The IRS published a notice in the Federal Register on July 19, 2021 asking for comments on a new Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations and related instructions.[1]

The notice describes the proposed form in an abstract section as follows:

Internal Revenue Code (IRC) Section 1366 determines the shareholder’s tax liability from an S corporation. IRC Section 1367 details the adjustments to basis including the increase and decrease in basis, income items included in basis, the basis of indebtedness, and the basis of inherited stock. Shareholders will use Form 7203 to calculate their stock and debt basis, ensuring the losses and deductions are accurately claimed.[2]

The form and instructions have not been made available for download at this time. Rather, interested parties are directed to request the form and instructions from an IRS contact listed in the notice.

In 2020 and earlier years, the instructions to Schedule E[3] directed taxpayers to worksheets found in the shareholder’s instructions to Schedule K-1, Form 1120S.[4] As well, the taxpayer was to attach a computation of basis in the following situations:

If you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation, you must check the box in column (e) on line 28 and attach the required basis computation.[5]

The proposed form would replace the Schedule K-1 instruction worksheets and attached plain paper basis computations with new Form 7203 that would be required to be filed with the return whenever the taxpayer previously was required to attach basis computations.

The draft form reviewed to prepare this article has three sections, corresponding to the three sections found in the K-1 instruction worksheets:

Shareholder stock basis computation;
Shareholder debt basis computation (with separate sections for the amount of debt and the adjustments to debt basis); and
Shareholder allowable loss and deduction items—a worksheet with five columns, with lines for specific items of loss or deduction:
- Current year deduction and losses
- Carryover amounts from the previous year;
- Allowable loss from stock basis;
- Allowable loss from debt basis; and
- Carryover amounts.

Written comments on the form should be received by the IRS on or before September 17, 2021, to be assured of consideration.[6]

[1] Department of Treasury, Internal Revenue Service, Proposed Collection; Comment Request for Form 7203, Federal Register, Vol. 86, No. 135, July 19, 2021, p. 38204, https://www.govinfo.gov/content/pkg/FR-2021-07-19/pdf/2021-15257.pdf (retrieved July 19, 2021)

[2] Department of Treasury, Internal Revenue Service, Proposed Collection; Comment Request for Form 7203, Federal Register, Vol. 86, No. 135, July 19, 2021

[3] 2020 Instructions for Schedule E, p. E-8, https://www.irs.gov/pub/irs-pdf/i1040se.pdf (retrieved July 19, 2021)

[4] 2020 Shareholder’s Instructions for Schedule K-1 (Form 1120S), Worksheet for Figuring a Shareholder’s Stock and Debt Basis (Parts I-III), pp. 5-8, https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf (retrieved July 19, 2021)

[5] 2020 Instructions for Schedule E, p. E-11

[6] Department of Treasury, Internal Revenue Service, Proposed Collection; Comment Request for Form 7203, Federal Register, Vol. 86, No. 135, July 19, 2021