Change in Ownership

Facts

Enter the following information for a sample client:

Shareholder 1 originally had 100 shares. He sold half (50) to shareholder 3 on 7/1/05. Enter the information for the change in ownership and view the results on the Change in Stock Ownership worksheet.

Program Considerations

• The program calculates the weighted-average stock ownership percentage for each affected shareholder to be used in allocating amounts on Schedule K-1. There are two methods you can use to enter information on ownership changes:

1. Enter the number of shares that each affected shareholder owns during each applicable period, and allow the program to calculate the stock ownership percentages for each period.

-OR-

2. Enter the stock ownership percentages for each period.

• Generally, you only need to enter information for shareholders that are affected by stock ownership changes for the tax year. If the total number of S-corporation shares outstanding changes at any time during the tax year (causing an underlying percentage change for all shareholders), you only need to enter change of ownership information for the shareholders that had a change in the number of shares owned individually.
In this case, the program uses the Number of shares owned at year end from Screen 6, Stock Ownership for shareholders that do not have an entry in Number of shares owned in Screen 7, Change in Stock Ownership. However, you must enter the applicable period dates in the General Information section of Screen 7, Change in Stock Ownership and the total shares outstanding per period to generate weighted-average calculations for all shareholders.

• In all cases, if the ownership change periods are identical for all shareholders, it is recommended that you enter one set of dates in the General Information section of Screen 7, Change in Stock Ownership to apply to all shareholders, and enter only Number of Shares Owned or Percentage in the Allocation Period Information section.
• The program prints a worksheet for each affected shareholder that details the calculation of the weighted-average stock ownership percentage for the tax year

How?

To enter change in ownership (weighted-average):

1. Open the sample client.
2. Open the Change in Stock Ownership screen from the Contents tab.
   

   If the allocation periods are the same for all shareholders, open the General Information section in the Shareholder list.

   

3. Enter the dates for the applicable periods.
   

   Note: The beginning date of the first period is the first day of the tax year and the ending date of the last period is always the last day of the tax year.

   -OR-

   If the allocation periods are different for any shareholders, enter the dates along with the number of shares owned for each shareholder in the Allocation Period Information section (click the Shareholder name in the Shareholder section list).

   

4. Enter the number of shares owned for the applicable periods for each shareholder affected by the change (use -1 for zero).

Tips & Shortcuts

The formula for calculating the weighted-average is:

Review

You should have entered change in ownership information to achieve a weighted-average income distribution for the sample return and produced the following results on the Change in Stock Ownership worksheet:

Troubleshooting

Problem: I'm getting a diagnostic that percentages do not equal 100.000000.

Solution: Verify that the number of shares entered in screen 7 are entered for each period and shareholder 3 has -1 for the first period.

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