Form 7203 Reportable Gain (Line 34) Not Showing Up on Schedule K-1

[jlcooper]

I have an 1120 S in which certain shareholders have reportable gains that appear on Line 34 of the Form 7203.  However, those gains do not appear anywhere on the K-1 for those shareholders.  Anyone having that same issue?  Is there a solution?

[sjrcpa]

It wouldn't be on the K-1.

Gain on shareholder loan repayments (and gain due to distributions on excess of basis) is computed at the shareholder level.

[jlcooper]

In that case, absent the detail on the appearing anywhere on the K-1, the shareholders would receive a copy of the 7203 in addition to the K-1 in order to have the appropriate information for their own individual returns.  Based upon your reply, I am assuming that is the expectation . . .   

[sjrcpa]

Not necessarily. The  S Corp may not have the correct basis info.

What if Shareholder A dies and B inherited his shares. B gets a stepped up basis on his first day of ownership. How would the S Corp know that value?

Basis computations are done at the shareholder level. Sometimes the partnership or S Corp will do them, but they're based on only the info known to the entity.

[sjrcpa]

Shareholder loan repayments and shareholder loan balance do appear on the K-1.

[jlcooper]

That makes sense with regard to the data that is on the K-1 being sufficient for the S/H to perform his /her own calculations/analysis of gain.  With that being the case, the new 7203 seems a bit unusual because the so-called 'Reportable Gain' on line 34 is theoretical at best (it assumes, for example, that there are none of the adjustments that you proposed--such as S/H B inheriting from S/H A).  Numerous types of modifications could affect that number at the individual S/H level.

Good points.  Thank you for your comments on this.   

[Stacys]

My issue with Lacerte's preparation of the 2022 Form 7203 in the 1120S  program is an amount appeared on line 35 (d) "Allowable loss from debt basis" and on line 30 "Allowable losses in excess of stock basis" that is not entered anywhere in the program input and is completely incorrect. This inaccurate 7203 was filed with the 2022 1120S and issued to the shareholders. I went into the 2022 1120S Lacerte program made a copy of this return that was timely efiled, unlocked the return and now the 7203 does not have an amount for "allowable loss from debt basis" and is correct! Has anyone had a similar issue? Does anyone have thoughts on filing an amended 1120S to file the correct 7203?

[Lylwa]

This type of gain wouldn't be factored into the K-1 form.

The calculations for gains related to shareholder loan repayments (as well as gains from distributions exceeding the basis) are carried out at the individual shareholder level.