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New requirement for shareholder basis statement

PostPosted: 7-Mar-2019 10:27pm
by actionbsns
Drake is producing worksheets for debt and stock basis for S Corp shareholders. They indicate they are to be attached to the tax return. Do they satisfy the new requirement to provide information on basis on their own? or do we need to attach something else, too? if so, what is it?

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 3:44am
by keninmichigan
What Drake is doing seems sufficient. My understanding was that a basis schedule was only required if the S corp. stockholder was reporting a loss? Is this not the case?

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 7:44am
by Gjkycpa
We use Drake and are getting efile diagnostics when statement is not attached.
I just assumed it was a new requirement whether a gain or loss. This might catch some distributions in excess of basis that were not reported as capital gains.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 8:36am
by makbo
It's not a new requirement. Drake is simply playing catch up.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 11:29am
by actionbsns
I seem to recall from my reading that the basis statement is required when an S Corp is reporting a loss and there has been a distribution to the shareholder. I also don't recall that being required in years past.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 11:49am
by TaxMonkey
The requirement hasn't changed, but they changed the schedule E page 2 and added a check box for it. So it is more visible now.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 2:44pm
by Harry Boscoe
I'm late to the party. Sorry.

I can see on page 2 of the 2018 Form 1040 Schedule E that "you must check the box in column (e)" and attach a computation under certain conditions but now I'd like to ask where this *requirement* comes from and who it applies to to whom it applies.

Is it perfectly clear that it - the requirement - imposes a requirement on the passthrough entity, i.e., for it - the passthrough entity - to be responsible for tracking the shareholder/partners' tax bases *outside* the passthrough entity?

Or, is the requirement to maintain records and to attach the computation imposed on the shareholder of the S corp?

I'm not a whiner, but I want to know why I shouldn't whine about this "requirement"...

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 4:44pm
by Harry Boscoe
I want to know why I shouldn't whine about this "requirement"...

Why? Because I say so, that's why!!

Read all about it in this IRS Pub: https://www.irs.gov/forms-pubs/clarific ... -form-1040

"Clarification" - uh...?

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 5:57pm
by TaxMonkey
Harry Boscoe wrote:I'm late to the party. Sorry.

I can see on page 2 of the 2018 Form 1040 Schedule E that "you must check the box in column (e)" and attach a computation under certain conditions but now I'd like to ask where this *requirement* comes from and who it applies to to whom it applies.

Is it perfectly clear that it - the requirement - imposes a requirement on the passthrough entity, i.e., for it - the passthrough entity - to be responsible for tracking the shareholder/partners' tax bases *outside* the passthrough entity?

Or, is the requirement to maintain records and to attach the computation imposed on the shareholder of the S corp?

I'm not a whiner, but I want to know why I shouldn't whine about this "requirement"...


The requirement comes from 1.6000-1(a) and 1366(d)(1), it is a requirement of the shareholder, not the s-corp.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 7:33pm
by Tenletters
It has always been the job of the shareholder to keep track of basis. It can't be done accurately at the S corp level because the S corp does not always know what the taxpayer paid for the shares (if they were bought from another shareholder) and has no way to know whether or not the shareholder has elected to take losses and deductions before non-deductible expenses.

And it has more or less always been required that basis calculations be sent with the return if there are losses or distributions.

The new wrinkles are the checkbox on page 2 of Schedule E and the fact that IRS has announced their intent to send "soft" letters to taxpayers who fail to attach basis calcs.

It surprises me how many people were surprised by this development when Drake joined the club of software providers that attach the basis calculation by default.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 7:39pm
by actionbsns
Interesting - I've never sent a basis calculation, and no one has been asked to provide it after the returns were filed. I know I'm not alone in that. However, I did know that the shareholder is supposed to keep track of basis and I always make sure that my software is producing a basis statement so they have that and we have it in the file. Before using Drake, I used La Certe, and I don't recall a basis statement being attached to a return, but it's been a few years now.

Re: New requirement for shareholder basis statement

PostPosted: 8-Mar-2019 10:56pm
by Harry Boscoe
The requirement comes from 1.6000-1(a) and 1366(d)(1).
I see quite clearly a requirement imposed on the shareholder to maintain the information necessary to compute tax basis in the S corporation stock and debt, but I don't anywhere see a requirement to attach a computation of that tax basis to the shareholder's tax return (when certain conditions are met). Anybody?

+++++++++++++++++++++++++++++++++++++++

And, tangentially, I'm fascinated by 10letters' "more or less always" qualifier in his
And it has more or less always been required that basis calculations be sent with the return if there are losses or distributions.
from his Post #10 above.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 8:39am
by Tenletters
Harry, my memory is imperfect and only goes back thirty or so years in regard to taxes. Like many people, I try to avoid "never" and "always" statements. I have rather large feet and prefer to keep them out of my mouth as much as possible.

But the gist of my comment is true. If you looked up form instructions from prior years, you would see the statement in them that basis calculations should be attached. It is not new in the 2018 instructions.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 9:20am
by sjrcpa
actionbsns - Lacerte did attach them, unless someone overrode the settings and said don't.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 12:00pm
by makbo
Harry Boscoe wrote: I don't anywhere see a requirement to attach a computation of that tax basis to the shareholder's tax return (when certain conditions are met). Anybody?

Um, the instructions?

And I could be wrong, but I think all they require is a typical one-year basis worksheet (BOY basis, adds and subtracts, EOY basis). I don't think they require the full history back to year one. But at least they have you on record for what you claim is true for the current year, I'm sure they can request more history in an audit.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 12:01pm
by actionbsns
I've read all these posts and the posts at another bulletin board on this topic. So far there seem to be about an equal number of preparers who feel this has always been required and those who feel it's a new requirement.

The question that has surfaced in my mind is this, if it has always been a requirement to attach a basis statement to a tax return, why haven't we gotten letters after returns were filed without them, requesting that they be sent?

I'm kind of thinking this is one more document that most likely has never been reviewed so it's never been missed. Now some politician probably had insomnia a few months ago, thought about all those basis statements, and came up with the idea to rattle our cages by putting a check the box place on the Schedule E.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 12:04pm
by makbo
actionbsns wrote:The question that has surfaced in my mind is this, if it has always been a requirement to attach a basis statement to a tax return, why haven't we gotten letters after returns were filed without them, requesting that they be sent?

I'm kind of thinking this is one more document that most likely has never been reviewed so it's never been missed.

It's only been a requirement if a current year taxable loss is being claimed.

And yes, perhaps it is like the required attachments when multiple stock sales are aggregated on a single line on Form 8949 -- something that usually does not trigger a letter when the requirement is failed.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 1:06pm
by CreditMyDebit
I always keep track of tax basis for my clients. I have had one client who happens to get audited annually (numbers are too big on his returns) and the auditors always asks to prove the basis in his S Corp. The requirement is -not- new. But none of my other clients have had the issue brought up in an audit.

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 1:27pm
by Harry Boscoe
"It's only been a requirement if a current year taxable loss is being claimed," says makbo.
Do you mean "only" as in "other things didn't require it" or do you mean "only" as in "in prior years"?

"The requirement is -not- new," says CrMyDr.
Do you mean the requirement to maintain the basis information, or do you mean the requirement to attach a computation to the tax return, or do you mean the conditions under which the requirement to attach a computation is triggered?

Re: New requirement for shareholder basis statement

PostPosted: 9-Mar-2019 6:51pm
by Tenletters
They never used to send letters. But now they say that they are going to start. And that is the motive to attach your basis calculations now even if you have not in the past.

https://www.irs.gov/businesses/large-bu ... igns#Scorp

https://www.irs.gov/pub/irs-utl/5969.pdf