IRS New S Corporation Initiative: Losses in Excess of Basis, Taxable Distributions, Handling the Examination

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, March 2, 2022

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Course Materials

This course will discuss what the IRS expects to find in its audit of Subchapter S corporations. Our panel of tax experts will focus on complying with current basis, distribution, and documentation requirements and explain how to handle a Subchapter S examination for tax practitioners working with these entities and their shareholders.

Description

The IRS has ongoing compliance campaigns targeting S corporations under its Large Business & International Division (LB&I). Of these, basis examinations may be the most problematic for tax practitioners.

The rules for calculating basis are complex but essential for deducting losses. Partners' loans are often used to increase the basis in a partnership. For S corporation shareholders, these rules are not so liberal. The LB&I is aware that some S corporation shareholders deduct losses above basis and perform basis audits of shareholders reporting significant losses. New Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, is being added to make it easier for the IRS to track shareholder basis.

Additionally, the IRS is also focusing on another area of noncompliance, distributions to shareholders that should be taxed, including distributions that are dividends, distributions of appreciated property, and distributions in excess of basis.

With S corporations under such scrutiny, tax advisers working with Subchapter S corporations must properly report basis, distributions, and built-in gains. Tax practitioners must not only grasp how to tax S corporation shareholders properly; they must also understand how to represent these taxpayers throughout an IRS examination.

Listen as our panel of S corporation experts reviews the current IRS focus on S corporation shareholders, including audits of basis, distributions, high net worth taxpayers with flow-through entities, and built-in gains, including documenting and complying with current guidelines properly.

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Outline

  1. IRS' S corporation campaign
  2. Distributions to shareholders
  3. Losses in excess of basis
  4. Shareholder debt reporting on Schedule K-1
  5. The examination process

Benefits

The panel will review these and other key issues:

  • Whether loans can be used to increase an S corporation shareholder's basis
  • How built-in gains are calculated and taxed
  • How to calculate and document shareholders' basis in S corporations
  • What increases a shareholder's chance of being selected for an audit?
  • How can taxpayers best prepare for an IRS examination of S corporation records?

Faculty

Harris-Walton, Josie
Josie Harris-Walton
Owner & Managing Partner
The Walton Firm

Ms. Harris-Walton brings her many years of corporate and tax law experience from practicing with non-profits to...  |  Read More

Warner, David
David J. Warner
Tax Attorney, Shareholder & Managing Principal
Holtz, Slavett & Drabkin

Mr. Warner is a Tax Attorney and the Managing Attorney of the Orange County Office of Holtz, Slavett &...  |  Read More

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