there isn't enough data to give you a definitive answer.
first if the S-Corp had income for the year that restores tax basis in the debt before repayment.
is the debt actually open-account debt?
On October 20, 2008, the IRS issued final regulations on open account debt. The regulations define the term “open account debt” as shareholder advances not evidenced by separate written instruments and repayments on the advances, the aggregate outstanding principal of which does not exceed $25,000 of S corporation indebtedness to the shareholder at the close of the S corporation’s tax year. The regulations also provide that advances and repayments on open account debt are treated as a single indebtedness.
Under the final regulations the determination of whether the threshold balance of $25,000 is exceeded will generally be made at the end of the tax year of the S corporation. However, if all or part of the open account debt is disposed of before then, the final regulations require the determination to be made immediately before the disposition of the debt during that tax year.
The new regulations are effective October 20, 2008, and apply to shareholder advances and corresponding repayments made on or after that date. They do not apply to open account debt that is outstanding prior to October 20, 2008, or to corresponding repayments on that debt.
The final regulations do not address the character of gain on the repayment of unwritten advances that do not qualify as open account debt under the regulations. However, it appears that the treatment of unwritten advances exceeding $25,000 as being evidenced by a separate written instrument is only for purposes of determining the timing and amount of gain recognized on repayment. Accordingly, it is likely that gain recognized on the repayment of such debt will be ordinary. Shareholders should consider evidencing all loans made to their S corporations in writing; gain on the repayment of a debt that is evidenced by a written instrument should generally be capital gain.
*****************************
if the S-corp had income for the year, in form 7203 you must manually adjust the restoration of basis, Turbotax does not do it
******************
you are correct the 7203 does nothing to carry the recapture to form 4797.
the workaround
select sales of business property
continue
