Please be nice.  Just looking for some guidance.

Client owned 150 shares in an S-Corp. (He was a 3% shareholder) 

The S-Corp purchased his shares in 2021 for $65,000

Basis $186,000 ($35,000 buy in, balance undistributed income)

Received "deferred compensation" of $120,000 in 2021 on Form W2 for his share of uncollected receivables.

This can't be as simple as $120,000 in ordinary income and a $121,000 capital loss limited to $3,000. Tax disaster. 

He did not use an attorney or ask me about the arrangement.