S Corporation Facts

March 15, 2022 is not only the filing deadline for S Corporation’s 2021 calendar year Form 1120S, it is also the deadline for filing Form 2553 with the IRS to get a new entity S Corporation status for calendar year 2022.

While the IRS is cracking down on S corporations with little or no shareholder salaries, they have an additional area of concern with S Corporations.

The IRS has made checking S corporation shareholder basis an enforcement priority. Shareholders can only deduct losses up to their stock basis and any loans the shareholder makes directly to the entity. Guaranteeing a bank loan does not count towards basis! The IRS knows that compliance in this area is weak and plans to increase their audits on S corporation basis. The exams will be on individual shareholders who report a loss or receive a distribution or loan payback. This means almost every S Corporation.

Shareholders must check the box on line 28 of their personal Schedule E and file new Form 7203 with their Form 1040. More compliance and more audits. Substandard filings will be at a high risk of audit, additional taxes, penalties, and interest.

Cross your t’s and dot your i’s and make sure you hire an experienced Qualified Intermediary and Tax Professional.