Follow-Up responses:
- You are correct in your balance sheet presentation statement.
- As the debt is paid off, on form 8949, the shareholder will show a cost basis of the principal amount paid and no sales proceeds. This will be LT and you can describe it as "S corp debt payment" or something along those lines. This will just be included in any other capital gain / loss transactions the shareholder has in their personal tax return.
- In item 2, this is the point that the S corporation shareholder satisfies the economic outlay requirement. This essentially is an increase in capital for the principal and since no "proceeds" are received for the stock, generates the capital loss.
- You are correct in that no further adjustments to the S corp balance sheet necessary once a final return is prepared. Make sure you maintain a copy of the loan agreement and the principal outstanding upon liquidation. Update this as the debt is paid down.
- The suspended losses will be lost.
- No basis, no losses allowed to be taken at the shareholder level.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
