How to Report PPP Loan on 1120-S / Balance Sheet?

[GaryRichards]

I have an S-Corporation and the forgiven loan, in conjunction with cash distributions, also resulted in a reduction in retained earnings for me.  It is my understanding that starting last year the IRS required stock holders in an S-Corp to disclose the “basis” in their stock on their personal tax returns in association with imputing their K-1 information. Turbo tax did not prompt me to do that last year so I will be looking into how to accomplish that this year. It looks to me like the amount of the forgiven loan essentially reduces my stock basis by a similar amount so I will ultimately pay taxes on this forgiven loan amount some time down the road when I sell or dispose of the corporate stock.

[AmeliesUncle]

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@GaryRichards wrote:

It is my understanding that starting last year the IRS required stock holders in an S-Corp to disclose the “basis” in their stock on their personal tax returns in association with imputing their K-1 information.

Turbo tax did not prompt me to do that last year so I will be looking into how to accomplish that this year. 

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Correct, a Basis statement needs to be provided in many circumstances, such as if you received Distributions or are claiming a loss.

TurboTax does not allow you to do it.  You either must MANULLY prepare the statement and MAIL it with your tax return, or use another method (such as a tax professional) to have your tax return done.

[jprince1]

Where do I enter it on my turbo tax business or do I just include in my gross revenue since I dis use all of it for payroll?

[jprince1]

I usually don't file a balance sheet my business is very small, so what do I do

[PhylI]

So the Basis Report must be mailed in, thus the  whole 1040 must be mailed in?  Or go to a tax professional? That sounds as though there will be no more E-File of personal taxes for S Corp owners, on our own, using TurboTax Premiere or any TurboTax software? Am I missing something?

[AmeliesUncle]

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@PhylI wrote:

So the Basis Report must be mailed in, thus the  whole 1040 must be mailed in?  Or go to a tax professional? That sounds as though there will be no more E-File of personal taxes for S Corp owners, on our own, using TurboTax Premiere or any TurboTax software? Am I missing something?

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Correct.  You are not missing anything.

[PhylI]

I thought that it would Never be taxable income for s corp owners as it is equal to Distributive Shares of Deductions:

(3) in the case of an eligible recipient that is a partnership or S corporation—

(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and

(B) except as provided by the Secretary of the Treasury (or the Secretary’s delegate), any increase in the adjusted basis of a partner’s interest in a partnership under section 705 of the Internal Revenue Code of 1986 with respect to any amount described in subparagraph (A) shall equal the partner’s distributive share of deductions resulting from costs giving rise to forgiveness described in subsection (b).

This language means that a partner’s tax basis shall increase by the distributable share of deductions attributed to forgiveness. This is meaningful because a taxpayer's adjusted basis affects the taxation of distributions, the ability to recognize losses, and the amount of gain/loss recognized on disposition.

In other words, this language helps ensure business owners who receive the benefit now will not end up losing it in the form of capital gains later. This language prevents an end-run in another form of tax.

[PhylI]

Is there any chance that TurboTax will write an option into their program asking if we would like to open a Blank Statement page on which we could report the basis and still E-File?

[AmeliesUncle]

Blank statement, probably not.  A Basis report, maybe, but doubtful.

As far as I know, the IRS e-file system is not set up for directly receiving a Basis statement.  Assuming that is still the case, the Basis statement would need to be attached by PDF.  But TurboTax does not allow PDF attachments.

While I can't say for sure what TurboTax will do in the future, this has been a requirement for a couple of years now and TurboTax has not done anything about it (and has been allowing its customers to e-file incomplete tax returns, with the Basis statement).

[Anonymous_]

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@PhylI wrote:

Is there any chance that TurboTax will write an option into their program asking if we would like to open a Blank Statement page on which we could report the basis and still E-File?

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You need PDF software with the functionality to attach additional forms, but it can be done, at least in the physical sense. Whether the IRS actually processes the statement is another matter entirely. 

An example is attached to this post (this was a test for a 1041 with a 1099 attached in the same PDF as the 8453-FE).

[AmeliesUncle]

But the personal editions of TurboTax do not allow a PDF attachments at all, so you can't e-file with a PDF (the "Business" edition, for corporations and partnerships may be able to do it).

[Rick19744]

I agree with @Anonymous_ in that the IRS efile system does in fact accept tax returns with pdf attachments.

The issue is that this functionality is typically reserved for more professional tax software packages like CCH Axcess, CCH Prosystem fx and GoSystem; certainly not an all-inclusive list, just those that I am familiar with.

As has been noted, not a current functionality of TT.

[Anonymous_]

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@AmeliesUncle wrote:

But the personal editions of TurboTax do not allow a PDF attachments at all, so you can't e-file with a PDF (the "Business" edition, for corporations and partnerships may be able to do it).

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That is correct; only TurboTax Business allows attachments at the present time. Perhaps one day the developers will make use of that placeholder under Tools in the personal editions.

[mexican]

I cannot find in IRS any instructions to include a basis statement with the Form 1040.  There are instructions to compute and maintain the Basis statement each year on the last day of the fiscal year for the S-Corp.  But it never says to send Basis Statement to IRS that I can find, and I have had the S-corp for 23 years and never sent it.

[Anonymous_]

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@mexican wrote:

I cannot find in IRS any instructions to include a basis statement with the Form 1040.

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