Basis worksheet - new requirement to attach to 1040?

[LCP]

Anybody heard of any new requirement to attach a basis worksheet to the 1040 when a partership or S-Corp loss is being taken?

[jimmcg]

New Basis Worksheet

Assume you are referring to shareholder basis........Have not heard of any new reporting requirements in this area...........Maybe someone else has.

[pog]

There's nothing in the Schedule E instructions to that effect.

[Bees Knees]

I don't see anything for partnerships, but for S corporations on page E-6, 2nd paragraph, it says: "If you are claiming a deduction for your share of an aggregate loss, attach to your return a computation of the adjusted basis of your corporate stock and of any debt the corporation owes you..." That statement has been in the Schedule E instructions for years now, so nothing new there.

TTB page 24-5 has a good S corp shareholder adjusted basis worksheet that separates stock basis from loan basis for purposes of deducting S corp losses. The rules are not the same for each.

[OldJack]

The statement shouldn't be an issue since you probably have attached form 6198, "At-Risk Limitation", and maybe form 8582, "Passive Activity Loss Limitation", to your 1040.

[Bees Knees]

The statement shouldn't be an issue since you probably have attached form 6198, "At-Risk Limitation", and maybe form 8582, "Passive Activity Loss Limitation", to your 1040.

The 8582 is for passive loss limitations. It does not deal with limitations due to lack of basis.

The 6198 is related to limitations due to lack of basis, but it is not the same as the statement the Schedule E instructions is asking for. Your basis in an activity can be different than your at-risk basis.

The instructions for Form 6198 say an S corporation shareholder should file it when you have amounts not at risk invested in an at-risk activity. The instructions go on to describe amounts you may have invested that you are not at risk for.

For example, you loan the S corporation your own money to finance operations that generate a loss. You are at-risk for the money you loaned because it was your own money. According to the instructions, you do not need to file Form 6198 because you did not loan the S corporation money for which you were not at risk. All of the money you loaned was at risk. However, since the S corporation generated a loss, you would need to attach a basis calculation schedule to the Schedule E to prove you had basis in the loss you are deducting.

Lets take the same example above, except that you loan money to the corporation that you borrowed using nonrecourse financing. You did not loan your own money to the corporation, but rather, borrowed it from a third party that you are not obligated to re-pay, and then loaned that money directly to the corporation. Under basis rules, since you are the one who loaned the money to the S corporation, you have basis to deduct the loss. But you do not have at-risk basis since you used money you were not at-risk for. So Form 6198 would be required in this case.

[OldJack]

File Form 6198 if during the tax year
you, a partnership in which you were a
partner, or an S corporation in which
you were a shareholder had any
Amounts Not at Risk (see this page)
invested in an at-risk activity (defined
below) that incurred a loss.

I believe you are misreading this and thinking that amounts within the S-corp are not considered "at-risk or not-at-risk" for the shareholder. If the S-corp has direct loans with the bank (nonrecourse) or other liabilities that the shareholder is not at-risk, then you have form 6198 for the loss calculation.

[Bees Knees]

I believe you are misreading this and thinking that amounts within the S-corp are not considered "at-risk or not-at-risk" for the shareholder. If the S-corp has direct loans with the bank (nonrecourse) or other liabilities that the shareholder is not at-risk, then you have form 6198 for the loss calculation.

I disagree. If the S corp has direct loans from a bank other than the shareholder, it is not the shareholder who invested in the activity. Normal basis rules will limit your loss deduction in that case because you are not the one who invested the money. The at risk rules under Section 465 fall under a separate code section and apply to the money that the shareholder has personally loaned or invested in the activity. You can’t deduct losses from money you invest in an activity if you are not personally liable for the repayment of the money. Section 465 looks beyond the general basis rules and reaches to the very source where you got the money to invest. So even though you may have directly loaned the money to the S corp, you can’t deduct the loss if you loaned money you are not at risk for.

[OldJack]

TheTaxBook Deluxe error?

I just received my first subscription to TheTaxBook and looked at page 7-12 regarding at-risk rules. Center of the page left column says "See the at-risk basis worksheet in Tab 16". Darn if I can find any such worksheet in tab 16! Could it be TheTaxBook is not sure about how to calculate the at-risk basis?

[Armando Beaujolais]

I believe you are misreading this and thinking that amounts within the S-corp are not considered "at-risk or not-at-risk" for the shareholder. If the S-corp has direct loans with the bank (nonrecourse) or other liabilities that the shareholder is not at-risk, then you have form 6198 for the loss calculation.

A nonrecourse direct loan from a bank to an S corporation where the shareholder is not at risk?

I'm skeptical about that. What bank was that?

[Brad Imsdahl]

I just received my first subscription to TheTaxBook and looked at page 7-12 regarding at-risk rules. Center of the page left column says "See the at-risk basis worksheet in Tab 16". Darn if I can find any such worksheet in tab 16! Could it be TheTaxBook is not sure about how to calculate the at-risk basis?

Sorry. The worksheet never made it in. The extent of our at-risk coverage is found on page 7-12.

[OldJack]

A nonrecourse direct loan from a bank to an S corporation where the shareholder is not at risk?

I'm skeptical about that. What bank was that?

Its called corporations with good capital that don't really need to borrow (ie: CD's in the same bank in excess of loan) but do so to establish credit lines for future borrowing when large future contracts or jobs are going to need big money and/or large established credit lines. Why would the bank need personal guarantees? Why would you be skeptical about that? You don't have clients that do that?

[OldJack]

I disagree. If the S corp has direct loans from a bank other than the shareholder, it is not the shareholder who invested in the activity. Normal basis rules will limit your loss deduction in that case because you are not the one who invested the money.

I guess you feel the same way about partnership entity debts that you do about S-corp debts. Again, I refer you to the 6198 instructions I quoted above.

[JON]

S Corp Basis

Not spending much time reading this, but basis has to be put in "by the STOCKHOLER" and if it is loans from him they are payable only to him. Is the arguement over "when" you have to file the 6198????. Thanks to software we track basis write in the returns. Lot of fun if you try to redo years later when/if loses start happenning.

[Bees Knees]

At risk basis and basis are not the same.

I guess you feel the same way about partnership entity debts that you do about S-corp debts. Again, I refer you to the 6198 instructions I quoted above.

I’m not sure what your point is, but this whole thing seems to have started with your assertion that a basis worksheet shouldn’t even be an issue since the 6198 is probably attached anyway.

Let me give you an example of why the basis worksheet serves a function different than the 6198.

S corporation – gets a loan directly from the bank. The bank, however, requires the 100% shareholder to personally guarantee the loan. The shareholder agrees to be a co-signer on the loan and take on the risk of having to re-pay the loan should the S corporation default on the loan. The S corporation uses the loan proceeds to fund operating expenses and generates a loss.

Two questions:

1) Is the shareholder at-risk for the loss?

2) Does the shareholder have basis in the loss?