Negative “tax basis capital” can exist if a partnership allocates tax deductions or losses or makes distributions to a partner in excess of the partner’s tax basis equity in the partnership.

Do you get basis for nonrecourse debt?

Nonrecourse liabilities can provide basis for distributions, but generally do not provide basis for purposes of the at-risk rules. Under an exception, a partner’s share of partnership debt that meets the definition of qualified nonrecourse financing does generate at-risk basis for that partner.

Do S corp shareholders get basis for debt?

A shareholder is only allowed debt basis to the extent he or she has personally lent money to the S corporation. A loan guarantee is not sufficient to allow the shareholder debt basis.

Does tax exempt income increase shareholder basis?

S corporation shareholders are generally entitled to increase the basis of their holdings by their share of S corporation income, including tax-exempt income.

What does it mean when a company has negative shareholder equity?

When shareholder equity turns negative, frequently this is a sign of trouble. Generally you see negative equity most often when there are accrued losses that sit on the balance sheet. If the stock has had several years of unprofitability it builds up in a balance sheet category called ‘Retained Earnings’.

How are losses passed through to the shareholder?

Losses or deductions passed through to the shareholder first reduce stock basis. After stock basis has been reduced to zero, remaining loss amounts are applied against debt basis (Sec. 1367 (b) (2) (A)).

What happens when stock basis is reduced to zero?

If a shareholder’s stock basis has been reduced to zero and the shareholder has debt basis, then losses and deductions are allowed to the extent of the debt basis. This basis is then called “reduced debt basis” and is restored by net increases over decreases in any given year.

Why do Intuit shareholders have a negative balance?

Their taxes before were simple, schedule C, now they are an S-corp. Their shareholder distributions keep going negative in quickbooks under their owners equity account. So all distributions are now negative. I understand Net Income will close out to Retained earnings next year.