Discussion:Reporting distributions in excess of basis S corp
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Discussion Forum Index --> Tax Questions --> Reporting distributions in excess of basis S corp
| 15 February 2006 | |
| My S-corp client made distributions in excess of basis. I understand the shareholders need to report these distributions as capital gains. I have entered the gain on Schedule D, Part II, Schedule K line 8a, Schedule M-1 line 2 and Schedule M-2 line 3. I entered the distributions on Schedule K line 16d. What am I missing? The AAA on Schedule M-2 no longer agrees with retained earnings on Schedule L. The difference is 2 times the amount of the distributions. (On the books the distributions decrease retained earnings. According to the example provided in the instructions for the 1120S, the distributions should not be entered in the Schedule M-2.)
Any assistance would be greatly appreciated. | |
| 15 February 2006 | |
| AAA often does not agree with Retained Earnings.
The gain is not the s corp's. The gain is at the shareholder level. it does not go on sch K. good luck, this type of thing can get messy and hard to keep straight. | |
| 16 February 2006 | |
| So, how does the gain get reported on the 1120S so that the shareholders know how to report it on their 1040s? | |
| 16 February 2006 | |
| The distribution is reported in gross. The amount of gain is not reported
by the corporation. It is technically, not a pass-thru item of either income, deduction etc which is required to be separately reported under sec 1366(a)(1) nor a non-separately stated income or loss of Sec 1366(a)(2). I usually send a schedule to the shareholder (when I am not doing the return of such shareholder myself) which explains the return of basis, capital gain on excess, etc. The tax programs should generate such a schedule. Otherwise, you could make one up and send to shareholders. WillyB 23:06, 15 February 2006 (CST) | |
- The following 2 posts have been transferred in from a separate discussion, since they actually relate to the question above.
| 13 February 2006 | |
| So, exactly how do distributions in excess of basis get reported on the 1120S? My client has never been a C Corp, AAA account is a deficit (credit card borrowing funds the business) and they made a proportionate distribution last year. | |
GaryGauvin (talk|edits) said: | February 18, 2006 |
| I think 50 people could end up giving 50 answers.
Some would say they don't report it specifically, but make sure your software shows the total distributions (on Page 3 Sch K) including the "excess" Proseries for one does not handle this correctly. In proseries I post that difference to the M2 worksheet as OAA. That way I have Sch L and M2 in agreement if the client uses tax method for financial statements. Some use OAA for exempt income only. Doesn't really matter since it is a 'memo' account. Then only that portion of the amount in excess of AAA that exceeds the clients basis in stock and loans is taxable as a capital gain on his 1040. As soon as this happens once his basis will never more equal Sch L Stock and Retained earnings. | |
| 5 April 2008 | |
| I really love when you can find your answer to your question from a prior post! This website really is awesome! Thanks to everyone that contributes!! | |
| 29 May 2008 | |
| What if: (1) the prior CPA did not record income on the 1040 for distributions in excess of basis, and (2) the statute of limitations is closed for that year.
Would you calculate the current basis based on what actually happened, or what should have been reported? (i.e. the recognition of income on the 1040 is an increase to basis) Do you have a cite for this issue? Thanks | |
| 29 May 2008 | |
| you want a cite and you don't even have a profile???? get real | |
| 2 June 2008 | |
| Kevin -- What does a profile matter in asking a question? An answer without a reference is useless. And why are you rude to newcomers?
JR -- I don't think it is possible to recharacterize when the year is closed. (Shareholder loans exist and are documented.) | |
| 2 June 2008 | |
| you are the one who is rude, Salwa, for asking before filling out a profile. Also you might want to realize that you get more help when you are nice and not so damn demanding. | |
