Basis Basics for S Corporation Shareholders

Author: James R. Hamill

Why Basis in S Corporation Stock and Debt Is Vital to Utilization of Losses, Computation of Gain or Loss upon Disposition, and Distribution Taxability

Shareholder basis in the stock and debt of an S corporation is vital for three reasons: First, under Section 1366, a shareholder may only utilize losses to the extent of the basis in the stock and debt. In addition, when a shareholder sells stock, basis in the stock will help determine the gain or loss resulting from the sale. Lastly, the shareholder's basis in S corporation stock will, in part, determine the taxability of any distributions made by the corporation to the shareholder.

In this on-demand CPE course nationally recognized tax expert and instructor James Hamill, CPA, Ph.D., will walk you through the basics of a shareholder's basis in both the stock and the debt of the S corporation.

This session will begin by discussing the rules for determining stock basis, with special attention given to the ordering rules and the impact of distributions. Next, he will explain the special rules used to compute a shareholder's basis in amounts loaned to the S corporation and the role this "debt basis" plays in determining the amount of the S corporation's loss that may be utilized by the shareholder. Throughout this class, we will point out traps for the unwary and common mistakes made by practitioners in determining stock or debt basis.

Publication Date: October 2019

Designed For
All tax professionals who advise clients on tax planning issues will benefit from this webinar.

Topics Covered

• S Corporation Basic Issues
• Ordering of Basis Adjustments
• Stock Basis: Initial Computation
• Suspended Loss Treatment
• Tracking Basis
• AAA versus Basis
• Creating Debt Basis
• Back to Back Loan Strategy
• Back to Back Loan Scenarios
• Entity Approach: Form Dominates Substance
• Creating Debt Basis???
• S Corporation: Distributions
• Distributions‐ Corporate Effect
• Distributions‐ Shareholder Effect
• Distributions when E&P Exists
• Distributions Without E&P
• Repayment of "Debased" Debt

Learning Objectives

• Identify the importance of a shareholder's basis in the stock and debt of an S corporation
• Recognize how to compute stock and debt basis
• Identify the role stock and debt basis play in utilizing S corporation losses
• Describe which type of account an S Corporation needs to maintain to determine the taxability of an S corporate distributions
• Describe what the "spillover" rule refers to
• Recognize resulting adjustment to basis in an S Corporation stock
• Describe what type of an account is deemed to be paid from for distributions from an S corporation with C corporation Accumulated Earnings and Profits (E&P)
• Identify the capital gain amount a shareholder recognizes
• Describe bona fide debt

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Taxes (1 hour)

Program Prerequisites
None

Advance Preparation
None