Pass-through (tax reporting S corporations and Partnerships) are the most popular choice of newly formed business entities. However, for years, taxpayers and their preparers have struggled to properly calculate, update, and maintain the pass-through entity owners' tax basis information in each investment. Calculating and accounting for tax basis as well as properly reporting the impact of operating and liquidating distributions for these entities is among the most frequently cited audit deficiencies. Taxpayers have also misapplied the tax rules when calculating the gain or loss from the sale of the interest. Recently, the IRS initiated enforcement initiatives designed to audit owners of pass-through entities regarding their calculations of tax basis and their tax treatment of distributions. This course will teach you how to properly account for both of these items for your individual clients that own an interest in either a partnership or an S-corporation. Learn how to both identify the most common mistakes and errors and how to report these items correctly before your client is audited. Formerly Titled: Basis Calculations & Distributions for Pass-Through Entity Owners: Comprehensive (Forms 1065 and 1120S)
Learning Objectives
- Calculate the stock and debt basis of S Corp shareholders.
- Calculate the basis for partners and members of a partnership
- Identify the three reasons for calculating a pass-through owners' basis.
- Understand the new IRS capital account disclosure requirements on Schedule K-1.
- Calculate pass-through losses allowed to an owner by applying the four-loss limitations (basis, at-risk, passive, and excess business loss limitations).
- Determine the tax consequences of operating and liquidating distributions out of partnerships and S-corporations under multiple scenarios with several examples.
- Determine if payment from a pass-through entity is treated as a distribution for tax purposes.
- Calculate the tax gain or loss on the sale of a owners' interest in a pass-through entity.
Major Topics
- Understand the four loss limitation rules applied on the owner's individual income tax return (I.e., basis, at-risk, passive, and excess business loss limitations).
- Determine how to calculate an owners' initial tax basis of his pass-through entity
- Learn how to correctly make annual adjustments to a pass-through owners' tax basis.
- Discover how cash or non-cash distributions from a pass-through entity affect the basis calculations and whether they are taxable to the owners.
- Compare the tax treatment of the sale of a shareholder's stock in an S corporation and a partner's interest in a partnership.
- Learn what constitutes a debt basis for an S Corp shareholder.
- Learn the tax ramifications of repaying loans to S Corp shareholders.
- Learn how recourse and non-recourse debt is allocated to a partner and learn how this allocation affects a partner or member's basis calculations and amount at-risk.
- Learn how to interpret a Schedule K-1 for items related to the calculation of basis.
