S Corp Loss was not put on my personal federal return by the accountant

[PipersAlley]

I have an S Corp that had a loss last year. In all previous years, this loss has transferred to Line 17 on Schedule 1 of my Federal tax return. Last year, the accountant in the new state we moved to did not enter that loss on Line 17.  Instead, he put a footnote on Schedule E of the Federal return that the S Corp loss was limited by basis.  I don't think this was the correct thing to do. With an S Corp, basis increases by the capital contributions that are needed to pay the expenses. I'm trying to find out 2 things: 1) should I have been able to take this loss on my Federal return and 2) If I was supposed to have that loss on my federal return, is there a way to input the loss in TurboTax business for 2021? It looks like it would fall on the 179 Carryover page, but it won't allow a negative number in the Section 179 QBI for 2020.  

[Rick19744]

We can only provide some comments:

• Only you are able to determine whether the accountant's basis limitation computation is accurate.  If you don't believe it is, then you need to contact that individual.
• If you do not have sufficient tax basis, then you will not be able to take any losses on your 1040.
• If you paid expenses that should be reflected as capital contributions, then this is a discussion you need with the individual who prepared the 1120-S
• This forum is not the right place to have this discussion since we have absolutely no documents to review

[PipersAlley]

I'm not asking for tax advice. I know the accountant did it incorrectly. My questions are:

1. With an S Corp, does the shareholder basis increase by the capital contributions that are needed to pay the expenses?

2. Is there a way to input the 2020 loss in TurboTax business for 2021? Can the 2020 loss be carried forward or do I need to amend the prior year return? It looks like it would fall on the 179 Carryover page, but it won't allow a negative number in the Section 179 QBI for 2020.  

[AliciaP1]

Yes, your allowable loss is limited by your basis in the S-Corp, but your basis should have included any contributions you made in 2020 as an increase to the basis as well.  You can review your basis worksheet from 2020 to ensure your contributions were correctly considered as an increase to your basis.

If your contributions were reported incorrectly, then your basis was calculated incorrectly and you will need to amend both your business and personal returns for 2020.

If your basis was stated correctly and the loss is truly a carryover, you will need to include the new Form 7203 with your personal return for 2021 to determine the allowable loss to claim this year.

[PipersAlley]

Thank you very much for responding. So, I thoroughly reviewed my 2020 business return and there is no reporting of basis on that return. I have no idea where the accountant got it because he didn't even ask for it and he didn't report any basis to the IRS. That's besides the point now I guess. I know what my basis is based on my Balance Sheet in Quickbooks, so my loss should not have been limited by the basis. It sounds like the only way to truly fix this mistake is to amend 2020 filings which would be more of a burden than it is worth. Can you please confirm that there isn't any way to carry that loss forward onto the 2021 return? Or is my only remedy amending the returns because it is an S-Corp and it should have flowed through to the federal return in 2020? My assumption is the latter but I am reviewing that IRS form 7203 to confirm.  Thanks again.

[AliciaP1]

You can use Form 7203 this year to calculate your correct basis and claim the allowable amount of the loss that was carried forward.  If you had enough basis to claim it last year, you are likely in good shape to claim the whole amount this year.  The form walks you through the process to calculate your basis and will show your total allowable loss.