We have received many great questions on the Bukers Hotline recently, including a question about a Shareholder’s Basis Worksheet that a lender received with her borrower’s S-corporation K-1.

If you have a borrower who is a shareholder in an S-corporation, you are now more likely to find a shareholder’s basis calculation included with either your borrower’s Form 1040 or K-1 from the S-corporation. The reason for this is that the IRS recently passed legislation expanding the requirement for tax preparers to include a calculation of an S-corporation shareholder’s basis with the tax return filings. You’ll find various formats of the shareholder’s basis calculation since the IRS has not published a standardized form or worksheet. But, why do we care?

The shareholder’s basis worksheets can tell us some very important information about our borrower’s cash flow related to their S-corporation ownership. Specifically, the calculation will most likely report whether your borrower made any contributions to the S-corporation during the year, which is not included on the S-corporation K-1. You may also find a breakout of whether the distributions your borrower received were of cash or property, which is very important when determining your borrower’s free cash flow. The calculation will likely provide additional details related to any other increases or decreases to your borrower’s basis in the S-corporation, which can help paint a better picture of your borrower’s ownership of the S-corporation.

While you may not always find a shareholder’s basis worksheet included with your borrower’s tax returns or K-1s, the information included can be valuable for your cash flow analysis. Utilizing this supplemental information can help you gain a better understanding of the transactions occurring between your individual borrower and the S-corporation to allow you to more accurately understand the individual’s cash flow.

If you receive a shareholder’s basis worksheet and have any questions or would like assistance in analyzing certain line items, feel free to reach out to our Bukers Hotline at 503-520-1303.