Excess Distribution from S Corp

[S&D Associates]

Would you please tell me where and how do you show excess distributions from an S Corp on the balance sheet? If you can tell me how and where on Proseries, that would be extremely helpful as well.

[abctax]

Cash distributions ...

Cash distributions are shown on M-2. The fact that they are "excess distributions" is determined at the Shareholder level, determined by a basis schedule.

Distributions in excess of basis are reported on the shareholder return as a capital gain via Form 8949 ---> Schedule D.

[Gretel]

Proseries

I had this issue a few years ago. I believe you have to override the retained earnings on the BS in Proseries.

[TAXNJ]

abctax reply post addresses your scenario best. The software should have a "shareholder basis" worksheet to make necessary entries that flow to appropriate schedules and forms. That "shareholder basis" worksheet is very important and often overlooked creating "errors" and/ or "out of balances".

Considering AVOIDING "overrides" which may create problems with future returns.

[Nashville]

GAAP Question

I'm thinking excess distribution reporting should be shown as a debit in the equity section. Your question seems to deal more with its placement on the balance sheet than the taxability issues others have addressed.

It cannot be shown as a dividend, because under Generally Accepted rules, dividends are paid out of profits, so dividends may be shown only to the extent of accumulated profits. I believe the net excess should be reported as a negative Retained Earnings, which converts the title to "Retained Deficit."

There is a double-barreled limit with respect to basis. First barrier is deductibility of a loss, which cannot exceed the shareholders' "stock basis." This is usually the end of the story until profits restore the "stock basis." However, if there is a distribution to the shareholder over and above the amount of the loss, then the second barrier is "loan basis" which allows additional distributions to be sanctioned to the extent of "loan basis." If somehow the loss/distribution exceeds both the stock basis and the loan basis, there must be a recognition of capital gains.

[TAXNJ]

I'm thinking excess distribution reporting should be shown as a debit in the equity section. Your question seems to deal more with its placement on the balance sheet than the taxability issues others have addressed.

It cannot be shown as a dividend, because under Generally Accepted rules, dividends are paid out of profits, so dividends may be shown only to the extent of accumulated profits. I believe the net excess should be reported as a negative Retained Earnings, which converts the title to "Retained Deficit."

There is a double-barreled limit with respect to basis. First barrier is deductibility of a loss, which cannot exceed the shareholders' "stock basis." This is usually the end of the story until profits restore the "stock basis." However, if there is a distribution to the shareholder over and above the amount of the loss, then the second barrier is "loan basis" which allows additional distributions to be sanctioned to the extent of "loan basis." If somehow the loss/distribution exceeds both the stock basis and the loan basis, there must be a recognition of capital gains.

Compliments on your reply post summarizing your GAAP perspective regarding "excess distributions".

Since it could be complex depending on the specific scenario, there are many articles from a GAAP perspective that provides in-depth analyses depending on the specific scenario that can be further researched if the Original Poster is interested.

Also, from a tax perspective, one can research many tax articles and other references (TTB; IRS web-site, etc).

The Original Poster posted "Would you please tell me where and how do you show excess distributions from an S Corp on the balance sheet? If you can tell me how and where on Proseries, that would be extremely helpful as well."

Since there was a mention of tax software "Pro Series", think that was the reason other reply posters generally addressed, as you mentioned, the "taxability issues" .

So based on your reply post and the other reply posters, the Original Poster may have a starting point for the scenario.