Sch E Part II requires line 28 col E to be checked and a basis computation in the S corp to be attached if owner has losses. Why is TurboTax is not providing this?

[artvandelay7890]

I'm an S corp 100% owner/employee with a loss from the S corp. Schedule E Part II requires line 28 column E to be checked and a basis computation in the S corp to be attached; IRS as recently as 2/6/19 has reiterated this requirement: https://www.irs.gov/forms-pubs/clarification-on-line-28-column-e-of-schedule-e-form-1040. However, TurboTax is not providing nor attaching the basis computation or asking questions within the program. I have TurboTax Premier, CD edition. Anyone else have this issue of TurboTax not provided a basis computation with S corp losses on Schedule E?

[Rick19744 · Accepted solution]

Shareholder basis is not something that TT tracks.  Too many factors involved in this process.

This can be done using an excel worksheet; beginning with capital contribution, updated annually for the applicable lines on the K-1 including distributions.

What this then means, is that you will need to attach your own basis schedule as requested, attach it to your federal return and then paper file the return.

When paper filing a return, I recommend sending it certified mail return receipt requested.  This way you get a receipt validating that the IRS received the return.

[artvandelay7890]

I agree, and this is what I'm doing now.

I had to double check my return before efiling to catch this; Turbo Tax didn't even check the required column E in line 28 per the Schedule E instruction on the actual schedule.

In addition, because no basis computation is provided, an S corp owner with losses can't efile their Turbo Tax return, which seems to me to be a weird result and a limitation of the product, if not disingenuous on its features. I'm pretty sure there's a sizable minority, if not half, of S corp owners with losses being carried over to their individual returns, which appear to require paper filing here.

[Rick19744]

Honestly I am positive there are thousands of returns being filed reflecting losses on Sch E without a basis schedule being attached.  Not saying this is how it should be done, just stating the real world.

[artvandelay7890]

I agree. A google search on this topic showed at least one accountant stating the IRS was sending letters to those people who did not attached a basis computation (<a rel="nofollow" target="_blank" href="https://accountants-community.intuit.com/questions/1801379-irs-now-requires-preparers-to-attach-a-ba...>). Anecdotal for sure, but nonetheless disappointing that Turbo Tax has "failed" here.

[Rick19744]

I would not be so hard on TT.  Not even some the top tier software packages track individual basis.  There is just too much going on there.  Just to have full disclosure, I am not in any way affiliated to bias my response.

[mtzttax]

I'm in complete agreement with artvandelay7890 on this. If you combine those entities with losses and/or distributions, you have a huge number of taxpayers that should not be filing electronically. Turbotax should make this significant limitation much clearer on their Schedule E input. Nowhere that I have noticed has there been a warning that the return might need to be paper filed. So, at a minimum, a much clearer warning needs to pop up on the Schedule E form when the Basis Comp box is checked.

It would be a smart marketing move for Turbotax to transfer the basis data from the Turbotax Business system, for those that are using both products for filing passthrough and individual returns.

[theplayer111]

the basis attachment is not just for loses, but also if you take a distribution from the scorp, which most people do. So now the IRS will be flooded with more mailed in returns. Ridiculous.