S Corp & Partnership Basis

As a tax professional, it’s imperative to know basis rules and calculations for our clients that are shareholders and or partners in Pass-through entities. Furthermore, we must...

February 21, 2026

Originally published

2 min

Estimated reading time

Course

Content type

Entity classification and basis questions

Direct answers to common questions, with links to the relevant program details or primary guidance.

Is an S corporation a partnership, or can it be a partner in one?

An S corporation and a partnership are different federal tax classifications. An S corporation can own an interest in a partnership; that does not turn the S corporation into a partnership. The partnership reports its items to the S corporation, which must account for those items under the S corporation rules. An LLC’s legal name alone does not determine its federal tax classification.

IRS Publication 541 — partnerships

What is inside basis in a partnership?

Inside basis is the partnership’s tax basis in the assets it owns. Outside basis is a partner’s tax basis in the partnership interest. The amounts can differ, and a transfer of a partnership interest does not automatically reset every partnership asset’s basis. Apply the relevant contribution, purchase and basis-adjustment rules to the actual transaction.

IRS Publication 541 — partnerships

Course Description

This 1-credit course explains how to compute and track S corporation shareholder basis (Form 7203) and partnership partner basis so you can determine when losses, distributions, and deductions are allowed on the return.

You will apply the basis ordering rules, including how income, nondeductible items, distributions, and loans change basis over the year. The course also connects basis to the next layers of limitation rules (at-risk and passive activity) so you can explain to clients why a loss is allowed, suspended, or disallowed.

Expect practical examples on documenting stock basis vs. debt basis for S corporations and outside basis calculations for partnerships, including how liability allocations affect deductible losses and taxable distributions.

Topics Covered: S corporation stock vs. debt basis; Form 7203 ordering rules; income, losses, and nondeductible items; distributions and excess distribution gain; partnership outside basis; liability allocations under §752; basis vs. at-risk (§465) vs. passive (§469) limitations.

Learning Objectives

Identify the components of S corporation stock basis and debt basis and explain what does (and does not) create basis.
Apply Form 7203 ordering rules to determine when S corporation losses and deductions are currently allowed vs. suspended.
Analyze how S corporation distributions are treated and when excess distributions trigger capital gain.
Compute partnership outside basis, including the effect of contributions, income/loss, distributions, and changes in a partner’s share of liabilities under IRC §752.
Explain how basis interacts with IRC §§704(d), 465 (at-risk), and 469 (passive activity) limitations in common fact patterns.

About The Presenter:

Allan J. “A.J.” Reynolds, EA A.J. is an enrolled agent (EA). He has immense experience in various areas in taxation, which encompasses over 30 years. His practice centers on Individual, Business, and Estate Tax preparation. In addition, A.J. specializes in IRS Audits, Appeals, Collections, Innocent Spouse, Independent Contractor vs. Employee Issues and Civil Tax Fraud Representations. A.J.’s clientele ranges from the average worker to fortune 500 executives. He brings his everyday “in the trenches” experience to the seminars to assist attendees with real issues facing tax professionals. A.J. has spoken for Basics + Beyond Income Tax Seminars, NTI Resort Conferences, NATP National Conference and Webinars, NAEA, and Center for Agriculture Law and Taxation of Iowa State University. A.J. started his tax career with a National CPA firm in San Diego, CA after proudly serving five years in the United States Navy. Outside his tax practice, A.J. is a member of the Diocese of Sioux City Priests’ Pension & Welfare Board and the Investment Advisory Board for the Diocese. When not working, A.J.’s time is spent in various activities with his wife and their two children.