Form 7203, Item D

[KC199]

Last year I changed from a sole proprietor to a sole member LLC with S corp election.  How do I answer Item D on the 7203 for how stock was acquired?  There is no stock in an LLC.  Also am assuming my stock basis is 0.00 for line 1.

[Mike9241]

how about original stockholder. no your beginning stock basis is unlikely to be zero. when you converted the taxation from a single-member LLC to an S-Corp your basis would be the tax basis of assets less any liabilities of the LLC that is now taxed as an S-corp.  This number should not be less than zero.  

[JamesG1]

I also think that you are the original shareholder.

How much did you contribute to the entity when the sub S was formed?  The contribution may be in cash or property or a combination of both.  

The balance sheet that you reported as a sole member on December 31, 2021 will likely report what was contributed upon the formation of the sub S on January 1, 2022.

IRS Stock Basis states:

Computing Stock Basis

In computing stock basis, the shareholder starts with their initial capital contribution to the S corporation or the initial cost of the stock they purchased (the same as a C corporation). That amount is then increased and/or decreased based on the pass-through amounts from the S corporation. An income item will increase stock basis while a loss, deduction, or distribution will decrease stock basis.

[KC199]

I was thought about original stockholder as well, just confused because there is no stock.  It looks to me like the contributions I made should go in line 2.

[KC199]

The LLC was started in 2022, so there is no Balance Sheet 12-31-21 for it, just my sole proprietor at that point.

[PatriciaV]

Check your formation documents for the LLC. There is often a clause about shares of stock because an LLC is a corporation. Initial stock can be a nominal amount (1 share) or there can be a share price that is divided into the initial basis when the company is formed. Your LLC Operating Agreement is the best source of this information.