How to Calculate Basis after Excess Distributions in a Prior Year

[Christin Boecker]

Shareholder Basis Help Needed! I have a new S-corp tax client and on her previous S-corp return she took excess distributions and this left her with negative $18K in retained earnings. However, because basis can't be negative it ended at $0. Her previous year's personal return showed the $18K in capital gains as well. My question is what should the basis be this year? Her retained earnings started at negative $18K and ended at positive $290. However the basis in my tax software shows starting at $0 and ending at positive $18,290. Shouldn't the ending basis be $290 ($18K lower) to match the ending retained earnings? I can't figure out where to put that reduction from the previous years excess distributions to get my 7203 Basis correct.

[Abby Normal]

Basis = Beginning Basis (0) + net income (18,290) - distributions (?) +/- other adjustments (if any) = 18,290.

Software is correct.