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S-corp outside/external basis

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    S-corp outside/external basis

    Please confirm, when shareholders buy and sell stock outside of the corp (no transactions on the company books other than maybe a new loan to purchase treasury stock), they track their basis for capital gain/loss purposes on an external (outside) basis, but the internal basis as a shareholder against distributions (or allowed losses) is still more or less the AAA amount on Form 1120S Schedule M-2.

    Another way of putting this is, when the IRS requires that a shareholder basis statement be provided with the tax return, it would not normally show stock sales or purchases made by the shareholder (other than the initial contribution for capital stock issued at start up).

    I have prepared a handful of S-corp returns for a number of years now, but first time I've had to deal with one shareholder (50/50) being bought out and a new shareholder (80/20) being brought in. Fortunately the transfer of ownership happened at the beginning of the year ( or was it the end of the prior year?) so no complicated shareholder days-of-ownership calculations.

    #2
    Since basis is controlled by the shareholder only, I don't see anywhere for the shareholder to account for outside basis as an adjustment to inside basis. At the 1040 basis level there is "other increase/decrease".
    Can that be used for outside basis? If so, how is used up basis accounted for?

    Or is outside basis only available upon liquidation or sale of interest in an S Corp?

    I guess the real question is, Can outside basis be used against operating losses?
    Last edited by BOB W; 05-23-2020, 07:49 PM.
    This post is for discussion purposes only and should be verified with other sources before actual use.

    Many times I post additional info on the post, Click on "message board" for updated content.

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      #3
      Originally posted by BOB W View Post
      Or is outside basis only available upon liquidation or sale of interest in an S Corp?

      I guess the real question is, Can outside basis be used against operating losses?
      (operating losses, or distributions in excess of basis) I think not, that is what I was asking for a sanity check on. Thanks for responding.

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