1040 - Shareholder Basis Computation - EF Messages 5486 & 5851 (Drake18-20)

• report a loss
• receive a distribution
• dispose of stock, or
• receive a loan repayment from the s-corp.

In these circumstances, the IRS requires Schedule E, page 2, box 28, column E to be checked and the basis computation to be attached. See the 1120S K-1 Instructions for details on requirements. 

If you have not completed the basis worksheet screens, and the above situation(s) are true, EF Message 5486 is generated alerting you that a basis worksheet is required to be completed: 

BASIS WORKSHEET MISSING: A K1S screen contains data but no "Basis Worksheet" screen has been completed. There is either a loss being reported or a distribution or loan repayment was received. Because of this, the basis computation is required and MUST BE attached to the return. 

If you do not want to attach the IRS's Worksheet for Figuring a Shareholder's Stock and Debt Basis," or if you have your own worksheet that you will attach: 

1. Return to the K1S screen, available from the "Income" tab of the Data Entry Menu. 
2. Click the "Basis Worksheet Continued" tab. 
3. Select "Do NOT attach the IRS Worksheet for Figuring a Shareholder' Stock and Debt Basis, even though it may be required."

See Screen PDF and FAQ item "GG" for information on attaching PDF documents to a return. 

Once you complete the basis worksheet screen(s), you must also attach that worksheet as a PDF. You must click to attach this worksheet after you are done making entries for the K1S -- this is done to ensure that you have reviewed the attachment and are ready to have it attached to the e-filed return. EF Message 5851 generates with the attachment steps.

PDF ATTACHMENT MISSING: One or more shareholder basis computations must be attached to the return. It must be attached as a PDF document. Follow these steps to attach the PDF document to the return: 

1. From the toolbar in View/Print mode, select "Attach PDF." The form is attached automatically. 
2. Click "Exit."
3. Recalculate the return to clear this message. 

When you click Attach PDF, Wks K1S IRS Stock Basis, Wks K1S IRS Debt Basis, and Wks K1S IRS Basis Summary will be attached as a single PDF document (as applicable). Be sure to enter detailed information so that the allowable losses will be calculated and the worksheet attached as IRS requires. Recalculate the return after attaching the PDFs to clear the red message page. 

Note: Losses in excess of basis (stock or debt) are not allowed in the current year. If the preparer does not provide basis calculations with the return when required, the taxpayer will get a Letter 5969 in the mail.  

Debt Basis

In Drake18 and future, when there is debt basis that can be applied against the losses and deductions, it will automatically be applied per IRS guidelines. You can review the calculations on Wks K1S IRS Debt Basis in view mode for details. See the IRS' S Corporation Stock and Debt Basis page and Code Section 1366 for more information. In Drake17 and prior, if the debt basis can be applied to the losses and deductions, a direct entry must be made on the K1S screen > Basis Worksheet tab > line 16. 

Non-deductible Expenses

Non-deductible expenses only get carried forward if the taxpayer has made the irrevocable election to take losses and deductions before non-deductible expenses by checking the box on the K1S screen > Basis Wkst (cont.) tab > Elect to take losses and deductions before non-deductible items.

• Per the field help: "Mark this box to make the election to decrease basis by losses and deductions before nondeductible items. A shareholder may elect to decrease his or her basis for a share of separately computed items of loss, and non-separately computed loss before reducing the basis for nondeductible, noncapital expenses, and the oil and gas depletion deduction. If the shareholder makes the election, to the extent the nondeductible, non-capital expenses, and the oil and gas depletion deduction exceed the shareholder's basis, these items reduce basis in the following tax year."