With the March 15 filing deadline for S corporation returns fast approaching, preparers should be aware of the new IRS forms and schedules that may impact the returns they are filing for 2021. The two most significant changes are the IRS’s addition of a new Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, and Schedules K-2 and K-3 for partnerships and S corporations reporting items of international tax relevance from their operations.
Form 7203 is new for 2021 and replaces the three-part “Worksheet for Figuring a Shareholder’s Stock and Debt Basis” that was previously included in the instructions for Schedule K-1 (Form 1120-S). Form 7203 must be filed by S corporation shareholders who:
Claimed a deduction for their share of an aggregate loss from the corporation, including losses not allowed for 2020 due to basis limitations
Received a non-dividend distribution from the S corporation
Disposed of stock in the S corporation, regardless of whether a gain was recognized
Received a loan repayment from the S corporation
For more information about Form 7203, NATP has a free on-demand webinar for tax professionals.
The new Schedules K-2 and K-3 are to be used by S corporations and partnerships to report activities that impact foreign tax reporting at the shareholder or partner level. Recent revisions to the instructions for the schedules caused concern for some preparers when they were released in January and appeared to show the detailed schedules might be required in situations where an entity had no foreign source income or assets. However, updated guidance stipulated that they were only needed to report activities at the S corporation or partnership level, assuming there is no knowledge the shareholder or partner needs the information to file.
An additional issue with the new schedules that practitioners should know about is that e-filing for the Schedules K-2 (Form 1120-S) and K-3 (Form 1120-S) will not be available until mid-June. However, the IRS will allow for electronic filing before that time by submitting the schedules as a separate PDF attached to the return. Preparers can also submit printed versions of the schedules to the IRS.
Preparers who need additional time for filing the new forms and schedules can file for an extension using Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Form 7004 must be filed by the due date for S corporation returns and generally provides for an automatic six-month extension so the Form 1120-S must be filed by Sept. 15, 2022. However, the IRS will charge interest on any unpaid tax beginning on the original due date for the Form 1120-S.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.