Making a Section 1377 (A)(2) Election for an S-Corporation return in ProConnect Tax

When a shareholder sells all their stock and leaves an s-corporation, there is an election that can be taken to treat the tax year as two separate tax years.  How is that election made in the program?

To make a section 1377(a)(2) election to treat the tax year as two separate tax years for purposes of allocating items of income and expense to the affected shareholders on Schedule K-1 when there is a termination of a shareholder's entire interest, follow the steps below:

1. Go to Input Return ⮕ Other ⮕ Elections.
2. Check the box Section 1377 (a)(2) election made for tax year.
3. Enter the Date of termination of shareholder's entire interest and Explanation of termination of shareholder's interest.
4. Manually calculate the total amount of each line item to include on each affected shareholders Schedule K-1 for the tax year and enter these amounts under Input Return ⮕ Schedule K-1 ⮕ Schedule K-1 Overrides.

Additional Information:

• The program prints an election statement with the tax return. See Elections in Check Return Forms
• Each affected shareholder's Schedule K-1 includes a notation at the top of the form that a section 1377(a)(2) election was made. The program treats a shareholder as an "affected" shareholder if you make an entry in Input Return ⮕ Shareholder Information ⮕ Stock Ownership ⮕ K-1 Allocation Percentage or on Input Return ⮕ Shareholder Information ⮕ Change in Ownership.