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Shareholder's Instructions For Schedule K-1 (Form 1120S)
Shareholder's Instructions For Schedule K-1 (Form 1120S)
Shareholder's Instructions
for Schedule K-1
(Form 1120S)
Shareholder's Share of Income, Credits, Deductions,
etc. (For Shareholder's Use Only)
Section references are to the Internal Revenue Code unless otherwise noted.
Dividends and Distributions. You report name of the S corporation to which the
General Instructions actual dividend distributions on Form rule applies. Once made, the election
1040, line 9. applies to the year for which it is made
A Change To Note and all future tax years for that S
You may be able to exclude up to 50% (or Basis of Your Stock corporation, unless the IRS agrees to
revoke your election.
postpone) your pro rata share of a gain You are responsible for maintaining
from the sale of qualified small business The basis of each share of stock is
records to show the computation of the increased or decreased (but not below
stock (reported on line 6 of Schedule K-1). basis of your stock in the corporation.
For details, see the instructions for line 6. zero) based on its pro rata share of the
Schedule K-1 provides information to help above adjustments. If the total decreases
you make the computation at the end of in basis attributable to a share exceed
Purpose of Schedule K-1 each corporate tax year. The basis of your that share's basis, the excess reduces
stock (generally, its cost) is adjusted as (but not below zero) the remaining bases
The corporation uses Schedule K-1 (Form follows and, except as noted, in the order
1120S) to report your pro rata share of the of all other shares of stock in proportion
listed. In addition, basis may be adjusted to the remaining basis of each of those
corporation's income (reduced by any tax under other provisions of the Internal
the corporation paid on the income), shares.
Revenue Code.
credits, deductions, etc. Please keep it
1. Basis is increased by (a) all income
for your records. Do not file it with
(including tax-exempt income) reported Inconsistent Treatment of
your tax return. The corporation has filed Items
a copy with the IRS. on Schedule K-1 and (b) the excess of the
deduction for depletion (other than oil and Generally, you must report subchapter S
Although the corporation may have to gas depletion) over the basis of the
pay a capital gains tax (or built-in gains items shown on your Schedule K-1 (and
property subject to depletion. any attached schedules) the same way
tax) and an excess net passive income
tax, you, the shareholder, are liable for Note: You must report the taxable that the corporation treated the items on
income tax on your share of the income on your return (if you are required its return.
corporation's income, whether or not to file a return) for it to increase your If the treatment on your original or
distributed, and you must include your basis. amended return is inconsistent with the
share on your tax return if a return is 2. Basis is decreased by property corporation's treatment, or if the
required. Your distributive share of S distributions (including cash) made by the corporation has not filed a return, you
corporation income is not corporation (excluding dividend must file Form 8082, Notice of
self-employment income and it is not distributions reported on Form 1099-DIV Inconsistent Treatment or Administrative
subject to self-employment tax. and distributions in excess of basis) Adjustment Request (AAR), with your
You should use these instructions to reported on Schedule K-1, line 20. original or amended return to identify and
help you report the items shown on 3. Basis is decreased by (a) explain any inconsistency (or to note that
Schedule K-1 on your tax return. nondeductible expenses and (b) the a corporate return has not been filed).
Where “(attach schedule)” appears next depletion deduction for any oil and gas If you are required to file Form 8082,
to a line on Schedule K-1, it means the property held by the corporation, but only but fail to do so, you may be subject to the
information for these lines (if applicable) to the extent your pro rata share of the accuracy-related penalty. This penalty is
will be shown in the “Supplemental property's adjusted basis exceeds that in addition to any tax that results from
Information” space below line 23 of deduction. making your amount or treatment of the
Schedule K-1. If additional space was 4. Basis is decreased by all deductible item consistent with that shown on the
needed, the corporation will have losses and deductions reported on corporation's return. Any deficiency that
attached a statement to Schedule K-1 to Schedule K-1. results from making the amounts
show the information for the line item. You may elect to decrease your basis consistent may be assessed immediately.
The notation “(see instructions for under 4 above prior to decreasing your
Schedule K-1)” in items A and C at the top basis under 3 above. If you make this Errors
of Schedule K-1 is directed to the election, any amount described under 3
that exceeds the basis of your stock and If you believe the corporation has made
corporation. You, as a shareholder, an error on your Schedule K-1, notify the
should disregard these notations. debt owed to you by the corporation is
treated as an amount described under 3 corporation and ask for a corrected
Schedule K-1 does not show the Schedule K-1. Do not change any items
amount of actual dividend distributions for the following tax year. To make the
election, attach a statement to your timely on your copy. Be sure that the corporation
the corporation made to you. The sends a copy of the corrected Schedule
corporation must report to you such filed original or amended return that states
you agree to the carryover rule of K-1 to the IRS. If you are unable to reach
amounts totaling $10 or more for the agreement with the corporation regarding
calendar year on Form 1099-DIV, Regulations section 1.1367-1(f) and the