Asked for Form 7203 this year but not past years

[thomas1923]

I have been using TurboTax Business and Personal for years.  I have a two person S-Corp with my wife and I. 

When I entered my K1 this year, I was asked to fill out form 7203, and I'm not sure why.  This brings up the following questions below and you can see my K1 as well.

My K1 is as follows:

Box 1: $10,000

Box 4: $195

Box 16 - D $12,000

Box 17 - A $195
Box 17 - V* STMT

1.  What triggers a "non-dividend distribution from an S-Corp"?  I didn't adjust shares or anything.  Even if I remove all the boxes except 1 and 16D I'm still asked for this form.  

2. Weren't these all dividend distributions?

3. If not, I was not asked for this form in 2021 or 2022; do I need to amend those returns to add this?

I tried to read through some other forum posts but all did seem to have adjustments to shares.  

Thanks.

[Mike9241 · Accepted solution]

16D indicates cash or property was distributed to you that was not deducted from the S-Corps profits nor treated as a taxable dividends (the norm). Distributions or losses reported require the filing form 7203, S-corps like C-Corps distribute profits to their owners in the form of dividends. But for tax purposes, they are e treated differently. For a C-Corp owner such distributions are taxable. They are double-taxed. Once when the C-corp earns the profits and pays taxes on them and again when distributed to the shareholder who is taxed on those distributions.  To avoid this double taxation businesses that qualify may elect S-corp status. It pays no Federal Corporate Income Taxes. Rather the taxation occurs at the owner level.  S-Corp "Dividend" distributions are not taxable income as long as the owner has tax basis in the corp after the distribution. Rather they reduce the shareholder's basis. 

[thomas1923]

Thanks for the quick turnaround.  

That makes sense.  

It does seem like I missed the form for 2021 and 2022 then.  Do you think I should do an amended return to include there?  I heard support for this form wasn't ever good in Turbo Tax those years.

Thanks again.

[RobertB4444]

You don't need to amend 2021 or 22 to include a reduction in basis.  That isn't a taxable event.  You just need to keep track of the basis that you have (it should be being reported to you on your K1) for when you sell this investment.

@thomas1923 

[andy253]

Very helpful!

[Mike9241]

1) Remove the form and not mail it with the 1040 and uncheck basis required on Sch E (since I think Form 7203 only has to be included if I take a loss or make a distribution - neither applies to me in my 2023 1120S)

the IRS has a copy of the 1120S and k-1 so it knows there was no loss or distributions reported. 

this is from the IRS 7203 instructions

Who Must File
Form 7203 is filed by S corporation shareholders who:
• Are claiming a deduction for their share of an aggregate
loss from an S corporation (including an aggregate loss
not allowed last year because of basis limitations),
• Received a non-dividend distribution from an S
corporation,
• Disposed of stock in an S corporation (whether or not
gain is recognized), or
• Received a loan repayment from an S corporation.
It may be beneficial for shareholders to complete
and retain Form 7203 even for years it is not
required to be filed, as this will ensure their bases
are consistently maintained year after year

by the way except for beginning basis which would be pulled from prior year 7203, if present, nothing is pulled from the k-1 (deluxe desktop version - don't know about other versions) 

I even tried this. Entered $0 distributions and $10,000 business income on k-1 but entered income of $25,000 and distributions of $20,000 on the 7203. in final review no errors popped up! thus it would seem you could make errors in entering the k-1 numbers in the 7203 without a flag being raised 

[andy253]

Thanks for the quick and detailed response.