IRS S CorpA loss often waits on basis

The loss and the limit are different facts.

Form 1120-S can report a loss to a shareholder. Whether that shareholder may claim it depends on basis, and on other limits that sit beside basis. A notice that disallows a loss is often the moment someone looks for the basis rollforward and finds a single equity account with everything mixed together.

The worry is a loss the owner cannot use because the basis lines were never kept apart. The long course that walks every line of that computation lives elsewhere, and we will point you to it. What we keep here is the part that makes the books usable. Contributions and distributions are different facts. Netting them into one number leaves total equity looking tidy and leaves the return wrong.

Why the accounts stay apart.

Money the owner puts in is not the opposite of money the owner takes out, not on the return. They land on different lines. A year with both a contribution and a distribution is two events. Subtracting them before they are recorded erases one of the events. The equity total may match, and the K-1 still will not.

Loans are a third story. A loan from the owner is not a contribution, and a repayment is not a distribution. When those four movements share one account, a loss notice becomes an archaeology project. We separate them as part of the close, before the return is prepared.

The accounts kept their names.

A loss, money put in, and money taken out can share one company and still keep separate names on the books. That refusal to collapse is the picture we want for basis. People can keep an old name for a place long after a map has changed, and the equity accounts can do the same. One tidy total on a spreadsheet is a weak rollforward. We would rather see the pieces.

If a preparer in a prior year netted them, we do not scold the year. We rebuild the rollforward from bank records and from the prior returns you still have. Some years will stay estimated until a statement shows up. We would rather label an estimate than hide it inside a smooth total.

What to bring.

Bring the notice that mentions the loss, the last two returns if you have them, and any spreadsheet that was supposed to track basis. If the spreadsheet nets contributions against distributions, say that. We can still use the bank side of it.

A lender asking why the loss was limited is a records conversation, not a request for a signed report. Signed reports are outside this practice and are named on the disclosures page. The basis file is inside the practice, once the month is closed.

Keep reading.