Form 7203 must be filed by virtually every S Corp 1120S shareholder on his or her 1040 to track adjusted basis.
Who must file per the Instructions:
- If shareholder receives a distribution, he or she must file Form 7203,
- Are claiming a deduction for their share of an aggregate loss from an S corporation (including an aggregate loss not allowed last year because of basis limitations),
- Disposed of stock in an S corporation (whether or not gain is recognized),
- Received a loan repayment from an S corporation.
Good Practice to just file Form 7203
- Even shareholders with minimal activity should file to avoid future tax headaches.
- Shareholders who received a Schedule K-1 (Form 1120S) from the S-Corp.
- Even if the K-1 shows $0 activity, it’s good practice to file to document your basis.
- Shareholders that never received distributions still benefit from tracking basis for future losses or sales.
Here is a link to form 7203 and instructions.