S corp basis

[imjulier]

I'm taking over an s-corp for an accountant that has retired and I don't know the accountant. The s-corp of course started having financial problems in the economic downturn and has had a couple years of significant losses (>100K). The owner has taken loans from many firends and employees and has taken money out of his retirement accounts to put in the business. His personal return is showing basis limitations even though the s-corp owes him about $87K so the losses are not passed through to his personal return. He'd obviously run out of basis anyway.

Any loans that were paid back the accountant claimed as capital gains on his schedule D. Is there any reason the loans or money put in are not basis to pass thorugh losses against? I'm a bit baffled by this one. Any ideas?

Thanks,

Julie

[OldJack]

Properly documented loans direct from a shareholder increases shareholder's tax basis only for purposes of deducting an operating loss.