Excess of Distribution over Basis

Discussion in 'Tax' started by Vijay Sharma, Jun 22, 2006.

  1. Vijay Sharma

    Vijay Sharma Guest

    I understand that the excess of Distribution over
    Shareholder Basis in a S Corp is reported on Schedule D of
    Form 1040 as Capital Gain. What line of Schedule D does
    this go on? I tried reading the instructions but did not
    find anything about excess of distribution over shareholder
    basis. The excess distribution would throw the
    Shareholder's Basis into negative on the Books, correct?

    Also, is the excess treated the same (reported on Schedule D
    as Capital Gain) in a LLC elected as a partnership for tax
    purposes?

    Thanks in advance for your help.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Vijay Sharma, Jun 22, 2006
    #1
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  2. Vijay Sharma <> wrote:

    > I understand that the excess of Distribution over
    > Shareholder Basis in a S Corp is reported on Schedule D of
    > Form 1040 as Capital Gain. What line of Schedule D does
    > this go on? I tried reading the instructions but did not
    > find anything about excess of distribution over shareholder
    > basis.


    Report on Line 1 or 8, depending if short or long term.

    > The excess distribution would throw the Shareholder's Basis
    > into negative on the Books, correct?


    It would if shareholder basis could be negatve, but it can't.

    It's sort of part of the religion of tax accounting: "Basis
    cannot go negative."

    > Also, is the excess treated the same (reported on Schedule D
    > as Capital Gain) in a LLC elected as a partnership for tax
    > purposes?


    And that rule holds for partnerships too.

    __
    Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Arthur Kamlet, Jun 22, 2006
    #2
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  3. Vijay Sharma

    Vijay Sharma Guest

    Arthur Kamlet wrote:
    > Vijay Sharma <> wrote:


    >> I understand that the excess of Distribution over
    >> Shareholder Basis in a S Corp is reported on Schedule D of
    >> Form 1040 as Capital Gain. What line of Schedule D does
    >> this go on? I tried reading the instructions but did not
    >> find anything about excess of distribution over shareholder
    >> basis.


    > Report on Line 1 or 8, depending if short or long term.


    >> The excess distribution would throw the Shareholder's Basis
    >> into negative on the Books, correct?


    > It would if shareholder basis could be negatve, but it can't.
    >
    > It's sort of part of the religion of tax accounting: "Basis
    > cannot go negative."


    >> Also, is the excess treated the same (reported on Schedule D
    >> as Capital Gain) in a LLC elected as a partnership for tax
    >> purposes?


    > And that rule holds for partnerships too.


    Thanks for answering my question. I have a follow up
    question -

    >> It would if shareholder basis could be negatve, but it can't.


    >> It's sort of part of the religion of tax accounting: "Basis
    >> cannot go negative."


    Is this true for financial accounting (books) as well?

    Say basis on the books is $20K and Distribution comes out to
    $25K. On the S Corp or LLC's books the g/l entry would be
    Debit R/E $20K, Credit Cash $25K, what is the remaining
    debit entry for the $5K then?

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Vijay Sharma, Jun 23, 2006
    #3
  4. >>> It would if shareholder basis could be negatve, but it can't.
    >>>
    >>> It's sort of part of the religion of tax accounting: "Basis
    >>> cannot go negative."


    > Is this true for financial accounting (books) as well?
    >
    > Say basis on the books is $20K and Distribution comes out to
    > $25K. On the S Corp or LLC's books the g/l entry would be
    > Debit R/E $20K, Credit Cash $25K, what is the remaining
    > debit entry for the $5K then?


    If you have no imagination, you can create a dull-sounding
    line entry and call it "Excess of Distribution over Basis"
    and account for it there. Or do the same thing with a
    sexier sounding title like "Distribution Gain" which will be
    guaranteed to confuse almost everyone :)

    When you get through with it, Sch K will call for it to be
    transferred to a 1040 Sch D.

    __
    Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Arthur Kamlet, Jun 23, 2006
    #4
  5. Vijay Sharma

    Vijay Sharma Guest

    >>>> It would if shareholder basis could be negatve, but it can't.
    >>>>
    >>>> It's sort of part of the religion of tax accounting: "Basis
    >>>> cannot go negative."


    >> Is this true for financial accounting (books) as well?
    >>
    >> Say basis on the books is $20K and Distribution comes out to
    >> $25K. On the S Corp or LLC's books the g/l entry would be
    >> Debit R/E $20K, Credit Cash $25K, what is the remaining
    >> debit entry for the $5K then?


    > If you have no imagination, you can create a dull-sounding
    > line entry and call it "Excess of Distribution over Basis"
    > and account for it there. Or do the same thing with a
    > sexier sounding title like "Distribution Gain" which will be
    > guaranteed to confuse almost everyone :)
    >
    > When you get through with it, Sch K will call for it to be
    > transferred to a 1040 Sch D.


    Thanks for your response.

    >> When you get through with it, Sch K will call for it to

    > be transferred to a 1040 Sch D.


    Are you talking about the "total distribution" or just the
    "excess of distribution over basis" being reported on
    Schedule K? What line of Schedule K (Form 1065)?

    I was under the impression that this capital gain is a
    personal (shareholder) one and not a corporate one so
    Schedules K and K-1s would not be involved just Schedule D
    of Form 1040? I do realize that the "total distribution"
    does go on line 19(a) "Distributions of cash and marketable
    securities" of Schedule K.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Vijay Sharma, Jun 24, 2006
    #5
  6. Vijay Sharma

    OHcpa

    Joined:
    Aug 5, 2014
    Messages:
    4
    In the case of Excess Distribution, is it reported to the Shareholder uniquely on the K1 or just part of line 19?
     
    OHcpa, Aug 6, 2014
    #6
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