PDF document

- 1 -

Userid: CPM Schema: Leadpct: 100% Pt. size: 10 Draft Ok to Print
instrx
AH XSL/XML Fileid: … ns/i7203/202112/a/xml/cycle05/source (Init. & Date) _______
Page 1 of 4 9:56 - 18-Jan-2022

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Department of the Treasury
Internal Revenue Service
Instructions for Form 7203

(December 2021)
S Corporation Shareholder Stock and Debt Basis Limitations

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

Jan 18, 2022 Cat. No. 74861H

- 2 -

Enlarge image

Page 2 of 4 Fileid: … ns/i7203/202112/a/xml/cycle05/source 9:56 - 18-Jan-2022

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

shares of stock in proportion to the Line 1. Enter your basis in the stock 1120-S) on line 3. Negative amounts
remaining basis of each of those of the S corporation at the beginning (decreases to stock basis) are
shares. of the corporation’s tax year. Unless entered in Part III.
Basis of loans. The basis of your this is your initial year owning stock in Line 3i. Enter the amount of other
loans to the corporation is generally the S corporation, this amount should income that increases basis.
the balance the corporation owes you, be the same as your ending stock
Under Notice 2020-69, increase
adjusted for any reductions and basis from the prior tax year.
stock basis under section 961(a)
restorations of loan basis. See the Stock basis can’t be less than zero. when the U.S. shareholder has a
instructions for box 16, code E, in the Don’t include any basis from subpart F inclusion (as defined in
Shareholder's Instructions for indebtedness on this line. Stock basis section 959(a)(2)) or global intangible
Schedule K-1 (Form 1120-S). Any and debt basis must be figured low-taxed income (GILTI) inclusion
amounts described in (3) and (4), separately. Debt basis is addressed in amount (as defined in section 951A)
earlier, not used to offset amounts in Part II of this form. attributable to an S corporation-owned
(1), earlier, or to reduce your stock controlled foreign corporation (CFC).
basis, are used to reduce your loan Line 2. Enter any additional
basis (to the extent of such basis prior contributions to the capital of the Line 3j. Enter the amount by which
to such reduction). S corporation or any additional your cumulative depletion deduction
acquisitions of stock. Don’t include exceeds your proportionate share of
When determining your basis any loans to the S corporation. basis in the property subject to
! in loans to the corporation, The basis of stock you purchased depletion. See information reported in
CAUTION remember that:
is usually its cost. Schedule K-1 (Form 1120-S), box 15,
using code C.
• Distributions don't reduce loan If you contributed property to the
basis, and For oil and gas depletion, don’t
S corporation in exchange for stock in
• Loans that a shareholder enter an amount. See the instructions
a section 351 transaction, your stock
guarantees or co-signs aren't part of a for line 8b for the decrease to basis.
basis is generally figured by taking the
shareholder's loan basis.
carryover basis of assets transferred Line 3k. Enter the sum of the
Shareholders only obtain basis from
to the corporation, less the liabilities amounts from Schedule K-1 (Form
acting as a guarantee or in a similar
assumed by the corporation. If the 1120-S), box 16, codes A and B.
capacity to the extent the shareholder
assumed liabilities exceed the
makes a payment pursuant to the Basis isn’t increased by
adjusted tax basis of the contributed
guarantee. ! excluded discharge of
assets, see section 357(c). See CAUTION
indebtedness income of the
See Regulations section section 358 for more information on
S corporation under sections 108(a)
1.1366-2(a) and section 1367 and its the basis of stock received in a
and 108(d)(7)(A).
regulations for more details. section 351 transaction.
The basis of inherited property is The income reported on line 3
generally the fair market value (FMV) should be reported on the appropriate
Specific Instructions at the date of death or the alternate areas of your return. See the
Stock block. When a valuation date. See section 1014 and Shareholder's Instructions for
TIP shareholder has a different Regulations section 1.1014-4. Schedule K-1 (Form 1120-S) for
details.
basis in different blocks of The basis of stock acquired by gift
stock, pass-through items are is generally the basis of the stock in Line 6. Enter the distributions
generally allocated pro rata to all the hands of the donor. There are reported on Schedule K-1 (Form
shares, regardless of their different special rules if the FMV of the stock is 1120-S), box 16, code D. Don’t
bases. If there is a partial stock sale or less than the donor’s adjusted basis. include any Form 1099-DIV
partial redemption, you may file more See Regulations sections 1.1015-1, distributions (dividend distributions
than one form and provide a 1.1366-2(a)6), and 1.1366-2(a)(7). from the accumulated earnings and
description of what period the form The basis for stock received as profits while a C corporation) on this
covers. See Regulations section compensation is the FMV on the date line.
1.1367-1(b)(2) and (c)(3) for details. the compensation is included in Note. If the amount of the distribution
income. See Pub. 551 for details. is more than the stock basis before
Part I. Shareholder Stock Line 3. Enter on lines 3a through 3m distributions, report the excess
Basis all separately figured and amount as a capital gain on Form
Part I of Form 7203 addresses non-separately figured items of 8949, Sales and Other Dispositions of
income from Schedule K-1 (Form Capital Assets, and Schedule D. Don’t
! adjustments to stock basis as 1120-S). See below for specific increase your stock basis for the
CAUTION provided under section 1367.
Other code sections might also cause instructions. amount of capital gain reported for the
excess. See Nondividend
a reduction in S corporation stock Reminder. Enter only positive distributions in the Instructions for
basis. amounts from Schedule K-1 (Form Form 8949.

-2- Instructions for Form 7203 (December 2021)

- 3 -

Enlarge image

Page 3 of 4 Fileid: … ns/i7203/202112/a/xml/cycle05/source 9:56 - 18-Jan-2022

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

You must complete this section if For open account debt, if the
you have personally loaned money to repayments exceed the advances for
Leave lines 8a, 8b, and 8c the corporation. the tax year, the net repayment should
! blank if you made an election be entered on line 19.
CAUTION under Regulations section You must account for each formal
1.1367-1(g). If an election was made, note (notes with a written instrument) Line 21. Enter the debt basis of your
enter this information on line 13. made to your S corporation by loan(s) to the S corporation at the
entering it separately in its own beginning of the corporation’s tax
Line 8a. Enter the amount from column. You can’t aggregate multiple year.
Schedule K-1 (Form 1120-S), box 16, loans into a single column. If you have Line 22. Enter the amount from
code C. more than three loans, use additional line 17 on line 22.
Line 8b. Enter the amount of oil and copies of Part II.
Line 23. You have reduced debt
gas depletion claimed on your Loans made to the S corporation basis if line 21 is less than line 16.
personal return up to your that aren’t evidenced by a written Per section 1367(b)(2)(B), if debt
proportionate share of basis in the instrument are referred to as an open basis has been reduced, it can only
property subject to depletion. Any account debt and aren’t separately be restored with a net increase. The
cumulative depletion in excess of your tracked. If an open account debt has a net increase is the amount by which
proportionate share of basis in the year-end balance of more than the items that increase stock basis per
property subject to depletion won’t $25,000, it will be classified as a section 1367(a)(1) (for example,
reduce your basis. formal note at the beginning of the income, tax-exempt income, and
Don’t enter an amount for depletion next tax year and must be separately excess depletion) exceed the items
not related to oil and gas property. tracked. that decrease stock basis per section
Line 8c. Certain credits require the Loans that a shareholder 1367(a)(2) (for example, losses,
deductions, nondeductibles,
reduction of both an S corporation's ! guarantees or co-signs aren’t nondividend distributions, etc.). See
assets as well as the shareholder's CAUTION part of a shareholder’s loan
stock basis. See sections 50(c)(1) basis except to the extent the Regulations section 1.1367-2(c)(1).
and (5) for details. shareholder makes a payment on the The net increase is figured as
Line 11. Use Part III to figure the total loan guaranteed or co-signed. follows:
allowable loss and deduction items Line 4
from stock basis. Enter the total from Line 16. Enter the balance of each
line 47, column (c). This amount can’t loan to the S corporation at the Minus line 6
exceed the amount on line 10. beginning of the corporation’s tax year Minus line 9
in a separate column. Minus line 13 (as applicable)
Line 12. Use Part II to figure the debt
basis restoration, if any. Enter the total Line 17. Enter any new loans made Minus line 47(a)
from line 23. during the tax year and evidenced by Minus line 47(b)
a formal note in a separate column. If
If the net increase figured exceeds
Line 13. Enter any other decreases a formal note is refinanced, any
the total reduction in debt basis
to stock basis not accounted for on increase should be entered on line 17
(line 16 minus line 21), then the
the lines above. This includes the under the same column as the original
restoration is limited to the amount
reduction to basis for the sale or loan.
needed to restore debt basis to the
redemption of part of your stock. If an Advances and repayments made face of the loan.
election is made under Regulations during the S corporation’s tax year on
section 1.1367-1(g), enter the an open account are netted at the If you have multiple debts, the
amounts on this line as instructed on close of the S corporation’s tax year to ! net increase is applied first to
line 8, including any prior year determine the amount of any net CAUTION restore the reduction of basis
carryover amounts. advance or net repayment. See in any debt repaid in the tax year to
If a portion of your stock is Regulations section 1.1367-2(d)(2). the extent necessary to offset any
TIP redeemed, sold, or otherwise Enter any net advances on line 17 gain that would otherwise be realized.
disposed of during the year, under the same column as the open Any remaining net increase is applied
attach two separate forms. Use the account debt. If this is the first year of to each debt in proportion to its
first to figure your stock basis at the the open account debt, enter the net reduced basis. See Regulations
date of sale and the second to figure advance in its own column on line 17. section 1.1367-2(c)(2).

your stock and debt basis at year end. Any debt that exceeded Line 28. Enter the smaller of the
$25,000 at the end of the prior
Part II. Shareholder Debt CAUTION! year is treated as a formal nondeductible expenses and oil and
gas depletion deductions in excess of
Basis note for purposes of calculating the stock basis (line 9 minus line 7) or
gain on loan repayment. See line 27.
If you have more than three Regulations section 1.1367-2(a)(2)(ii). Nondeductible expenses in excess
TIP loans, use additional copies of
of stock and debt basis don’t carry
Part II. List the total sum of all Line 19. For a formal note, enter the
forward (unless an election under
loans on the first page only. amount of principal repayment
specific to each loan.

Instructions for Form 7203 (December 2021) -3-

- 4 -

Enlarge image

Page 4 of 4 Fileid: … ns/i7203/202112/a/xml/cycle05/source 9:56 - 18-Jan-2022

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Regulations section 1.1367-1(g) is of your stock and debt basis. When amount reported in column (c),
made). stock and debt basis is insufficient, line 47, can’t exceed the amount
and there is more than one type of reported on line 10.
Line 30. Enter the amount from
loss or deduction item that reduces
line 47(d) in the total column on Column (d). If line 29 is zero, skip
basis, the amounts allowed as a loss
line 30. column (d).
or deduction are allocated on a pro
If you have more than one rata basis. See Regulations sections If column (c), line 47, is less than
! loan to the corporation, any 1.1366-2(a)(4) and (5). line 10, skip column (d).
CAUTION allocated reduction is prorated If debt basis, as reported on
to the loans based on the ratio that Loss and deductions in excess of line 29, is greater than column (a) plus
each individual loan basis bears to the basis are suspended and carried column (b) minus column (c), line 47,
aggregate bases of the loans. See forward indefinitely and the character enter column (a) plus column (b)
Regulations section 1.1367-2(b)(3). of the loss and deduction items is minus column (c), in column (d) for
retained. each line item. If debt basis, as
Line 34. The character of the gain on reported on line 29, is less than
Part III shows the pro rata
repayment is dependent on whether column (a) plus column (b) minus
allocation and tracks any loss or
the debt is evidenced by a formal note column (c), line 47, enter the pro rata
deduction carryforward.
or is an open account. amount on the corresponding line in
Debt evidenced by a formal note Column (a). Enter the loss and column (d). The total allocation
will result in capital gain, and should deduction amounts for each item as amount reported in column (d),
be reported on Form 8949 and reported on your Schedule K-1 (Form line 47, can’t exceed the amount
Schedule D. 1120-S). reported on line 29.
Any open account debt (including Column (b). Enter any loss or The allowable losses and
debt referenced in Regulations deduction items disallowed due to deductions from columns (c) and (d)
section 1.1367-2(a)(2)(ii)) will result in basis limitations in prior years that should be reported on the appropriate
ordinary gain and should be reported were carried forward. areas of your return (subject to any
on Form 4797, Sales of Business Column (c). If line 10 is zero, skip additional limitations).
Property. column (c). Column (e). If the sum of column (a)
Gain recognized on loan If stock basis, as reported on plus column (b) exceeds the sum of
! repayment doesn’t increase line 10, is greater than the sum of column (c) plus column (d), enter the
CAUTION basis. column (a) and column (b), line 47, excess in column (e) for each line
enter the sum of each line for column item. If you disposed of all your stock,
Part III. Shareholder (a) plus column (b) in column (c). If see Regulations section 1.1366-2(a)
stock basis, as reported on line 10, is (6).
Allowable Loss and less than the sum of column (a) and
Deduction Items column (b), line 47, enter the pro rata
The corporate losses and other amount on the corresponding line in
deduction items are limited to the sum column (c). The total allocation

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.

-4- Instructions for Form 7203 (December 2021)

PDF file checksum: 2695784328

(Plugin #1/9.12/13.0)