First-year S-Corp Shareholder Basis

csrote · #1 (**permalink**) 03-19-2019, 10:36 AM

Dear Mr. Ask Tax Guru,

Thank you for your generous knowledge sharing and for operating this forum!

My single-member LLC S-Corp has existed since Feb 2016.
The S-Corp financial records are well kept in Quickbooks Desktop Accountant 2015.
The S-Corp has e-Filed the 1120s for tax years 2016, 2017, 2018.
I used H&R Block Business (HRB) to make these e-Filings.
In HRB the Shareholder's Basis Statement is not available for user input. It is generated automatically during e-Filing or printing. In HRB 2018 the print preview facility enables the user to see this form before e-Filing or printing.
I am concerned HRB did not properly calculate the Shareholder's Basis Statement for 2016, the S-Corp's initial year. If so, then this error has been carried through to subsequent years 2017 and 2018.

I have been unable to find instructions for calculating my own Initial Year 2016 Shareholder's Basis Statement.

Is it as simple as (there may be minor adjustments not shown here):
+ Initial Capital Contributed ? Business Gain/Loss = Approximate Basis?

132,402 - 16,456 = 115,946? (approximate)
HRB 2016 Shareholder's Basis Statement Ending Balance = 98,544.
That's a difference of 115,946 - 98,544 = 17,402!

How is first-year Shareholder's Basis calculated? Is HRB correct?
I've attached a 2-page pdf showing the main S-Corp financials for 2016.

It is also not clear to me where this number would appear in the tax filings other than on the Shareholder's Basis Statement. Am I correct in presuming that the IRS does track this number to ensure that Distributions in excess of Basis are taxed as capital gains?

Thank you very much for your help!
-----------------------------------------------------
The 2016 1120S K-1 and Instructions for Figuring a Shareholder's Stock Basis appear to validate my guess above: + Initial Capital Contributed - Business Loss = Approximate Basis.

Line 2 reads: "Money and your adjusted basis in property contributed to the corporation.

What has confused me is that this is similar to line 2 of Schedule M-2 AAA, but that line appears to be limited to Income and does not appear to include Contributions -- except for the first year? I really need clarity on this. If Contributions can be included on M-2/AAA Line 2 in Year 1. then HRB is shown to be in error and I can remedy the situation by filing amended returns.

Wnhough · #2 (**permalink**) 04-14-2019, 01:51 AM

Quote:

Originally Posted by csrote

Dear Mr. Ask Tax Guru,

Thank you for your generous knowledge sharing and for operating this forum!

My single-member LLC S-Corp has existed since Feb 2016.
The S-Corp financial records are well kept in Quickbooks Desktop Accountant 2015.
The S-Corp has e-Filed the 1120s for tax years 2016, 2017, 2018.
I used H&R Block Business (HRB) to make these e-Filings.
In HRB the Shareholder's Basis Statement is not available for user input. It is generated automatically during e-Filing or printing. In HRB 2018 the print preview facility enables the user to see this form before e-Filing or printing.
I am concerned HRB did not properly calculate the Shareholder's Basis Statement for 2016, the S-Corp's initial year. If so, then this error has been carried through to subsequent years 2017 and 2018.

I have been unable to find instructions for calculating my own Initial Year 2016 Shareholder's Basis Statement.

Is it as simple as (there may be minor adjustments not shown here):
+ Initial Capital Contributed ? Business Gain/Loss = Approximate Basis?

132,402 - 16,456 = 115,946? (approximate)
HRB 2016 Shareholder's Basis Statement Ending Balance = 98,544.
That's a difference of 115,946 - 98,544 = 17,402!

How is first-year Shareholder's Basis calculated? Is HRB correct?
I've attached a 2-page pdf showing the main S-Corp financials for 2016.

It is also not clear to me where this number would appear in the tax filings other than on the Shareholder's Basis Statement. Am I correct in presuming that the IRS does track this number to ensure that Distributions in excess of Basis are taxed as capital gains?

Thank you very much for your help!
-----------------------------------------------------
The 2016 1120S K-1 and Instructions for Figuring a Shareholder's Stock Basis appear to validate my guess above: + Initial Capital Contributed - Business Loss = Approximate Basis.

Line 2 reads: "Money and your adjusted basis in property contributed to the corporation.

What has confused me is that this is similar to line 2 of Schedule M-2 AAA, but that line appears to be limited to Income and does not appear to include Contributions -- except for the first year? I really need clarity on this. If Contributions can be included on M-2/AAA Line 2 in Year 1. then HRB is shown to be in error and I can remedy the situation by filing amended returns.

plz contact a tax pro, an irs enrolled agent, or a cpa in your local area to go thru the f1120s,sch k1s or etc line by line for accurate info your state/fed returns