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Department of the Treasury
Internal Revenue Service
Instructions for Form 7203

(Rev. December 2022)
S Corporation Shareholder Stock and Debt Basis Limitations

Section references are to the Internal Revenue Code and the excess business loss limitations (Form 461). See
unless otherwise noted. the Shareholder's Instructions for Schedule K-1 (Form
1120-S) for details.
Future Developments
For the latest information about developments related to Basis Limitations
Form 7203 and its instructions, such as legislation Generally, the deduction for your share of aggregate
enacted after they were published, go to IRS.gov/ losses and deductions reported on Schedule K-1 (Form
Form7203. 1120-S) is limited to the basis of your stock and loans
from you to the corporation. For details and exceptions,
What’s New see section 1366(d). The basis of your stock is generally
New items on Form 7203. New item D checkbox(es) figured at the end of the corporation's tax year. Any losses
are added for stock acquisition method(s). New item E and deductions not allowed this year because of the basis
checkbox is added to indicate when a Regulations section limit can be carried forward indefinitely and deducted in a
1.1367-1(g) election is in effect during the tax year for this later year subject to the basis limit for that year.
S corporation. See Item D and Item E for details. You are responsible for keeping the information
needed to figure the basis of your stock in the corporation.
Reminder Schedule K-1 (Form 1120-S) provides information to help
Form 7203 and its separate instructions are developed to you figure your stock basis at the end of each corporate
replace the 3-part Worksheet for Figuring a Shareholder’s tax year. The basis of your stock (generally, its cost) is
Stock and Debt Basis and its related instructions formerly adjusted annually as follows and, except as noted, in the
found in the Shareholder's Instructions for Schedule K-1 order listed. In addition, basis may be adjusted under
(Form 1120-S). other provisions of the Internal Revenue Code. You
should generally use this form to figure your aggregate
General Instructions stock and debt basis.
1. Basis is increased by (a) all income (including
Purpose of Form tax-exempt income) reported on Schedule K-1 (Form
Use Form 7203 to figure potential limitations of your share 1120-S), and (b) the excess of the deduction for depletion
of the S corporation's deductions, credits, and other items (other than oil and gas depletion) over the basis of the
that can be deducted on your return. property subject to depletion.
Who Must File You must report on your return (if you are required
to file one) any amount required to be included in
Form 7203 is filed by S corporation shareholders who: CAUTION! gross income for it to increase your basis.
• Are claiming a deduction for their share of an aggregate
loss from an S corporation (including an aggregate loss 2. Basis is decreased (but not below zero) by (a)
not allowed last year because of basis limitations), property distributions (including cash) made by the
• Received a non-dividend distribution from an S corporation reported on Schedule K-1 (Form 1120-S),
corporation, box 16, code D, minus (b) the amount of such
• Disposed of stock in an S corporation (whether or not distributions in excess of the basis in your stock.
gain is recognized), or 3. Basis is decreased (but not below zero) by (a)
• Received a loan repayment from an S corporation. nondeductible expenses, and (b) the depletion deduction
It may be beneficial for shareholders to complete for any oil and gas property held by the corporation, but
TIP and retain Form 7203 even for years it is not only to the extent your share of the property's adjusted
required to be filed, as this will ensure their bases basis exceeds that deduction.
are consistently maintained year after year. 4. Basis is decreased (but not below zero) by all
losses and deductions reported on Schedule K-1 (Form
Limitations on Losses, Deductions, 1120-S).
and Credits You may elect to decrease your basis under (4) prior to
There are potential limitations on corporate losses that decreasing your basis under (3). If you make this election,
you can deduct on your return. These limitations and the any amount described under (3) that exceeds the basis of
order in which you must apply them are as follows: the your stock and debt owed to you by the corporation is
basis limitations (Form 7203), the at-risk limitations (Form treated as an amount described under (3) for the following
6198), the passive activity loss limitations (Form 8582), tax year.

Oct 19, 2022 Cat. No. 74861H

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To make the election, attach a statement to your timely Item E
filed original or amended return that states you agree to
the carryover rule of Regulations section 1.1367-1(g) and Check the box to indicate if you have a Regulations
the name of the S corporation to which the rule applies. section 1.1367-1(g) election in effect during the tax year
Once made, the election applies to the year for which it is for this S corporation. See Regulations section
made and all future tax years for that S corporation, 1.1367-1(g) for details.

unless the IRS agrees to revoke your election. Part I. Shareholder Stock Basis
The basis of each share of stock is increased or Part I of Form 7203 addresses adjustments to
decreased (but not below zero) based on its pro rata ! stock basis as provided under section 1367.
share of the above adjustments. If the total decreases in CAUTION Other code sections might also cause a reduction
basis attributable to a share exceed that share's basis, the in S corporation stock basis.
excess reduces (but not below zero) the remaining bases
of all other shares of stock in proportion to the remaining Line 1. Enter your basis in the stock of the S corporation
basis of each of those shares. at the beginning of the corporation’s tax year. Unless this
is your initial year owning stock in the S corporation, this
Basis of loans. The basis of your loans to the
amount should be the same as your ending stock basis
corporation is generally the balance the corporation owes
from the prior tax year.
you, adjusted for any reductions and restorations of loan
basis. See the instructions for box 16, code E, in the Stock basis can’t be less than zero.
Shareholder's Instructions for Schedule K-1 (Form Don’t include any basis from indebtedness on this line.
1120-S). Any amounts described in (3) and (4), earlier, Stock basis and debt basis must be figured separately.
not used to offset amounts in (1), earlier, or to reduce your Debt basis is addressed in Part II of this form.
stock basis, are used to reduce your loan basis (to the
Line 2. Enter any additional contributions to the capital of
extent of such basis prior to such reduction).
the S corporation or any additional acquisitions of stock.
When determining your basis in loans to the Don’t include any loans to the S corporation.
! corporation, remember that: The basis of stock you purchased is usually its cost.
CAUTION
If you contributed property to the S corporation in
• Distributions don't reduce loan basis, and
exchange for stock in a section 351 transaction, your
• Loans that a shareholder guarantees or co-signs aren't
stock basis is generally figured by taking the carryover
part of a shareholder's loan basis. Shareholders only
basis of assets transferred to the corporation, less the
obtain basis from acting as a guarantor or in a similar
liabilities assumed by the corporation. If the assumed
capacity to the extent the shareholder makes a payment
liabilities exceed the adjusted tax basis of the contributed
pursuant to the guarantee.
assets, see section 357(c). See section 358 for more
information on the basis of stock received in a section 351
See Regulations section 1.1366-2(a) and section 1367 transaction.
and its regulations for more details.
The basis of inherited property is generally the fair
market value (FMV) at the date of death or the alternate
Specific Instructions valuation date. See section 1014 and Regulations section
1.1014-4.
Name of Shareholder The basis of stock acquired by gift is generally the
Enter the name shown on your Schedule K-1 (Form basis of the stock in the hands of the donor. There are
1120-S). If you are married filing jointly and you received a special rules if the FMV of the stock is less than the
Schedule K-1 (Form 1120-S) for you and your spouse, donor’s adjusted basis. See Regulations sections
complete a separate Form 7203 for each spouse. 1.1015-1, 1.1366-2(a)(6), and 1.1366-2(a)(7).
Item C The basis for stock received as compensation is the
FMV on the date the compensation is included in income.
When a shareholder has a different basis in different
See Pub. 551 for details.
blocks of stock, pass-through items are generally
allocated pro rata to all shares, regardless of their different Line 3. Enter on lines 3a through 3m all separately
bases. If there is a partial stock sale or partial redemption, figured and non-separately figured items of income from
you may file more than one Form 7203 and provide a Schedule K-1 (Form 1120-S). See below for specific
description of what period the form covers. See instructions.
Regulations section 1.1367-1(b)(2) and (c)(3) for details. Reminder. Enter only positive amounts from
Schedule K-1 (Form 1120-S) on line 3. Negative amounts
Item D (decreases to stock basis) are entered in Part III.
Check applicable box(es) to indicate how stock was
Line 3i. Enter the amount of other income that increases
acquired. If you didn't acquire the stock through purchase,
basis.
inheritance, gift, or as an original shareholder, check
“Other” and enter the method by which you acquired your Under Notice 2020-69, increase stock basis under
stock. section 961(a) when the U.S. shareholder has a subpart F

-2- Instructions for Form 7203 (Rev. 12-2022)

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inclusion (as defined in section 959(a)(2)) or global Line 13. Enter any other decreases to stock basis not
intangible low-taxed income (GILTI) inclusion amount (as accounted for on the lines above. This includes the
defined in section 951A) attributable to an S reduction to basis for the sale or redemption of part of
corporation-owned controlled foreign corporation (CFC). your stock. If an election is made under Regulations
Line 3j. Enter the amount by which your cumulative section 1.1367-1(g), enter the amounts on this line as
depletion deduction exceeds your proportionate share of instructed on line 8, including any prior year carryover
basis in the property subject to depletion. See information amounts.
reported in Schedule K-1 (Form 1120-S), box 15, using If a portion of your stock is redeemed, sold, or
code C. TIP otherwise disposed of during the year, attach two
For oil and gas depletion, don’t enter an amount. See separate forms. Use the first to figure your stock
the instructions for line 8b for the decrease to basis. basis at the date of sale and the second to figure your
stock and debt basis at year end.
Line 3k. Enter the sum of the amounts from
Schedule K-1 (Form 1120-S), box 16, codes A and B.
Part II. Shareholder Debt Basis
Basis isn’t increased by excluded discharge of
If you have more than three loans, use additional
CAUTION sections 108(a) and 108(d)(7)(A).
! indebtedness income of the S corporation under TIP copies of Part II. List the total sum of all loans on
the first page only.
The income reported on line 3 should be reported on
the appropriate areas of your return. See the You must complete this section if you have personally
Shareholder's Instructions for Schedule K-1 (Form loaned money to the corporation.
1120-S) for details.
You must account for each formal note (notes with a
Line 6. Enter the distributions reported on Schedule K-1 written instrument) made to your S corporation by entering
(Form 1120-S), box 16, code D. Don’t include any Form it separately in its own column. You can’t aggregate
1099-DIV distributions (dividend distributions from the multiple loans into a single column. If you have more than
accumulated earnings and profits while a C corporation) three loans, use additional copies of Part II.
on this line.
Loans made to the S corporation that aren’t evidenced
Note. If the amount of the distribution is more than the
by a written instrument are referred to as an open account
stock basis before distributions, report the excess amount
debt and aren’t separately tracked. If an open account
as a capital gain on Form 8949, Sales and Other
debt has a year-end balance of more than $25,000, it will
Dispositions of Capital Assets, and Schedule D. Don’t
be classified as a formal note at the beginning of the next
increase your stock basis for the amount of capital gain
tax year and must be separately tracked.
reported for the excess. See Nondividend distributions in
the Instructions for Form 8949. Loans that a shareholder guarantees or co-signs
aren’t part of a shareholder’s loan basis except to
Leave lines 8a, 8b, and 8c blank if you made an CAUTION!
the extent the shareholder makes a payment on
! election under Regulations section 1.1367-1(g). If the loan guaranteed or co-signed.
CAUTION an election was made, enter this information on
line 13. Line 16. Enter the balance of each loan to the
S corporation at the beginning of the corporation’s tax
Line 8a. Enter the amount from Schedule K-1 (Form
year in a separate column.
1120-S), box 16, code C.
Line 17. Enter any new loans made during the tax year
Line 8b. Enter the amount of oil and gas depletion
and evidenced by a formal note in a separate column. If a
claimed on your personal return up to your proportionate
formal note is refinanced, any increase should be entered
share of basis in the property subject to depletion. Any
on line 17 under the same column as the original loan.
cumulative depletion in excess of your proportionate
share of basis in the property subject to depletion won’t Advances and repayments made during the
reduce your basis. S corporation’s tax year on an open account are netted at
the close of the S corporation’s tax year to determine the
Don’t enter an amount for depletion not related to oil
amount of any net advance or net repayment. See
and gas property.
Regulations section 1.1367-2(d)(2). Enter any net
Line 8c. Certain credits require the reduction of both an S advances on line 17 under the same column as the open
corporation's assets as well as the shareholder's stock account debt. If this is the first year of the open account
basis. See sections 50(c)(1) and (5) for details. debt, enter the net advance in its own column on line 17.
Line 11. Use Part III to figure the total allowable loss and Any debt that exceeded $25,000 at the end of the
deduction items from stock basis. Enter the total from ! prior year is treated as a formal note for purposes
line 47, column (c). This amount can’t exceed the amount CAUTION of calculating the gain on loan repayment. See
on line 10. Regulations section 1.1367-2(a)(2)(ii).
Line 12. Use Part II to figure the debt basis restoration, if
Line 19. For a formal note, enter the amount of principal
any. Enter the total from line 23.
repayment specific to each loan.

Instructions for Form 7203 (Rev. 12-2022) -3-

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For open account debt, if the repayments exceed the           Line 34.   The character of the gain on repayment is 
advances for the tax year, the net repayment should be        dependent on whether the debt is evidenced by a formal 
entered on line 19.                                           note or is an open account.
Line 21. Enter the debt basis of your loan(s) to the              Debt evidenced by a formal note will result in capital 
S corporation at the beginning of the corporation’s tax       gain, and should be reported on Form 8949 and 
year.                                                         Schedule D.
Line 22. Enter the amount from line 17 on line 22.                Any open account debt (including debt referenced in 
                                                              Regulations section 1.1367-2(a)(2)(ii)) will result in 
Line 23. You have reduced debt basis if line 21 is less 
                                                              ordinary gain and should be reported on Form 4797, 
than line 16.
                                                              Sales of Business Property.
Per section 1367(b)(2)(B), if debt basis has been 
reduced, it can only be restored with a net increase. The                Gain recognized on loan repayment doesn’t 
net increase is the amount by which the items that                !      increase basis.
                                                                  CAUTION
increase stock basis per section 1367(a)(1) (for example, 
income, tax-exempt income, and excess depletion) 
                                                              Part III. Shareholder Allowable Loss 
exceed the items that decrease stock basis per section 
1367(a)(2) (for example, losses, deductions,                  and Deduction Items
nondeductibles, nondividend distributions, etc.). See         The corporate losses and other deduction items are 
Regulations section 1.1367-2(c)(1).                           limited to the sum of your stock and debt basis. When 
The net increase is figured as follows:                       stock and debt basis is insufficient, and there is more than 
Line 4                                                        one type of loss or deduction item that reduces basis, the 
                                                              amounts allowed as a loss or deduction are allocated on a 
Minus line 6                                                  pro rata basis. See Regulations sections 1.1366-2(a)(4) 
Minus line 9                                                  and (5).
Minus line 13 (as applicable)                                     Loss and deductions in excess of basis are suspended 
Minus line 47(a)                                              and carried forward indefinitely and the character of the 
Minus line 47(b)                                              loss and deduction items is retained.
If the net increase figured exceeds the total reduction in        Part III shows the pro rata allocation and tracks any 
debt basis (line 16 minus line 21), then the restoration is   loss or deduction carryforward.
limited to the amount needed to restore debt basis to the 
face of the loan.                                             Column (a). Enter the loss and deduction amounts for 
                                                              each item as reported on your Schedule K-1 (Form 
        If you have multiple debts, the net increase is       1120-S).
!       applied first to restore the reduction of basis in    Column (b). Enter any loss or deduction items 
CAUTION any debt repaid in the tax year to the extent 
necessary to offset any gain that would otherwise be          disallowed due to basis limitations in prior years that were 
realized. Any remaining net increase is applied to each       carried forward.
debt in proportion to its reduced basis. See Regulations      Column (c). If line 10 is zero, skip column (c).
section 1.1367-2(c)(2).                                           If stock basis, as reported on line 10, is greater than the 
                                                              sum of column (a) and column (b), line 47, enter the sum 
Line 28. Enter the smaller of the nondeductible expenses      of each line for column (a) plus column (b) in column (c). If 
and oil and gas depletion deductions in excess of stock       stock basis, as reported on line 10, is less than the sum of 
basis (line 9 minus line 7) or line 27.                       column (a) and column (b), line 47, enter the pro rata 
If an election is made under Regulations section              amount on the corresponding line in column (c). The total 
1.1367-1(g), enter the smaller of the portion of line 13 that allocation amount reported in column (c), line 47, can’t 
is attributable to the Regulations section 1.1367-1(g)        exceed the amount reported on line 10.
election or line 27.
                                                              Column (d). If line 29 is zero, skip column (d).
Nondeductible expenses in excess of stock and debt 
basis don’t carry forward (unless an election is made             If column (c), line 47, is less than line 10, skip column 
under Regulations section 1.1367-1(g)).                       (d).
                                                                  If debt basis, as reported on line 29, is greater than 
Line 30. Enter the amount from line 47(d) in the total        column (a) plus column (b) minus column (c), line 47, 
column on line 30.                                            enter column (a) plus column (b) minus column (c), in 
        If you have more than one loan to the corporation,    column (d) for each line item. If debt basis, as reported on 
                                                              line 29, is less than column (a) plus column (b) minus 
!       any allocated reduction is prorated to the loans 
CAUTION based on the ratio that each individual loan basis    column (c), line 47, enter the pro rata amount on the 
bears to the aggregate bases of the loans. See                corresponding line in column (d). The total allocation 
Regulations section 1.1367-2(b)(3).                           amount reported in column (d), line 47, can’t exceed the 
                                                              amount reported on line 29.

                                                              -4-             Instructions for Form 7203 (Rev. 12-2022)

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The allowable losses and deductions from columns (c)                                   excess in column (e) for each line item. If you disposed of 
and (d) should be reported on the appropriate areas of                                 all your stock, see Regulations section 1.1366-2(a)(6).
your return (subject to any additional limitations).
Column (e). If the sum of column (a) plus column (b) 
exceeds the sum of column (c) plus column (d), enter the 

Paperwork Reduction Act Notice.                We ask for the information on this form to carry out the Internal Revenue laws of the 
United States. You are required to give us the information. We need it to ensure that you are complying with these laws 
and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act 
unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be 
retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax 
returns and return information are confidential, as required by section 6103.
The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden 
for individual and exempt organization taxpayers filing this form is approved under OMB control number 1545-0074 and 
1545-0047 and is included in the estimates shown in the instructions for their individual and exempt organization tax 
return. The estimated burden for all other taxpayers who file this form is shown below.

Recordkeeping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2 hr., 10 min.
Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           15 min.
Preparing and sending the form to the IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               1 hr., 21 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, 
we would be happy to hear from you. See the instructions for the tax return with which this form is filed.

Instructions for Form 7203 (Rev. 12-2022)                                        -5-

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