New IRS Form 7203: S Corp Shareholder Stock Basis, Debt Basis & More

Form 7203 and its independent instructions are designed to replace the three-part Worksheet for Figuring a Shareholder's Stock and Debt Basis and its related instructions that were formerly included in the Shareholder's Instructions for Schedule K-1 (Form 1120-S).

While the S corporation's basis calculations remain intact, the new form demands additional information to substantiate and justify the basis computations. As the form deals with S company stock and debt basis, some observers are under the impression that it is filed with the 1120S business return. Nonetheless, the form will be included in a shareholder's income tax return if any of the following are true of the S corporation: 

• The shareholder sells his/her shares of stock during the tax year.
• The shareholder receives a payout from the S corporation.
• The shareholder receives a loan payback from the S corporation during the tax year.
• The shareholder claims a loss-related deduction.

Form 7203 is the new reporting form required by the IRS to show a shareholder basis in an S-corporation. This new form must be filed on the personal tax return (Form 1040) of most shareholders, starting with 2021 returns. 

• To define what basis is.
• To review when the 7203 Form must be filed.
• To analyse the steps in calculating the basis of an S-corporation.
• To analyse how the S-corporation basis differs from the partnership basis.
• To differentiate types of loans from shareholders and those loans affect the basis.
• To identify whose responsibility, it is to track basis - it's not the entity's responsibility.
• To discuss options for reconstructing the basis, if prior information doesn't exist or is unreliable.

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