1120-US: Calculating the gain recognized on a shareholder's loan repayment (FAQ)

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Question

How does UltraTax CS calculate the gain recognized on repayment of a shareholder loan?

Answer

UltraTax CS follows Revenue Rulings 64-162 and 68-537 when calculating the gain on partial repayment of a reduced-basis shareholder loan. The nontaxable return of loan basis is calculated by taking the basis before the loan was repaid as a percentage of the balance of the shareholder loan at the beginning of the year. The total loan repayment for the year is multiplied by this percentage to calculate the nontaxable return of the loan basis. The difference between the loan repayment for the year and the nontaxable return of the loan basis is the gain recognized on repayment.

In order to properly calculate the amount of gain on the repayment, you must enter an amount in the Beginning of year shareholder loan field in View > Shareholder Information > Other Info tab > Shareholder Basis dialog > Loan tab. This amount represents the outstanding shareholder loan before any current-year loan repayments and before any current-year loans to the corporation. The amount entered in this field, less any current-year loan repayments plus any current-year loans to the corporation, will proforma to the following year.

The gain on partial repayment of the shareholder loan is calculated on the Shareholder's Basis Worksheet, Page 1, and transfers to the Schedule K-1 statements, Box 17, Code V.

If you want to change the amount of gain that is shown in the K-1 statements, enter an amount in the Gain on repayment shareholder loan (Force) field in the Loan tab. If you do not want any gain to show in the K-1 statements, enter 0 (zero) in this field. The Shareholder’s Basis Worksheet does not reflect amounts entered in the Gain on repayment shareholder loan (Force) field.

Related topic: 1120-US: Shareholder basis calculations FAQs

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