BasisCalc Limitations

Basis is an extremely complex topic. BasisCalc handles many scenarios, but it doesn't cover everything.

Here's a list of the limitations we are aware of. This list is not exhaustive. There may well be limitations we are not aware of. We aren't responsible for any problems, errors, or omissions.

If these limitations impact you then BasisCalc is probably not a good fit for your requirements.

Handling Sensitive Data

The basis form requires entering sensitive information like SSNs. While we use the Amazon cloud to secure your data, history has shown data breaches are always a risk.

If security is especially important to you, then you can enter "APPLIED FOR" or fake values for the SSN and EIN, download the PDF and then use a PDF editor on your own machine to enter the correct values.

No Partnership Basis

Partnership basis is a feature we plan to add in the future.

Multiple Loans

When a shareholder holds more than one debt at the end of the tax year, the basis reduction for pass-through losses & deductions is applied proportionally to the basis of each debt.

Furthermore, debt basis cannot be decreased if the loan was fully repaid during the year, but can be increased. Currently, BasisCalc assumes there is only one note held by the shareholder.

Charitable Contributions of Appreciated Property

Special rules apply to the charitable contribution of appreciated items like stock or real property which allow the shareholder to deduct the fair market value of the property as a charitable contribution but only reduce basis by the adjusted basis of the property.

IRC §1366(d)(4) allow stock basis to dip below zero in these cases. If this occurs, the shareholder must allocate the deductions and contribution amount as provided in Rev. Rul. 2008-16. This calculation is beyond the scope of BasisCalc.

Qualified Academy Bonds issued before 10/4/08

The amount included in gross income with respect to qualified zone academy bonds issued before October 4, 2008.

Income with respect to these qualified zone academy bonds can't be used to increase your stock basis.

Because this amount is already included in income elsewhere on Schedule K-1, you must reduce your stock basis by this amount.

See Part I, line 13, of the Worksheet for Figuring a Shareholder's Stock and Debt Basis.

Tax Credit Recapture

Certain tax credits passed through to shareholders are subject to recapture if certain conditions are not met. If the original tax credit was passed through to shareholders, then any recapture is also the responsibility of the shareholder. The S corporation should provide a statement with Box 17, Codes E-H which should provide the information required to calculate the recapture amount.

Since the credit recapture increases the tax liability of the shareholder, an adjustment to an increase in stock basis is necessary. However, the actual amount of the credit recapture is not included directly on the K-1, instead it must be calculated using other forms. BasisCalc does not support the stock basis adjustments for business tax credit recapture.

Oil & Gas Depletion

Depletion for oil & gas activities is limited to your proportionate share of the basis in the underlying property. Any cumulative depletion in excess of your share of the basis does not reduce your overall basis in your S corporation stock.

Your S corporation should provide you with a statement attached to Box 17, Code R that includes the information you need to calculate the correct depletion amount. See IRS Publication 535, Chapter 9 for details on how to calculate your depletion deduction. https://www.irs.gov/pub/irs-pdf/p535.pdf

Although BasisCalc cannot determine the basis adjustment based on your K-1, you can enter the oil & gas depletion in the field "Other items that decrease basis" and the depletion calculated will be included in your overall basis calculation.

Depletion other than Oil & Gas

Depletion for mineral, geothermal and standing timber is reported separately from Oil & Gas depletion. If your S corporation has an interest in property subject to depletion, each shareholder must calculate the cumulative depletion in excess if your proportional share of the based of the underlying property.

So long as the cumulative depletion is less than your pro rata basis of the property, there is no basis adjustment required. However, once the cumulative depletion exceeds the basis of the underlying property, the excess depletion increase stock basis.

Your S corporation should provide you a statement with the information required to correctly calculate your excess depletion. See IRS Publication 535, Chapter 9 for details on how to calculate your depletion deduction. https://www.irs.gov/pub/irs-pdf/p535.pdf

Although BasisCalc cannot determine the basis adjustment based on your K-1, you can enter the excess depletion adjustment in the field "Other items that increase basis" and the depletion calculated will be included in your overall basis calculation.

Cancellation of Debt for Insolvent Or Bankrupt Entities

Special rules apply to cancellation of debt (COD) income of bankrupt or insolvent taxpayers including S corporation. Under IRC §108 these taxpayers may exclude discharged debt income from gross income, which is known as "excluded COD income"

In exchange for the excluded COD income, taxpayers must reduce certain tax attributes. For S corporations, shareholders must first reduce suspended losses. Likewise any excluded COD income does not increase shareholder basis.

We do not make adjustments to suspended losses for excluded COD income. All COD income reported on the K-1 is included in the basis calculation.

If you the S corporation meets the bankrupt/insolvent requirements, you will have to manually adjust the suspended loss carryforward and reduce the COD income reported on the K-1 by the excluded amount.

Income in Respect of Decedent

When S corporation stock is inherited, there may a portion of the income reported to the inheritor which represent income that was entitled to the decedent at the time of death. This income would normally have been reported on the decedents final tax return, but due to accounting method or other timing issues was not reported on that final return. This is call Income in Respect of a Decedent or IRD.

When this happens, there should be some adjustments for the beneficiary to exclude the prorata share of income items that would have been IRD. This can be a very complex calculation depending on the fact and circumstances. We do not support the adjustments necessary for IRD.