Form 7203, Item D

Forum|Forum|3 years ago
March 12, 2023
2 replies
21 views

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

Level 15

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.

Mike9241

KC199Author

Level 2

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.

JamesG1

Level 15

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.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

KC199Author

Level 2

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

Level 15

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.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"