The IRS instruction for S Corporation Stock and Debt Basis clearly states that any non-dividend distribution is tax-free provided the distribution does not exceed the shareholder's stock basis. The Instructions say that If the distribution exceeds the shareholder's Stock Basis, the excess is taxed as a capital gain.
When I complete Form 7203, my Distributions exceeded my Stock Basis, and Form 7203 (Line 15) states my Stock Basis is now zero. I do not see where the excess distribution flowed to From D (Capital Gains). My question is how and when is the excess distribution taxed?
Signed,
Confused
You'll need to sign in or create an account to connect with an expert.
Pass-through entities become complicated quickly:
Pass-through entities become complicated quickly:
actually form 7203 doesn't really work. in the desktop version, it clearly states that the taxpayer must enter the excess distribution of form 8949.
it also has another major failing.
on an S-Corp K-1 I enter $50,000 business loss with material participation and $40,000 as distributions, on form7203 I enter $10,000 as my beginning tax basis.
Here's what happened in Turbotax. the $40K distributions did not flow to form 7203. I had to enter the amount manually on line 6
I now had a distribution in excess of basis of $30K. I had to enter it manually for schedule D. my stock basis is correctly reported as zero on line15. the loss from the k-1 did not flow to form 7203 so I had to enter it manually on line 36 column A. this carried to column e as a carryover amount.
now the bad part. Turbotax still allowed the $50K loss on schedule e page 2 when it clearly should have been zero. the way I fixed this is by completing form 6198. I entered $10K on line 6 and also on line 9. this corrected schedule e so no loss was allowed. there is nothing on the 7203 or K-1 to warn taxpayers that additional steps may be necessary to have an accurate return.
taxpayers need to be aware of the failings of form 7203. they could easily materially understate their tax liability by relying on this form to correctly report items.
Still have questions?
Questions are answered within a few hours on average.
Post a Question*Must create login to post
Ask questions and learn more about your taxes and finances.
keeponjeepin
Level 1
mpapadop
Level 1
hnk2
Level 1
x9redhill
Level 2
Liv2luv
New Member
in Education