Category Archives: Tax Attorney

S Corporation & Corporate Taxation — explore related guides and services.

Form 7203 is filed by an S corporation shareholder with the shareholder’s own tax return when a filing requirement applies. For an individual shareholder, that generally means the Form 1040 return. It is not an attachment that the S corporation files with Form 1120-S on every shareholder’s behalf.

The form tracks stock and debt basis and helps determine the treatment of losses, distributions, and loan repayments. Philip Falco, a Denver tax attorney and CPA, coordinates these issues with S corporation tax return preparation and the owner’s individual return.

Is Form 7203 required to be filed with Form 1120-S?

No. The corporation files Form 1120-S and provides Schedule K-1 information to shareholders. A shareholder uses that information, together with their own basis records, to determine whether Form 7203 must accompany their return. The form itself states that it is attached to the shareholder’s tax return. See IRS Form 7203.

This distinction is especially important when different professionals prepare the corporation’s and owner’s returns. The preparers need to coordinate the information, but the filing obligations remain separate.

Who must file Form 7203?

The IRS instructions identify four filing triggers for an S corporation shareholder:

• Claiming a deduction for the shareholder’s share of an aggregate loss, including a loss previously limited by basis;
• Receiving a non-dividend distribution;
• Disposing of stock, whether or not gain is recognized; or
• Receiving repayment of a loan made to the S corporation.

Receiving a Schedule K-1, by itself, is not a substitute for checking those triggers. Do not assume the form is unnecessary merely because the business is profitable or because an owner expects a distribution to be tax-free.

Must you maintain basis in a year when filing is not required?

Basis remains important even in a year with no filing trigger. The IRS says it may be beneficial to complete and retain Form 7203 in those years so basis is consistently maintained. Keeping the calculation in the records is different from saying that every shareholder must file the form every year.

An incomplete history can become a problem when a later year involves losses, distributions, a stock sale, or repayment of shareholder debt. Reconstructing several years at that point can require old returns, K-1s, contribution records, and loan documentation.

Stock basis and debt basis answer different questions

Stock basis reflects the shareholder’s investment and applicable adjustments over time. Debt basis concerns qualifying indebtedness of the corporation to the shareholder. They are tracked separately, and sufficient debt basis does not automatically make a distribution tax-free.

A guarantee of the corporation’s bank debt does not, by itself, create shareholder debt basis. The IRS instructions discuss the different treatment when a guarantor actually makes a payment. Review how an advance or payment was documented instead of relying solely on a bookkeeping label.

A simple stock-basis example

For illustration, assume a shareholder begins with $20,000 of stock basis, contributes $5,000, is allocated $10,000 of income, and receives an $8,000 non-dividend distribution. With no other adjustments, ending stock basis is $27,000. Actual calculations must account for the applicable ordering rules and all relevant transactions.

Why the K-1 and the balance sheet may not be enough

A current K-1 reports the year’s items; the shareholder’s starting basis may depend on transactions from earlier years or the way stock was acquired. The business’s book equity is not necessarily the shareholder’s tax basis.

For example, an owner may have contributed cash, received distributions, and used losses across several years. Looking only at the latest K-1 can omit the history needed for the current calculation. A useful workpaper traces the opening balance, relevant changes, and closing balance, with support for each.

Basis is only one limit on deducting an S corporation loss

A loss allowed by the basis calculation can still be affected by other rules, including at-risk, passive-activity, or excess-business-loss limitations. The IRS stock and debt basis guidance explains why these limitations need to be considered separately.

Records to provide with the S corporation return

• Current and prior K-1s, Forms 7203, and suspended-loss schedules;
• Records of stock purchases, contributions, gifts, inheritances, or sales;
• Distribution details and the dates of ownership changes;
• Shareholder loan documents, advances, repayments, and guarantee payments; and
• The corporation’s financial statements and the shareholder’s prior tax returns.

Our Denver tax preparation services coordinate business and owner reporting. Related Colorado obligations are discussed in our DR 0106 filing guide.

Schedule a $500 Tax Attorney Consultation to discuss basis records and coordinated return preparation. The fee covers up to one hour of total attorney time, including review, analysis, preparation, and the telephone consultation. Return preparation requires a separate engagement.

General information; filing requirements and tax treatment depend on the shareholder’s transactions and circumstances.

S Corps 1120S & Partnerships 1065 that meet Colorado Revised Statute 39-22-301(1) must file Colorado DR 0106. If your S Corp or Partnership was organized or commercially domiciled in Colorado, among others, then it must file DR 0106. CRS 38-22-201(1).

The DR0106 effectively captures Colorado state income tax on nonresident shareholders and partners. In addition, it enables taxpayers who wish to use the SALT Parity Act.

Colorado House Bill 23-1277, “CONCERNING THE FILING OF INCOME TAX RETURNS BY BUSINESS ENTITIES” made changes to CRS 39-22-601. The good news is that pursuant to CRS 39-22-302, “An S corporation shall not be subject to taxation under this article.” This is the flow-through S Corp tax concept written into Colorado law.

However, nonresident shareholders are subject to Colorado income tax. In the instance where an S Corp or Partnership has Colorado nonresident shareholders it generally must pay income tax on their behalf. They could also file an agreement.

Pursuant to CRS 39-5-102, county assessors must beam a list of nonresident property owners to the Colorado Department of Revenue (CDR). If the nonresident is running a short term rental, you could be sure they will get notice from the CDR. If the nonresident is a shareholder of an S Corp, the CDR can then file a DR 0106 and assess tax. There is also a hefty penalty for nonpayment of Colorado tax that surely will be applied.

There is a new focus to tax nonresidents of Colorado income. This focus is embodied in the changes to 39-22-601.

Colorado DR 0106 reporting should be coordinated with the federal return. We prepare both S corporation Form 1120-S returns and partnership Form 1065 returns, including related Colorado reporting.

Colorado pass-through entity reporting is one part of broader business tax preparation, which should coordinate the federal entity return, Colorado filings, shareholder or partner reporting, and the owner’s individual return.

If you did not receive IRS refunds, check the refund status here: https://www.irs.gov/wheres-my-refund.

If you are sure about the missing refund, you need to start a refund trace by calling and speaking to an IRS agent 800-829-1040. You could also fill out IRS form 3911. You could fax the form to the appropriate number here: https://www.irs.gov/forms-pubs/about-form-3911.

You should place an identity protection pin on your file with an agent.

Updated September 12, 2026. Covers calendar-year 2025 returns filed in 2026.

For calendar-year 2025 partnership and S corporation returns, the regular federal filing deadline was March 16, 2026. A timely, valid extension generally moves the deadline to September 15, 2026. The March date shifts because March 15 falls on a Sunday. Fiscal-year businesses and taxpayers covered by special relief may have different deadlines. See the IRS instructions for Form 1065 and Form 1120-S.

Missing the deadline can create a substantial penalty even when the business owes no federal income tax. Before calculating exposure, establish the return year, whether an extension was valid, and how many people held ownership interests during the year.

When are partnership and S corporation returns due?

For a fiscal-year entity, the general deadline is the 15th day of the third month after its tax year ends, subject to applicable exceptions. Do not use the calendar-year dates without confirming the business’s tax year. IRS Form 1065 instructions, IRS Form 1120-S instructions.

How does Form 7004 extend the deadline?

Most partnerships and S corporations use Form 7004 to request an automatic six-month filing extension. It generally must be filed by the original return deadline. Keep proof of timely filing and, for an electronic submission, the acceptance acknowledgment.

A business extension does not extend an owner’s individual return. An owner’s personal extension likewise does not extend the business return. Filing Form 7004 also does not extend the time to pay tax that is due. IRS Form 7004 instructions.

September 15 is normally the end of the regular extension for a calendar-year entity. However, an IRS disaster postponement or other applicable special relief can change the deadline. Check the relief announcement’s covered taxpayers, locations, and filing periods before relying on a later date. IRS disaster tax relief.

How much is the late-filing penalty?

For returns required to be filed in 2026, the basic federal late-filing penalty is generally $255 per partner or shareholder for each month or part of a month, for up to 12 months. Count everyone who was a partner or shareholder at any time during the tax year, rather than just the owners remaining at year-end. The amount is adjusted for inflation, so use the rate applicable to the return’s required filing year. IRS failure-to-file penalty guidance.

For the basic penalty, the calculation is:

$255 × number of partners or shareholders × months or partial months late, up to 12.

These examples exclude other penalties and assume no relief applies. An S corporation owing tax can face additional tax-based penalties. Missing or incorrect Schedules K-1 can also create separate exposure. IRS Form 1120-S instructions.

Does October 1 start a second penalty month?

No. Penalty months are measured from the applicable due date, rather than by counting calendar months touched by the delay.

For a return validly extended to September 15, 2026, the first penalty month runs September 16 through October 15. Filing on October 2 falls within that first period. With four owners, the basic penalty would therefore be $1,020, assuming no special relief or other penalties. Filing on October 16 enters a second penalty month and increases that amount to $2,040. These examples apply the IRS’s due-date-based method for counting penalty months. IRS penalty computation guidance.

Can a penalty apply when no tax is owed?

Yes. The partnership filing penalty concerns the required information return and can apply even without entity-level income tax. An incomplete return can also trigger a penalty. IRS Form 1065 instructions.

S corporations generally pass income and other tax items through to shareholders, but some owe entity-level taxes, including certain built-in gains taxes. Saying that no tax is ever due with Form 1120-S would be inaccurate. IRS Form 1120-S instructions.

What should you do after missing the deadline?

1. Verify the filing history. Locate the return, extension, electronic acceptance records, and any IRS notices.
2. Finish the required filing. Reconcile the books and prepare complete returns and owner schedules promptly.
3. Check the penalty calculation. Compare the IRS’s due date, owner count, applicable rate, and number of late months against the records.
4. Evaluate relief. Identify the applicable relief provision and gather the evidence it requires.

Keep a dated chronology of what prevented filing and what steps the business took to resolve the problem. If a notice has arrived, preserve it and track its response deadline. For assistance with overdue filings, see our unfiled tax returns service.

Can the IRS remove the penalty?

Depending on the facts, reasonable cause may support relief. Certain small partnerships may qualify under Revenue Procedure 84-35. Having ten or fewer partners is only one condition: partner eligibility, consistent proportional allocations, timely owner reporting, and the other IRS requirements must also be checked. This partnership provision is not an S corporation exemption. IRS CP162A notice guidance.

Administrative relief may also apply. The IRS describes a transition beginning in summer 2026 from First Time Abate to Automatic Exemption from Penalty for eligible returns, including Forms 1065 and 1120-S. Eligibility depends on the applicable period and compliance history. If a penalty was assessed, check whether relief was applied or needs to be requested. IRS administrative penalty relief.

For help evaluating a notice and supporting a request, see our tax penalty abatement service.

Colorado DR 0106 has a different deadline

The federal September deadline should not be confused with Colorado’s filing schedule. For calendar-year 2025, Colorado DR 0106 is generally due April 15, 2026, with an automatic six-month filing extension to October 15, 2026. The state extension does not extend the payment deadline. Colorado’s 2025 DR 0106 instructions.

See our separate discussion of Colorado partnership and S corporation filing requirements for the state return.

Help with a partnership or S corporation return

If your business needs a return prepared, review our Form 1065 partnership tax services or Form 1120-S S corporation tax services. If you received a penalty notice, bring the notice, extension confirmation, filed return, and ownership history to a consultation so the filing obligation and potential relief can be evaluated together.