In this Part XI of my multi-part series on some of the not-so-obvious aspects of S corporations, I explore a topic that should be obvious but which appears to be ignored by many taxpayers and their tax advisers – accurate computation of shareholder basis for purposes of taking losses flowing through from the S corporation is important.
Background
In 2005, the Internal Revenue Service launched a study to assess the reporting compliance of S corporations. The study, carried out under the National Research Program (“NRP”), involved the examination of roughly 4,800 randomly selected S corporation returns from tax years 2003-2004. Based upon the portions of the study disclosed by the Service to the public, six major areas of noncompliance in the S corporation arena were detected: