The concept of shareholder basis is somewhat simple, however the calculation can be cumbersome if it was not properly tracked by the shareholder over the years. Partnerships were no longer allowed to report basis using another method of accounting, such as GAAP. C corp shareholders receive Form 1099-DIV and they will, in turn, report the dividend on their individual federal tax return. Making matters worse, stock and debt basis are shareholder level attributes, meaning it’s up to the shareholders to track basis, not the S corporation. [1040] New S-Corp basis reporting requirement on Sch. Please see our previous article on the basics of calculating S Corporation basis. The best and only way to truly know your basis is correct is to go back to the S election date (or date your first acquired stock in the S corporation) and roll forward from the beginning. It would be to the benefit of all S Corporation shareholders to make sure they have an up to date basis schedule in case they meet the new requirements for attaching that schedule to their personal tax return. They do make tax-free non-dividend distributions unless the distribution exceeds the shareholder's stock basis. As many small business taxpayers in the construction industry are organized as S corporations, this is an important concept that can be overlooked and unknowingly lead to unintended consequences. Specifically, line 20 of the K-1 must include code AH and report the partner’s beginning and ending capital account on the tax basis. Wife inherits S Corp and sells S Corp assets AND building it operates out of (owned by H&W) on Sept 1, 2018. Debt must meet two requirements to qualify as S corporation basis. The IRS added a new column where you check a box if a basis computation is required. If you believe you may be in need of a basis study or have questions regarding the above please contact a member of Withum’s Construction Services Team for more information. 1. Now, they are not waiting and want S Corporation shareholders to provide their proof of adequate basis in advance of any request. If a return is considered deficient in this manner, it will not start the running of the statute of limitations for assessment of tax. If your construction company opened up shop 3 years ago the task isn’t so bad, however if it was incorporated in the 1980’s, you may not have the historical data readily available to perform the necessary calculations. may 30, 2019. joel busch, cpa, esq. Practitioners submitted comments requesting a delay in implementing the new 2019 reporting requirements. If a partnership reports other than tax basis capital accounts to its partners on Schedule K-1 in Item L (that is, GAAP, 704 (b) book, or other), and tax basis capital, if reported on any partner's Schedule K-1 at the beginning or end of the tax year would be negative, the partnership must report on line 20 of Schedule K-1, using code AH, such partner's beginning and ending shares of tax basis capital. The difficultly in reconstructing basis comes down to what records are available. About the author 5340.1 Smaller reporting companies may choose compliance with either the smaller reporting company scaled disclosure requirements or the larger company disclosure requirements on an item-by-item or “a la carte” basis for each filing. Clarified that Rule 3-13 of Regulation S-X applies only to the financial statements included in a Form 8-K and not to the timely filing requirement of the Form itself. After the end of the first three years, the S corporation distributes $200,000 to John. After three years John’s basis is $400,000. Originally, the new rules applied to tax year 2019 (taxable years that began on or after January 1, 2019). If the debt is evidenced in writing, the gain will be capital. Mark J. Corey, CPA, JD. Adding these new basis reporting requirements to the already established loss limitation rules (i.e. 2020 Tax Capital Reporting Requirement Except for “small partnerships,” all partnerships must calculate and disclose tax basis capital information to all partners for tax year 2020. The basis calculation must be attached to your personal tax return (if required). There are many different tax and reporting requirements a corporation may be subject to, including the following. 1031 Hotline: If you have questions about 1031 exchange tax reporting requirements, or anything regarding 1031, feel free to call me at 612-643-1031. Otherwise, it is ordinary. Read our, Construction, Architecture and Engineering (A/E), The Benefits of an ESOP for Architecture, Engineering and Construction Companies, Digital Workplaces Solutions, Business Process Automation, Construction, Case Study: Reimagine Project Estimation with Microsoft Power Automate, Construction, Business Process Automation, Forensics and Electronic Discovery Services, Enterprise Collaboration and Technology Platforms, Forensics and White-Collar Criminal Defense, Insolvency, Bankruptcy and Receivership Accounting, Healthcare Revenue Cycle Management Services, OASyS – Outsourced Accounting Systems and Services, Financial Planning and Analysis Consulting Services, Public Company SEC Compliance & Reporting, International Financial Reporting and Multinational Organizations, The S corporation allocates a loss and/or deduction item to the shareholder, The S corporation makes a non-dividend distribution to the shareholder. Second, under Regs. And Treasury Regulation section 1.6001-1(a) requires shareholders to maintain permanent books and records to establish losses and deductions reported on their return (basis computation). basis reporting and tracking by s corp. shareholders as well as partners and members 7th annual irs -sjsu small business tax institute. However, practically speaking many shareholders do not have a good grasp on what their basis is and they must now look to recalculate it. How do I do this in ProSeries? In order to establish debt basis, a shareholder must provide proof of a bona fide indebtedness that runs directly from the shareholder to the corporation, and that there was an actual economic outlay. All rights reserved. BASIS REPORTING REQUIRED FOR 2018 Draft Form Schedule E Check out the new note line in Part II: Note: If you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation, you must check the box in column (e) on line 28 and attach the required basis … To offset the legislation’s costs, the Act makes a number of changes to the tax code, including provisions with respect to the income tax basis of property acquired from a decedent. 4 situations when stock basis reporting on 1040 is required for s corporation shareholders. Then, at some point after filing corporate formation papers with the Secretary of State (or equivalent state office), and possibly immediately after formation, the shareholders formally consent to the corporation electing S corporation tax status.