No. If you had no basis in the beginning of the year then you may start with a zero basis and report that on Line 1 of the 7203. Your stock basis at the end of the year is determined by the entries you make in PART 1, LINES 1-15. From here, you either have an increase in basis or your basis is zero. The stock basis balance is never negative. It is not mandatory for you to have a basis in the beginning of the year.
Part 2 of the 7203 is a declaration of your debt basis and your loan balances in the beginning and end of the year. Part 3 is a declaration of your share of loss and deductions that is reported by the S-Corp.
S corporation shareholders use Form 7203 to figure the potential limitations of their share of the S corporation’s deductions, credits, and other items that can be deducted on their individual returns. The only reason why it is required is to prevent you from taking a loss that is greater than your investment. Please read this Turbo Tax link for further information.
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