Drake Tax - 1120-S: Overriding Shareholder K-1 Amounts

How to override shareholder K-1 amounts in an S corporation return

To override shareholder K-1 amounts:

1. Select the shareholder’s K1E screen,

2. On the Overrides tab, select the applicable letter code for the line,

3. Enter the line override amount.

Due to the program’s rounding feature, these steps must be followed for all shareholders' K1E screens. If an override is not entered for all shareholders, the program will round the amount on the last shareholder’s K-1 so that the total matches the amount reported on Schedule K.

For example, Steve and Sue are each 50% shareholders in Calendar Year S Inc., however, Sue did not become a shareholder until July 1. Distributions* of $1,000 each were paid to the shareholders on June 30 and December 31. Steve’s total distributions for the year are $1,500 while Sue’s total distribution is $500. If the ownership change information is not entered properly, the program will allocate the distributions to the shareholders equally. To allocate the amounts, enter $1,500 on Steve’s K1E screen, line 16, code D, and $500 on Sue’s K1E screen, line 16, code D.

*Distributions should be proportionate to stock ownership. Because distributions are based on the number of shares held by each shareholder, distributions should be, by their nature, proportionate to stock ownership. Aside from the possibility that disproportionate distributions will create a second class of stock, it is not clear how the accumulated adjustment account (AAA) and accumulated earnings and profits (AE&P) are treated when disproportionate distributions are made.