IRS Issues New Form 7203 for Farmers and Fishermen

Due to certain software issues, the IRS has announced that it intends to grant a filing extension to qualifying farmers and fishermen who are required to file Form 7203 by April 18, 2022 (April 19 in Maine and Massachusetts). This new form must be attached by S corporation shareholders to their 2021 tax returns.

Form 7203 reflects renewed IRS efforts to accurately depict the basis of basis of stock owned by S corporation shareholders.

[2021 IRS Form 7203: PDF Version (printable and fileable): https://cpapracticeadvisor.com/21261986]

When you are an S Corporation shareholder, items of income and expenses of the corporation are passed through to you and reported on your personal tax return. If you show a loss from the S corporation for the year, you may use it to offset other taxable income. However, the tax law generally limits losses to the amount of your basis in the stock you own, plus any outstanding loans made directly from you to the corporation.

The IRS suspects that taxpayers have been shirking their responsibilities. Previously, it provided a worksheet for computing the basis of S corporation stock. This worksheet was supposed to be submitted along with the taxpayer’s personal return. But the worksheets were often omitted or the voluminous information needed to arrive at the basis of the stock was incomplete.

Viola! The IRS created new Form 7203 in advance of this year’s tax-filing season. It is designed to help gather all the necessary data relating to the basis of S corporation stock. This is expected to help the IRS ferret out inaccuracies and omissions.

The requirement for filing Form 8203 applies to S Corporation shareholders who do any of the following:

Claim deduction for a loss;

Sell or otherwise dispose of their stock;

Receive a distribution; or

Receive a loan repayment from the S corp during the year.

Of course, taxpayers are ultimately responsible for computing and disclosing the basis of their S corporation stock. They will likely need assistance complying with the complicated new Form 7203 requirements. This could represent opportunities for your CPA firm. Make sure that your S corporation clients are fully informed.