Both my in-laws owned shares in an S-Corp 50/50 (not jointly) and held them separately in their respective trusts. Both have now passed, the shares have now been inherited via the trusts by their 2 daughters, also 50/50. They are also the officers and directors and the S-Corp lives on, but has a small loss every year.
While, if I am correct, the S-Corp continues to keep the original adjusted basis of the shares (99% of the assets is land for development) on the S-Corp returns, isn't the basis stepped up (1/2 at one parent's date of death and 1/2 at the other's) at the shareholder level and that new basis reported on the Turbo Tax "S-Corp Shareholder Stock & Debt Basis Limitations Worksheet" for the heirs, which is then used to file the form 7203s? Would that new basis for each heir be entered on Part 1, Line 2 , and if not, then where? Similarly, for each parent's trust transferring the shares (and reducing the basis to zero, would the transferred basis be the (un-stepped-up) original adjusted basis and entered on Part 1, Line 13 on each worksheet? (Seems to be the only line possible). Note - there are no loans from shareholders or other liabilities.
Yes, assuming the daughters are also listed shareholders in the S-Corp, you can increase their basis by recording the additional shares amounts in part 1 line 2 of their share basis wks, just like you just mentioned.
Consequently, you are correct in recording the parents decrease in basis in Part 1 Line 13 in their share basis worksheets.
You are correct on both counts.