsh, Kevin J.
Kevin J. Walsh, CPA, CGMA
Director/Vice-President
Walsh, Kelliher & Sharp, CPAs

Mr. Walsh special interest is in advising the owners of closely-held businesses. This interest has led to experience...  |  Read More

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