Taxable distribution

[DTS]

I don't prepare the business returns for two different clients that are partners in separate entities. One shows a modest loss and I've asked him what his basis is in the S-corp, doesn't know and other preparer is not tracking this. I assume this is not for me to worry about, as I'm not preparing the business and personal.

The other one shows a cash distribution of $90,000, along with another modest ordinary loss on K-1.

What is my responsibility preparing the personal return for this second fellow to see if this distribution is taxable, aside from asking the client?

Not worry about it and just enter the numbers as shown, no questions asked or delve into this deeper?

Thank you,

Dennis

[Nashville]

The Onus is on....

Dennis, it is the shareholder's responsibility to track his own basis in the corporation. The corporation issuing the K-1 does not have the responsibility.

[DTS]

Nashville

Thank you for the quick response.

I always read what you are saying, that this is not the responsibility of the entity, but it seems odd to me that the entity would not track this for the partners. I sure try to keep track so that the equity accounts are accurate for the business and then I can just pass the basis info onto the partner so their return can be prepared properly.

Anyway, I'm not making the rules!

Dennis

[Nashville]

The big reason...

...to require basis tracking by the shareholder lies in the fact that the corporation may not have all the factors necessary to track basis.

There are a literal infinity of situations where the basis of the shareholder would be different than the amounts recorded by the corporation on its own books. Just to name a few, Excess of FMV over outside basis upon donating non-cash items, and suspended losses in prior years.

[DTS]

Nashville

Thank you. I was not thinking past the basic.

Dennis