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Webinar – IRC 1367 S Corporation Stock and Debt Basis Adjustments: New IRS Practice Unit Guidance

By: Lindsey Serrate |

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This webinar will provide tax advisers with a practical guide to making stock and debt basis adjustments for S corporations in light of recent IRS Practice Unit guidance. The panel will discuss the specific transactions and events identified by the Service in the IPU as potential issues and offer practical suggestions to allocations and basis adjustments.

Description

Accurately calculating basis for S corporation shareholders is critical to determine how much a shareholder can withdraw in distributions without recognizing taxable income. When a shareholder takes more in distributions than his basis, the excess distribution is taxable as a capital gain.

Tracking basis is also important in determining whether shareholders can deduct S corporation losses on their personal returns. The Service may disallow pass through losses in excess of basis and result in unexpected tax consequences.

Critical to maintaining stock and debt basis balances is a clear understanding of required and elective adjustments arising from certain transactions and events. The IRS recently issued Practice Unit guidance on adjustments to stock and debt basis under Section 1367, indicating that S corporation basis will continue to be an area of audit attention in 2018.

The Service has identified several problem areas in S corp basis adjustment calculation and reporting. Common errors include failing to account for income or loss not claimed on a tax return, improperly structuring debt transactions, and adjustment for certain tax credit bonds. The IRS has prevailed in recent Tax Court cases that upheld disallowance of debt basis increase.

Listen as our experienced panel provides a thorough and practical guide to Section 1367 stock and debt basis adjustments for S corporation shareholders to avoid unnecessary tax.

Outline

  1. Mechanics of calculating stock basis
  2. Section 1367 and regulatory guidance
  3. Common errors in adjustments that increase or decrease stock basis
    1. Basis adjustments for income or losses not claimed on tax return
    2. Basis treatment of life insurance premiums
    3. Tax credits
    4. Certain tax credit bonds
  4. Debt basis rules and structuring
    1. Debt basis rules and calculations
    2. Debt transactions subject to IRS challenge and disallowance
    3. Reducing existing debt basis
  5. Substantiating debt basis

Benefits

The panel will discuss these and other important topics:

  • Debt basis adjustments that may be subject to IRS challenge and disallowance
  • Proper basis adjustments for “distortions” created by items such as certain tax credit bonds
  • Basis adjustments required for key-man life insurance premiums and proceeds
  • Basis treatment for excess depletion expenses

Faculty

Brian T. Lovett, CPA, JD 
Partner
WithumSmith+Brown

Lindsey Serrate, CPA 
Managing Director
True Partners Consulting

Robert W. Jamison, CPA
Professor Emeritus of Accounting
Indiana University, Kelley School of Business

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