Negative Basis S Corporation Divorce

[equinecpa]

I have clients who were divorced last year. They had two S-corporation, each spouse took one corporation in the divorce settlement. One of the corporations had negative basis of approximately $100,000 and therefore last year losses were restricted based on basis. Barring other adjustments, would the spouse who took the corp with negative basis now have the full negative basis of $100,000 or would they still just have 1/2? If just 1/2, would the approx 50,000 in losses incurred by the other spouse in prior years remain as a carryforward which would be suspended indefinitely since they'll never have basis in that corporation?

I'm trying to do the personal return for the spouse who ended up with the negative basis corporation-there were profits this year of about $85,000-not enough to erase the full negative basis, but enough to eliminate more than 1/2. Trying to determine if this spouse now has basis or not?

[equinecpa]

I found this:

"1366 d 2)B) Transfers of stock between spouse or incident to divorce: In the case of any transfer described in section 1041(a) of stock of an S corporation, any loss or deduction described in subparagraph A shall be treated as incurred by the corporation in the succeedig taxable year with respect to the transferee"

I think this means the full loss goes to the shareholder with the S corporation-now I just have to deal with basis-I'd guess if this is the case the full negative basis goes to the sole shareholder?

[Golden Rocket]

No Negative Basis

Horselover --

It would help our terminology if you would not confuse us with "negative basis" - there is no such thing.

I think we do understand what you mean - there is a suspended loss. There is no gain or loss on property settlement in a
divorce, so each inherits the other's half of [basis/loan basis/suspended loss] in this settlement. I don't know that the books
of the corporation(s) reflect any change whatsoever.