S Corp Basis w/debit balance in Retained Earnings

I have a new client who is the sole stockholder of an S corp. Someone else prepared the 2020 1120S, but it was done late so my client has decided to change tax preparers. I am now working on her 1040 and there is no S corp basis worksheet available, so I am calculating a 12-31-19 basis from the balance sheet numbers (Loans from S/H, Capital Stock, APIC and AAA) on the 2019 1120S. I have done that before and that is all that can be done in these situations, BUT this particular S corp started out as a C corp and has a debit balance in Retained Earnings of $80,000. It doesn't seem that this RE amount should be included in the basis calculations, but is that correct?

Not enough information to speak to this...

I would agree that that would not be part of basis. It's a locked in NOL waiting for a day when it's a C corp again, if ever.

It's a locked in NOL waiting for a day when it's a C corp again, if ever.. Maye, maybe not. It may have been used r even expired.

I Agree with Nilodop.

I am under the impression that the NOL can be used by the S corporation to offset recognition of built-in-gain.

...BUT this particular S corp started out as a C corp and has a debit balance in Retained Earnings of $80,000. It doesn't seem that this RE amount should be included in the basis calculations, but is that correct?

Did we make a leap that the RE balance was from the C-Corp years? What matters is what the AE&P balance was at conversion.

I am under the impression that the NOL can be used by the S corporation to offset recognition of built-in-gain.

That is correct

Unless there is some rule I'm not aware of, I don't see how retained earnings of a C corporation can affect stock basis. The conversion is treated as a constructive taxable dissolution followed by a constructive contribution under 351. That would give the S a FMV basis in the assets and the SHH a matching stock basis. So in my view it makes sense to compute stock basis via the S balance sheet (assuming it was maintained via tax accounting) without reference to the C retained earnings.

Any chance you can get all the prior 1120S's filed and compute basis that way?

How much of a loss on the K-1 for 2020?
Could be the reason here tax preparer flinched, and you got the call.