How To Track & Adjust Stock and Debt Basis

Elevate Your Tax Practice with the How To Track & Adjust Stock and Debt Basis Guide

Master Subchapter S basis rules with our rigorous and practical How To Track & Adjust Stock and Debt Basis guide, developed by The Tax Curative Institute. This essential resource is a supplemental toolkit for corporate training, designed to help you confidently apply Subchapter S basis rules, ensuring your files are compliant with IRS standards, defensible, and exam-ready. This guide will directly impact real client outcomes, affecting the deductibility of losses, the taxability of distributions, and the proper reporting of loan repayments. You'll find authoritative sources, including Treasury Regulations and key court cases, anchoring every rule for a grounded practice.

Inside, you'll find:

• Initial Stock Basis and Debt Basis: setup and tracking schedules for each shareholder on day one.
• Annual Adjustments & Ordering: the map for stock and debt basis adjustments, ensuring increases are applied first, then distributions, then nondeductible expenses, and finally losses.
• Debt Basis Playbook: covering direct loans, open account debt, and guarantees, noting that basis only arises from bona fide indebtedness.
• Distributions, AAA, and E&P: coordination for determining dividend versus non-dividend treatment, especially for S corporations with accumulated earnings & profits (AE&P).
• Form 7203: guidance on using this form for each shareholder annually to substantiate limitations and tie-outs.
• Worked Examples: illustrating losses, distributions, and loan repayments that reduce debt basis to zero.
• Key Cases: analysis of rulings like Selfe v. United States and Hitchins v. Comm'r regarding guarantees and economic outlay.
• Reviewer's Checklist: for year-end close to roll forward basis, verify ordering, and confirm repayments do not trigger gain.
• Cheat Sheet: a concise desk reference listing increases, decreases, debt basis rules, and repayment characterization.
  

Use this guide to:

• Set up or repair basis schedules.
• Tie out Form 7203 for each shareholder annually.
• Analyze distributions, losses, and debt repayments for tax effects.
• Memorialize basis decisions in your workpapers.
• Integrate checklists and a cheat sheet into your review process to prevent errors.

Who It’s For:

• Tax preparers
• EROs/Service Bureaus
• Firm owners who want to operate as true advisors and become confident with entities.
• Tax professionals looking to translate complex S corp basis rules into repeatable workflows and educate clients with clarity.

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