Form 7203 conflicting information

[Jim50]

I've followed the IRS instructions for filling out this form. In the case of my S-Corp we have a negative loss with the business. Based on my understanding of the instruction, Part 1 should only be showing a gain in Part 1 which in my case would be 0 which is supposedly allowed. In Part III I would enter my loss as a positve number since it's under the Deduction section. I've done this and run the error check. The error states that I cannot have a gain in Part 1 and a loss in Part III even though my basis is higher than the loss. What am I not understanding with this form.

[Rlc54326666]

I am having the same problem with this form. I also keep getting an error message about Line 1. It says" Total stock basis at the beginning of the year." However, the error message I get says "Number of days you required services should not be less than zero."!!!!! Seriously??!!

[Rick19744]

I can provide some conceptual input on this, but not sure if this form needs to be manually completed or if TT pulls the information from the K-1.  My thought is it is manually completed.

• Keep in mind that this form is brand new and was not released until the end of 2021.  First year forms always seem to be problematic.
• In the past, S corp shareholders were required to maintain their own stock basis and debt basis schedules.  This form is an attempt by the IRS to provide some consistency to the basis tracking.
• Line 1 should be reflecting your beginning of the year stock basis.  This should come from however you were tracking this in the past.  So whatever that figure was at the end of 2020, that figure goes on line 1.  This also cannot be less than zero.  If zero, input zero.
• Part I will be completed with only positive income and gain items.
• Part III will be completed with only loss or deduction type items.
• Part III line 47 column c will then go on Part I line 11.  As noted previously, this most likely will need to be manually input.
• I believe your problem is that you have not entered the beginning of the year stock basis on line 1.

[Jim50]

The form requires manual input. Actually I did enter 0 on line 1 even though the K-1 is a negative number and put in the debts under Part III as a positive number, but I still get the error message that they don't agree even though they are both 0. Perhaps I should show the income for the year under Part II but that appeared to only be for loans.

[Rick19744]

Follow up responses:

• Zero on line 1 and the K-1 being negative are mutually exclusive.  One has nothing to do with the other.
• Line 1 is your stock basis at the beginning of the year.  Nothing else.
• Debts don't go in Part III.  This is for loss items or deductions.  Maybe you just used the wrong word in describing what you are entering in Part III.
• Do not enter any income in Part II.  That is not where it should go.
• What line items do you have reflecting income or gain in Part I?
• In general terms, explain the following:
  • What was your beginning of the year stock basis?
  • What was the total of your positive items; income, gain, etc?
  • What was the total of your loss items or deductions?
• I am going to tag @Anonymous_ to see if he is aware of any issues with this form

[Anonymous_]

@Rick19744 is correct when he stated that the form needs to be manually completed.

The program will, however, prompt users if the form is required to be completed and the form can be completed in Step-by-Step, without resorting to Forms Mode.

[ZoltanB45]

Distributions, income, nondeductible expenses and any other number which would be used to populate the stock basis, comes from the K-1. They would only need the beginning basis to figure out how much of the loss is deductible.

[mlohrer]

Once properly completed, will Turbotax support EFILING of returns with Form 7203? Or do such returns need to be printed and mailed in?

[Anonymous_]

You should be able to e-file your return.

[Cynthiad66]

Form 7203 is showing that it is supported for e-file for TurboTax.  It is also showing that it is currently available.  You should be able to electronically file your return now.

[DWe]

Thanks for your detailed and very helpful responses.

I was hoping you, or anyone else, could help.

• After calculating my debt basis for the beginning of the year and manually inputting values into 7203 TurboTax is showing a debt basis before losses (line 29) that is less than my allowable losses from 47(d).  These are active losses so they should be allowed. 
• When I input the 47(d) loss as a negative number (the instructions say to enter the number from 47(d), which is negative) it is added to my debt basis obviously making it increase. 
  • If I input the loss on line 30 as a positive number the debt basis goes negative, which I thought shouldn't be allowed.   
  • That seems wrong to me as I would think your allowable losses would be limited by the debt basis and any allowable losses would reduce the debt basis.  Once it hit zero no additional losses would be allowed.  Is the TurboTax form wrong, or my assumption?
• Should I: 
  1. input the full number for line 30 allowable losses from 47(d) as negative or
  2. input 47(d) as a positive number or
  3. input a positive number equal to the debt basis so the final debt basis is zero?
• Option c seems to be the logical choice, but I'm not a CPA or tax expert.

[DWe]

Should have added @tagteam to this question for @Rick19744

[mlohrer]

Several suggestions for things to review, as I've had no problem with the form and its usage of stock and debt basis info, so I have no reason to think the form is faulty:

(1) The statement "These are active losses so they should be allowed" is not correct - regardless of how much the active loss is, you are limited to the total of stock and debt basis...period!

(2) There are no negative numbers anywhere on the form, so if things are coming up negative the underlying information has been entered incorrectly - I think that is the underlying problem.

(3) The total in line 47d should be reflective of your total debt basis from line 29, OR whatever part of your line 29 debt basis is needed to cover remaining losses in excess of your stock basis.

From your discussion, it seems clear that you understand that first "stock basis" is used to cover the loss; once your stock basis is exhausted (reduced to 0), next debt basis is applied, assuming there is still more loss to be offset.  Once debt basis is exhausted (reduced to zero), no further losses can be deducted and they are carried forward to next year.

(4) If, for example, stock basis is insufficient to cover your loss, then start allocating debt basis to cover it, but in no case can 47d (which should be a POSITIVE number in that form) be greater than 29 - maybe it's less than line 29 because you didn't need to cover remaining losses in excess your debt basis.

(5) Whatever part of debt basis is used to cover losses (line 47d) is then subtracted in line 30 from your starting basis in line 29, resulting in whatever carryover debt basis you might have - again, it seems you've fully understood this, and no, that line 31 number can never be less than 0.

[DWe]

Thanks @mlohrer , this was very helpful!

1. Yes, I understand that losses are limited by the stock/loan basis.  I meant the entire loss is active, not passive, so would be allowed, as long as it doesn't exceed the loan basis since my stock basis is 0.  As it turns out, the loss exceeds my loan basis which is why I'm having this issue.  I want to be sure to capture the remaining carryover above the loan basis. 
2. You were right, inputting positive numbers for the losses on 7203 fixed that problem.  Thanks!

Now my issue is the next step, getting the K-1S to reflect the allowable loss from column (d) (line 36 for this part of my business) as well as carryover from column (e) on 7203 since losses exceeded the loan basis.   

Here are the options I've tried on the Summary of Form 7203 screen where it says, "Please review and manually adjust your K-1 to reflect the allowed losses:"

• Leaving the "K-1 amount to adjust" box empty produces a K-1S with the allowed loss equal to the prior year ('20) suspended loss, so that's not accurate since there were additional losses in '21 and it's less than the loan basis.
• Leaving the original loss from the '21 K-1 by typing that value into the box results in a higher allowed loss that exceeds the allowed loss (equal to the loan basis), but no loss suspended for current year which I'm assuming would be the carryover.  Is that assumption correct?
• Adjusting the K-1S loss (K-1S line 2 in this case) so the total allowed loss (K-1S Section A column c for lines 1a, 1g, 3 and 4b) equals the allowed loss on 7203 36(d), but doesn't produce any loss suspended for current year.  

It seems like the carryover isn't flowing from form 7203 36(e) into the K-1S, but it could be operator error again. 

One approach would be to input the loss required in the K-1S to match the allowable loss on the K-1S with the 7203 value (like the 3rd bullet above) and then override the K-1S form by inputting the carryover from 7203 36(d).  This seems to make the most sense to me, but I'm clearly not a tax or TT expert, which is why I appreciate this forum.

Does that make sense?  Any other suggestions?

[mlohrer]

Glad you are making progress, but I don't have a lot of specific advice I can give you on the details you are wrestling with.  A few cursory comments:

(1) You are correct that any loss not allowed would be carried over - each year, you just pull prior losses into the total, and deduct what you can via new stock or debt basis, and then again carry forward any excess - you never "lose" any prior loss, it just keeps rolling forward...

(2) Prior to this year's introduction of the 7203, I have never relied on Turbotax or the K-1 to carry loss information forward, I have always just handled that externally to the program, and made entries in following years accordingly.  

Specifically, I have always just entered into the Turbotax K-1 the ALLOWABLE LOSS, not the loss as actually reported on the K-1 issued by a company.  At this point, the 7203 has calculated the carry forward loss (because in Form 7203 lines 35 - 46 and totaled in 47 ARE THE REAL K-1 LOSS ITEMS AS REPORTED BY THE COMPANY), we'll see "next year" if this carry forward flows appropriately!

Hope you find a solution...