Adjustments to Sub S balance sheet for dissolved corporation with outstanding shareholder loan balances

Forum|Forum|1 year ago
January 7, 2025
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I am the sole shareholder of Sub S corporation which I dissolved in 2024. Over the years, I loaned the company money, with a balance of $55k at the end of 2023, with stockholder equity of $28k, reflecting depreciation recapture when the properties were sold. The properties were acquired and renovated in 2006 and 2008. They were held as rentals as the market "collapsed". Over the 15 years, values recovered enough to cover outstanding mortgages, but the properties sold for less than the land and building cost-basis, when placed in service.

The final return completed by my accountant continues to show an outstanding loan balance on the final return, but does not reflect the stockholder equity. The IRS requires final returns to be submitted 4 months after dissolution, so 2023 forms were used, noting that the return was "final". It was submitted in November of 2024.

Does the return need to be amended to zero the balance sheet on the final return? If so, can I do the amendment using 2024 forms?

My account told me I could make adjustments at the 1040 level using form 7203 and Schedule D. How do I amend, or should I amend? I don't want to open up a can of worms. When I look at Form 7203, I can't use the figures from the final return, as neither the retained earnings nor the loans are zeroed out on the final return. The only undepreciated property left is a phone that had a 1231 depreciation charge of $83. Operating loss for the final tax year was $900, reflecting accounting fees and other minor expenses.

TurboTax Business Windows

Best answer by Rick19744

Loan was to sub s that was dissolved in July 24 2024. Final return was submitted Nov. 2024, but K-1 does not reflect capital losses of stk or loan basis , approx $56k I am the only shareholder. I don't think I can fix this on my personal return, but with staffing at the I. R. S reduced and the corporation effectively dissolved, not sure how best to amend the return without opening up, Pandora's box.. what is the best course of action to claim the long term capital loss. The company was not sold it was insolvent.

A few comments:

Essentially unpaid shareholder loans would be converted to capital contribution.
Don't need to amend the final 1120-S.
As a shareholder in a pass-through entity, you should be maintaining your tax basis in the S corporation.
Now that you have received the final K-1, you should enter the appropriate K-1 boxes into TT.
You should also update your tax basis schedule for all applicable K-1 items EXCEPT for any distributions on the final K-1.
Also update the tax basis schedule for any loans that have not been reflected as capital contributions.
When you come to the questions related to "disposing" of the entity you should answer "yes" and complete disposition.
TT will then ask for the cost basis (which is your updated tax basis) and the "selling price" will be any distributions detailed on the K-1 box 16 Code D.
This information will be transferred to form 8949 and Schedule D
You also need to complete form 7203

RobertB4444

You can use form 7203. You can even use the numbers from the final return. Your stock basis consists of all of the money that you invested into the company. That should be reflected on this final form 7203.

Then the sale is entered onto schedule D showing a sale of your interest in the partnership for zero dollars. The cost basis that you will enter on schedule D is the basis that you show on the 7203 which is the loan balance plus any other money you had tied up in the partnership that you never recovered.

@jlondon11

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jlondon11Author

Does it matter that the final sub s return still shows outstanding loan? Not sure how to convert loan bslance to paid in capital on form7203. Thsnk you for your help

RobertB4444

No, the loan balance is part of your basis in the S-Corp. And it should show as outstanding - they never paid it to you. The way you close it is with the schedule D sale of the partnership.

@jlondon11

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