The IRS instruction for S Corporation Stock and Debt Basis clearly states that any non-dividend distribution is tax-free provided the distribution does not exceed the shareholder's stock basis. The Instructions say that If the distribution exceeds the shareholder's Stock Basis, the excess is taxed as a capital gain.
When I complete Form 7203, my Distributions exceeded my Stock Basis, and Form 7203 (Line 15) states my Stock Basis is now zero. I do not see where the excess distribution flowed to From D (Capital Gains). My question is how and when is the excess distribution taxed?
Signed,
Confused
