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the open account debt, enter the net

restore debt basis to the face of the

Part II. Shareholder Debt Basis

advance in its own column on line 2.

loan.

You must complete this section if you

have personally loaned money to the

Any debt that exceeded

If you have multiple debts, the

corporation.

$25,000 at the end of the prior

net increase is applied first to

year is treated as a formal

restore the reduction of basis

CAUTION

You must account for each formal

note for purposes of calculating the

in any debt repaid in the tax year to

note (notes with a written instrument)

gain on loan repayment. See

the extent necessary to offset any

made to your S corporation by

Regulations section 1.1367-2(a)(2)(ii).

gain that would otherwise be realized.

entering it separately in its own

Any remaining net increase is applied

column. You can’t aggregate multiple

Line 4. For a formal note, enter the

to each debt in proportion to its

loans into a single column. If you have

amount of principal repayment

reduced basis. See Regulations

more than 3 loans, use additional

specific to each loan.

section 1.1367-2(c)(2).

copies of Part II.

For open account debt, if the

Line 13. Enter the smaller of the

repayments exceed the advances for

Loans made to the S corporation

nondeductible expenses and oil and

the tax year, the net repayment should

that aren’t evidenced by a written

gas depletion deductions in excess of

be entered on line 4.

instrument are referred to as an open

stock basis (Part I, line 9 minus line 7)

account debt and aren’t separately

Line 6. Enter the debt basis of your

or Part II, line 12.

tracked. If an open account debt has a

loan(s) to the S corporation at the

Nondeductible expenses in excess

year-end balance of more than

beginning of the corporation’s tax

of stock and debt basis don’t carry

$25,000, it will be classified as a

year.

forward (unless an election under

formal note at the beginning of the

Line 7. Enter the amount from line 2

Regulations section 1.1367-1(g) is

next tax year and must be separately

on line 7.

made. As noted earlier, don’t use this

tracked.

worksheet if that election has been

Line 8. You have reduced debt basis

Loans that a shareholder

made).

if line 6 is less than line 1.

guarantees or co-signs aren’t

Line 15. Enter the amount from Part

Per section 1367(b)(2)(B), if debt

part of a shareholder’s loan

III, line 13(d) in the total column on

CAUTION

basis has been reduced, it can only

basis except to the extent the

line 15.

be restored with a net increase. The

shareholder makes a payment on the

net increase is the amount by which

loan guaranteed or co-signed.

If you have more than one

the items that increase stock basis per

loan to the corporation, any

section 1367(a)(1) (for example,

Line 1. Enter the balance of each

allocated reduction is prorated

CAUTION

income, tax exempt income, and

loan to the S corporation at the

to the loans based on the ratio that

excess depletion) exceed the items

beginning of the corporation’s tax year

each individual loan basis bears to the

that decrease stock basis per section

in a separate column.

aggregate bases of the loans. See

1367(a)(2) (for example, losses,

Regulations section 1.1367-2(b)(3).

Line 2. Enter any new loans made

deductions, nondeductibles,

during the tax year and evidenced by

nondividend distributions, etc.). See

Line 19. The character of the gain on

a formal note in a separate column. If

Regulations section 1.1367-2(c)(1).

repayment is dependent on whether

a formal note is refinanced, any

the debt is evidenced by a formal note

The net increase is figured as

increase should be entered on line 2

or is an open account.

follows:

under the same column as the original

Debt evidenced by a formal note

Part I, line 4

loan.

will result in capital gain, and should

Minus Part I, line 6

Advances and repayments made

be reported on Form 8949 and

during the S corporation’s tax year on

Minus Part I, line 9

Schedule D.

an open account are netted at the

Minus Part I, line 13 (as applicable)

Any open account debt will result in

close of the S corporation’s tax year to

Minus Part III, line 13(a)

ordinary gain, and should be reported

determine the amount of any net

on Form 4797.

advance or net repayment. See

Minus Part III, line 13(b)

Regulations section 1.1367-2(d)(2).

If the net increase figured exceeds

Gain recognized on loan

Enter any net advances on line 2

the total reduction in debt basis (line 1

repayment doesn’t increase

under the same column as the open

minus line 6), then the restoration is

basis.

CAUTION

account debt. If this is the first year of

limited to the amount needed to

-5-

Instructions for Schedule K-1 (Form 1120S) (2017)

Instructions For Schedule K-1 (Form 1120s) - Shareholder'S Share Of Income, Deductions, Credits, Etc. - 2017 Page 5

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